================================================================================
SECURITIES & EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(MARK ONE)
[ x ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-13406
The CHALONE Wine Group, Ltd.
(Exact name of Registrant as specified in its charter)
California 94-1696731
(State or other jurisdiction of
incorporation or organization) (I.R.S. Employer Identification No.)
621 Airpark Road
Napa, California 94558
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 707-254-4200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes No X
------ ------
The number of shares outstanding of Registrant's Common Stock on October 31,
1995 was 7,596,018.
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<PAGE>
The CHALONE Wine Group, Ltd.
PART I. - FINANCIAL INFORMATION
Item 1. Financial Statements
Incorporated herein is the following unaudited financial information:
Consolidated Balance Sheets as of September 30, 1995, and December 31,
1994.
Consolidated Statements of Operations for the three-month and
nine-month periods ended September 30, 1995 and 1994.
Consolidated Statements of Changes in Financial Position for the
three-month and nine-month periods ended September 30, 1995 and 1994.
Notes to Consolidated Financial Statements.
<PAGE>
The CHALONE Wine Group, Ltd.
CONSOLIDATED BALANCE SHEETS
(in thousands)
ASSETS
September 30, December 31,
1995 1994
------------- ------------
Current Assets ....................................... (unaudited)
Cash .............................................. $ 3 $ 70
Accounts receivable, less allowance for doubtful
accounts of $30 and $17 ........................ 5,129 4,509
Inventories ....................................... 26,553 29,422
Prepaid expenses and other assets ................. 358 209
Deferred income tax benefit ....................... 312 312
-------- --------
Total current assets ........................ 32,355 34,522
Investment in Domaines Barons de Rothschild(Lafite) 12,524 12,524
Property, plant and equipment - net ............... 21,195 20,444
Intangible assets arising from acquisitions, less
amortization of $906 and $829 ................... 3,174 3,251
Other assets ...................................... 1,485 1,484
-------- --------
Total assets ................................ $ 70,733 $ 72,225
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities
Notes payable ..................................... $ 13,192 $ 13,874
Current maturities on long-term obligations ....... 586 799
Accounts payable and accrued expenses ............. 2,451 2,713
-------- --------
Total current liabilities ................... 16,229 17,386
Long-term obligations, less current maturities ....... 5,426 5,541
Convertible subordinated debentures .................. 20,884 20,884
Deferred income taxes ................................ 1,022 1,172
Minority interests ................................... 3,151 3,043
Shareholders' equity
Common stock ...................................... 24,515 24,472
Retained earnings (deficit) ....................... (494) (273)
-------- --------
Total shareholders' equity .................. 24,021 24,199
-------- --------
Total liabilities and shareholders' equity .. $ 70,733 $ 72,225
======== ========
The accompanying notes are an integral part
of the consolidated financial statements
3
<PAGE>
The CHALONE Wine Group, Ltd.
CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)(in thousands, except per-share data)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -------------------
1995 1994 1995 1994
------- ------- -------- --------
Wine sales............................ $ 5,380 $ 4,998 $ 17,214 $ 14,577
Cost of wines sold.................... 3,445 3,113 11,537 9,359
------- -------- ------- --------
Gross profit..................... 1,935 1,885 5,677 5,218
Operating expenses.................... 1,238 1,235 3,725 3,443
------- ------- -------- --------
Operating income................. 697 650 1,952 1,775
Other income (expense)
Interest expense................. (743) (691) (2,245) (2,052)
Other, net .................... 15 133 106 195
Minority interests.................... (11) (43) (183) (134)
------- ------- -------- --------
Income (loss) before income taxes.. (42) 49 (370) (216)
Income tax benefit (expense).......... 13 (34) 149 72
------- ------- -------- --------
Net income (loss)................ $ (29) $ 15 $ (221) $ (144)
======= ======= ======== ========
Net income (loss) per common share.... $ (.01) $ .00 $ (.04) $ (.03)
Average number of shares used in
income (loss) per share
computation........................ 4,983 4,961 4,968 4,784
The accompanying notes are an integral part
of the consolidated financial statements
4
<PAGE>
The CHALONE Wine Group, Ltd.
CONSOLIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION
(unaudited)(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
---------------- ------------------
1995 1994 1995 1994
------- ------- ------- -------
Cash flows from operating activities:
Net earnings.......................... $ (29) $ 15 $ (221) $ (144)
Non-cash transactions:
Depreciation........................ 293 316 922 952
Amortization........................ 37 37 113 110
Increase in minority interest....... 10 40 183 130
Loss (gain) on sale of equipment.... (8) (3) (29) 37
Changes in:
Deferred income taxes............. (14) 15 (149) (103)
Accounts receivable............... 581 (310) (619) (289)
Inventories....................... 477 (204) 2,869 1,127
Prepaid expenses and other assets (120) 24 (187) (49)
Accounts payable and accrued
expense........................ 93 312 (262) (937)
------- ------- ------- -------
Net cash provided (required by)
operating activities............ 1,320 242 2,620 834
------- ------- ------- -------
Cash flows from investing activities:
Capital expenditures.................. (1,242) (992) (1,769) (1,256)
Proceeds from disposal of
equipment......................... 47 101 125 121
------- ------- ------- -------
Net cash used in investing
activities ..................... (1,195) (891) (1,644) (1,135)
------- ------- ------- -------
Cash flows from financing activities:
Net repayments under line of credit
agreement........................... (143) 774 (682) (813)
Repayment of long-term debt........... (86) (166) (328) (539)
Distribution to minority interest..... -- -- (76) (156)
Proceeds from issuance of common stock 6 (19) 43 1,484
------- ------- ------- -------
Net cash provided from financing
activities........................ (223) 589 (1,043) (24)
------- ------- ------- -------
Net increase (decrease) in cash.......... (98) (60) (67) (325)
Cash at beginning of period........... 101 156 70 421
------- ------- ------- -------
Cash at end of period............... $ 3 $ 96 $ 3 $ 96
======= ======= ======= =======
The accompanying notes are an integral part
of the consolidated financial statements
5
<PAGE>
The CHALONE Wine Group, Ltd.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - Consolidated Financial Statements
The consolidated balance sheet as of September 30, 1995, the
consolidated statement of operations for the three-month and nine-month periods
ended September 30, 1995 and 1994, and the consolidated statement of changes in
financial position for the three-month and nine-month periods then ended have
been prepared by the Company, without audit. In the opinion of management, all
adjustments (which include only normal recurring adjustments) necessary to
present fairly position, results of operations and changes in financial position
at September 30, 1995, and for all periods presented have been made.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. It is suggested that these
consolidated financial statements be read in conjunction with the financial
statements and notes included in the Company's December 31, 1994, audited
financial statements.
NOTE 2 - Seasonal Factors
The results for the interim periods are not necessarily indicative of
the results to be expected for the year, due to seasonal factors.
6
<PAGE>
The CHALONE Wine Group, Ltd.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations
<TABLE>
RESULTS OF OPERATIONS
The following table sets forth the percentage relationship to revenue
of certain items in the Company's statements of operations for the three-month
and nine-month periods ended September 30, 1995 and 1994, and the percentage
change in such items between the comparable periods in those years.
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- ----------------------------
Percentage Percent Percentage Percent
of Wine Sales Change of Wine Sales Change
---------------- -------- ----------------- --------
1994 vs. 1994 vs.
1995 1994 1995 1995 1994 1995
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Wine sales ................... 100.0% 100.0% 7.7% 100.0% 100.0% 18.1%
Cost of wines sold ........... 64.0 62.3 10.8 67.0 64.2 23.3
----- ----- ----- -----
Gross profit .............. 36.0 37.7 2.4 33.0 35.8 8.7
Operating expenses ........... 23.0 24.7 0.5 21.7 23.6 8.3
----- ----- ----- -----
Operating income .......... 13.0 13.0 6.0 11.3 12.2 9.5
Other income (expense)
Interest expense .......... (13.8) (13.8) 7.1 (13.0) (14.1) (9.4)
Other, net ................ 0.2 2.7 (88.9) 0.6 1.3 45.6
Minority interests ........... (0.2) (0.9) (73.5) (1.1) (0.9) 36.9
----- ----- ----- -----
Income (loss) before income
taxes .................... (0.8) 1.0 n/a (2.2) (1.5) 76.6
Income tax (benefit) expense 0.2 (0.7) n/a 0.9 0.5 116.1
----- ----- ----- -----
Net income (loss) ....... (0.6)% 0.3% n/a (1.3%) (1.0%) 57.3
===== ===== ===== =====
</TABLE>
Wine Sales
Sales were $5,380,000 for the third quarter ended September 30, 1995,
and $17,214,000 for the nine months then ended. Sales for the three-month and
nine-month periods increased by 8% and 18%, respectively, over the comparable
periods in 1994, due primarily to higher sales levels in the out-of-California
markets and in custom branded wines at Edna Valley Vineyard and Carmenet. The
increase in sales for the three-month period appears lower than the nine-month
period, due to the effects of sales promotion in September, 1994, that was not
repeated in 1995, due to the sufficiently strong demand for the Company's wines
in 1995.
Gross Profit
Gross profit for the three-month and nine-month periods ended September
30, 1995, increased approximately 2% and 9%, respectively, over the comparable
periods in 1994. These increases were due primarily to the higher sales levels
mentioned above. Gross profit as a percentage of sales declined to approximately
36% and 33% for the three-month and nine-month periods in 1995 from 38% and 36%
in the comparable periods in 1994. The decreases were primarily attributable to
the increased sale of custom branded wines at lower gross profits. Additionally,
the mix of sales on the Company's branded wines has shifted to lower priced, and
lower margin wines, especially at Carmenet and Chalone Vineyard. Management
believes this trend will reverse itself during the fourth quarter of 1995.
7
<PAGE>
The CHALONE Wine Group, Ltd.
Item 2. Management's Discussion and Analysis
of Financial Condition and Results of Operations (Continued)
Operating Expenses
Operating expenses include selling, general and administrative
expenses. Operating expenses for the three-month and nine-month periods
increased by 1% and 8%, respectively, from the comparable periods in 1994.
Operating expenses as a percentage of sales for the three-month and nine-month
periods were 23% and 22%, respectively, compared to 25% and 24% in the
comparable periods in 1994. These decreases are the result of operating expenses
increasing at a lesser rate than sales increases experienced during those
periods.
Interest Expense
Interest expense increased 7% and 9% for the three-month and nine-month
periods in 1995, over the comparable periods in 1994. The significant portion of
the Company's borrowings are tied to the "prime" rate charged by the Company's
bank, and that rate has increased by approximately 15% over 1994, resulting in
increased interest expense. That increase has been partially offset by lower
working capital borrowings primarily due to lower inventory levels.
Other Income
Other income decreased by 89% and 46% for the three-month and
nine-month periods in 1995, over the comparable periods in 1994. These decreases
are due primarily to the recognition of a one-time capital gain on the sale of a
49% interest in the "Canoe Ridge Vineyard" brand name and goodwill associated
with that name to a group of investors in September, 1994.
<TABLE>
Minority Interest
The Company currently has three ventures in which there is a minority
interest. The "minority interest" in earnings (losses) of these ventures for the
periods ended September 30, 1995, consisted of the following:
<CAPTION>
Minority Interest in Earnings
(Loss)
-----------------------------
3 Months 9 Months
Ended Ended
Minority September September
Venture Minority Owner % 30, 1995 30, 1995
- ------- -------------- -------- --------- ---------
<S> <C> <C> <C> <C>
Edna Valley Vineyard (EVV) Paragon Vineyard Co., Inc. 50% $ 48,230 $ 182,815
CanoeCo Partners CRVI 50% (11,854) (26,720)
Canoe Ridge Winery (CRW) Various 49% (24,891) 27,363
--------------------------
$ 11,485 $ 183,458
==========================
</TABLE>
The "minority interest" amount for EVV represents an increase of 37%
from the comparable nine-month period in 1994 due primarily to higher sales of
custom branded wines produced at EVV. The "minority interest" amount for CRW
represents the results for its first full year of operation. Allocations to
"minority interest" increase as income from EVV and CRW increases. The Company
believes that EVV and CRW will continue to contribute significantly to its
income, and hence that "minority interest" will continue, proportionately. An
additional small factor in the "minority interest" calculation consists of the
operations of the CanoeCo "Canoe Ridge" vineyard joint venture, which to date
has produced small losses resulting primarily from interest expense on the
growing crop due to be harvested later in the year.
8
<PAGE>
The CHALONE Wine Group, Ltd.
SEASONALITY
The Company's wine sales from quarter to quarter are highly variable
because the exact dates when wines are released for sale vary from year to year.
Sales are typically highest during the fourth quarter, because of heavy holiday
sales and because most wines are released around the end of the third and
beginning of the fourth quarters.
FINANCIAL CONDITION
The Company's working capital decreased by $1,010,000 during the
nine-month period ending September 30, 1995, to $16,126,000, due to normal
capital expenditures, planned repayments of long-term debt and the net loss
incurred.
On October 25, 1995, the Company received $5,000,000 from the sale of
stock (see SIGNIFICANT EVENT, below.) Those proceeds were used to reduce
short-term borrowings under the Company's lines of credit. At November 10, 1995,
the Company had lines of credit totaling $15,700,000 of which $8,440,000 had
been drawn.
The Company is not aware of any potential impairments to its liquidity
and believes that its capital resources are adequate to meet the current and
historic levels of capital expenditures and liquidity needs of the Company.
SIGNIFICANT EVENT
Following a favorable vote from the Company's shareholders on October
25, 1995, the Company concluded a sale of stock to two of its largest
shareholders, Domaines Barons de Rothschild (Lafite) ("DBR") and Summus
Financial, Inc., of $5 million at $6.00 per share, provided equally by DBR and
Summus. DBR and Summus will also receive an equivalent number of warrants to
purchase additional shares at $8.00 per share. In addition, DBR converted its
$12.4 million holding of debentures, at $7.00 per share, into 1.77 million
shares of Chalone common stock.
Additionally, effective October 1, 1995, Chalone exchanged
substantially all of its existing ownership in DBR for a 23.5% partnership
interest in Chateau Duhart-Milon, a classified fourth growth Bordeaux estate in
Pauillac. DBR continues as the managing partner of Chateau Duhart-Milon.
9
<PAGE>
The CHALONE Wine Group, Ltd.
PART II. - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
A Special Meeting of Shareholders was duly called and held at the
Company's Napa, California, executive offices on October 25, 1995, to consider
approval of a series of transactions between the Company and its two largest
shareholders, Domaines Barons de Rothschild (Lafite) and Summus Financial, Inc.,
all pursuant to a certain Omnibus Agreement among the three said parties dated
August 22, 1995. With the shares held by those two shareholders withheld from
voting, the matter passed with the affirmative vote of 2,038,116 shares, as
against 86,977 shares cast in opposition.
A copy of the Omnibus Agreement, with its schedules and exhibits, is
appended to this Report as Exhibit Two hereto.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
[1.] Financial Statements of Societe Civile de Duhart-Milon-Rothschild.
[2.] Omnibus Agreement with Domaines Barons de Rothschild (Lafite) and
Summus Financial, Inc., dated August 22, 1995.
[27] Financial Data Schedule
(b) Reports.
An initial report on Form 8-K, dated May 9, 1995, was filed to report
the parties' agreement in principle to the transactions ultimately
embodied in the Omnibus Agreement discussed under Part II, Item 4, of
this Report. Subsequent Forms 8-K/A, Amendments 1-3, were thereafter
filed on August 1, August 2, and September 20, 1995, respectively, to
report and update financial statements thereto.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant, has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
The CHALONE Wine Group, Ltd.
Dated: November 14, 1995 BY /s/ William L. Hamilton
---------------------------
William L. Hamilton
Executive Vice President
and Chief Financial Officer
10
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
BALANCE SHEETS
(All amounts in thousands of French Francs)
December 31
---------------------
1994 1993
--------- ---------
ASSETS
Cash FF 106 FF 23
Accounts receivable less allowance
for doubtful accounts of FF 0 - 1994 and FF 85 - 1993 902 599
Inventories:
Bulk and bottled 16,378 15,043
Wine production supplies 2,410 1,886
Other current assets 342 258
---------- ---------
Total current assets 20,138 17,809
Property, plant and equipment - net 13,004 13,660
--------- ---------
TOTAL ASSETS FF 33,142 FF 31,469
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Bank borrowings FF 87 FF 257
Accounts payable 1,602 1,071
Customer deposits 1,570 94
Social charges and taxes, other than income 1,542 1,146
Other current liabilities 217 824
Intercompany accounts:
Interest bearing 14,199 15,100
Non-interest bearing 1,061 424
--------- ---------
Total current liabilities 20,278 18,916
Stated value of common equity parts 10 10
Retained earnings 12,854 12,543
--------- ---------
Total shareholder's equity 12,864 12,553
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY FF 33,142 FF 31,469
========= =========
The accompanying notes are an integral part of these statements.
EXHIBIT 1
<PAGE>
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
STATEMENTS OF INCOME AND RETAINED EARNINGS
(All amounts in thousands of French Francs)
Year ended December 31
------------------------------------
1994 1993 1992
---------- ---------- ----------
Wine sales to unrelated parties FF 7,332 FF 2,652 FF 13,473
Intercompany wine sales 7,406 9,379 5,381
---------- ---------- ----------
Total Sales 14,738 12,031 18,854
Cost of sales (10,003) (9,144) (9,874)
---------- ---------- ----------
Gross Profit 4,735 2,887 8,980
Selling, general and administrative
expenses (1,267) (888) (1,411)
---------- ---------- ----------
Operating income 3,468 1,999 7,569
Interest expense:
Bank loans (5) (41) (77)
Intercompany (988) (824) (174)
Other income 592 375 442
---------- ---------- ----------
Net earnings 3,067 1,509 7,760
Retained earnings, beginning of year 12,543 16,899 12,229
Less: Dividends (2,756) (5,865) (3,090)
---------- ---------- ----------
Retained earnings, end of year FF 12,854 FF 12,543 FF 16,899
========== ========== ==========
The accompanying notes are an integral part of these statements.
2
<PAGE>
<TABLE>
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
STATEMENTS OF CASH FLOWS
(All amounts in thousands of French Francs)
<CAPTION>
Year ended December 31
----------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Source (use) of cash
Cash flows from operating activities:
Net earnings FF 3,067 FF 1,509 FF 7,760
Non cash transactions included in earnings:
Depreciation 2,215 1,970 1,915
Other (292) 82 (12)
Change in:
Accounts receivable (218) (284) 151
Inventories (1,859) (1,933) (2,618)
Other current assets (84) 67 (114)
Accounts payable 531 27 104
Customer deposits 1,476 (145) (3,799)
Social charges and taxes, other than income 396 (209) 80
Other current liabilities (607) 370 207
--------- --------- ---------
Net cash provided by operating activities 4,625 1,454 3,674
--------- --------- ---------
Cash flows from investing activities:
Capital expenditures (1,831) (1,712) (1,832)
Proceeds from sale of assets 479 519 423
--------- --------- ---------
Net cash used in investing activities (1,352) (1,193) (1,409)
--------- --------- ---------
Cash flows from financing activities:
Bank borrowings (repayments) (170) (401) (389)
Change in intercompany accounts (264) 5,974 1,059
Dividends paid to shareholder (2,756) (5,865) (3,090)
--------- --------- ---------
Net cash (used in) financing activities (3,190) (292) (2,420)
--------- --------- ---------
Net increase (decrease) in cash 83 (31) (155)
Cash at beginning of year 23 54 209
--------- --------- ---------
Cash at end of year FF 106 FF 23 FF 54
========= ========= =========
Other cash flow information:
Interest paid FF 1,016 FF 675 FF 282
========= ========= =========
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
3
<PAGE>
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
NOTES TO FINANCIAL STATEMENTS
Years ended December 31, 1994, 1993 and 1992
(All amounts in thousands of French Francs)
Note A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. Societe Civile de Duhart-Milon-Rothschild (The Company)
is organised under the laws of the Republic of France and was a subsidiary of
Domaines Barons de Rothschild S.A. (DBR), a company incorporated under the laws
of the Republic of France, during the periods included in the accompanying
financial statements. These financial statements are prepared using United
States generally accepted accounting principles. Interest charges are provided
on intercompany accounts with DBR.
Inventories. Inventories are stated at the lower of cost or market. Cost for
bulk and bottled wines is determined on an accumulated weighted average basis
and includes farming and harvesting costs, winery, and bottling costs. Farming
and related costs are deferred as growing crops and are recognized when the
related crop is harvested. Wine production supplies are stated at FIFO
(first-in, first-out) cost. All bulk and bottled wine inventories are classified
as current assets in accordance with recognized industry practice, although a
portion of such inventories will be aged for periods longer than one year.
Property, Plant and Equipment. Property, plant and equipment are stated at cost.
Depreciation is calculated over the estimated useful life of the asset.
Buildings are depreciated over 20 to 40 years, building improvements over 10
years, and producing vines over 25 to 33 years, primarily using the
straight-line method. Barrels and other equipment are depreciated over 2 to 10
years, primarily using accelerated methods.
Revenue Recognition. Revenues are recognised either when the customer accepts
delivery of the wines or when the customer fully pays for the wines, whichever
occurs first. In accordance with industry practices, customers often will leave
their merchandise on the winery premises, perhaps for many years, prior to
accepting delivery. In such circumstances it is the Company's practice not to
charge storage fees to its customers. Partial payments by customers for wine
purchases prior to bottling and shipment are recorded as deposits and are shown
as current liabilities.
Income Taxes. The Company, as a Societe Civile under French law, has the status
of a pass-through entity whose profits are taxable to its owner(s). Accordingly,
no income taxes have been provided in the accompanying financial statements.
Concentration of Credit Risk. The Company sells the majority of its products to
long-time customers, predominantly in France, many of whom place substantial
advance deposits on the product. The Company maintains reserves for potential
credit losses and such losses have been within management's expectations.
Note B - RELATED PARTY TRANSACTIONS
The Company often sells its wine through a centralized sales staff which is part
of another DBR operating business. Such wine may be sold to independent third
parties or to other operations of DBR. Intercompany sales to other DBR
operations were FF 7,406, FF 9,379, and FF 5,381, in the years ended December
31, 1994, 1993, and 1992, respectively, which generated gross profit related to
the intercompany sales of approximately FF 4,800, FF 6,100, and FF 3,500,
respectively.
The Company obtains certain technical and administrative services, including
certain sales activities discussed above, from other DBR operating business.
Intercompany expense changes (classified as selling, general and administrative
expenses) for such services were FF 1,267, FF 888 and FF 1,411 in the years
ended December 31, 1994, 1993 and 1992 respectively.
4
<PAGE>
Note B - RELATED PARTY TRANSACTIONS (Continued)
The Company purchases the barrels used to store and age its wine from another
DBR business. Such barrels are capitalized and depreciated (as a cost of sales)
over their useful life of three years. Such depreciation expense was FF 1,197,
FF 804, and FF 789, in the years ended December 31, 1994, 1993 and 1992,
respectively. Capital expenditures for barrels were FF 340, FF 937 and FF 960
during the years ended December 31, 1994, 1993 and 1992, respectively.
The Company has interest-bearing intercompany borrowings from DBR which are
classified as current liabilities. Such intercompany borrowings were FF 14,199
(at 7%) and FF 15,100 (at 6%) at December 31, 1994 and 1993, respectively. Such
interest rates are established by DBR so as not to exceed rates permitted under
French fiscal (tax) requirements. Intercompany interest expense was FF 988, FF
824 and FF 174 in the years ended December 31, 1994, 1993 and 1992,
respectively. Additionally, at December 31, 1994 and 1993, a DBR subsidiary had
provided non-interest-bearing advances of FF 1,408 and FF 556, respectively,
related to future purchases of wine, consistant with other third party
transactions.
As a component part of a dependent group of business within DBR, the Company
from time-to-time shares its personnel and assets (such as transportation
equipment or farming machinery) with other DBR operations, and also receives the
use of personnel and assets from other such operations. Accordingly, these
financial statements may not reflect the costs and expenses which would be
recorded if the Company were operated on a stand-alone basis, although
management believes the substance of the recorded amounts reflect a reasonable
determination of shared transactions related to the Company.
Note C - PROPERTY, PLANT AND EQUIPMENT
December 31
------------------------------
1994 1993
------------ ------------
Land FF 1,440 FF 1,402
Buildings and buildings improvements 9,006 9,301
Producing and immature vines 5,578 5,319
Barrels 3,928 5,048
Other equipment 6,324 5,225
------------ ------------
26,276 26,295
Less: accumulated depreciation (13,272) (12,635)
------------ ------------
FF 13,004 FF 13,660
============ ============
Note D - SIGNIFICANT CUSTOMER
In addition to intercompany sales, the sales to one customer aggregated 14% and
10% of total sales in the years ended December 31, 1994 and 1993, respectively.
Note E - SUBSEQUENT EVENTS
After December 31, 1994, the Company's parent, DBR, entered into an
understanding with The Chalone Wine Group, Ltd. (Chalone) whereby Chalone will
contribute certain assets to the Company in exchange for a 23.5% interest in the
Company.
5
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors
SOCIETE CIVILE DE
DUHART-MILON-ROTHSCHILD
We have audited the accompanying balance sheets of SOCIETE CIVILE DE
DUHART-MILON-ROTHSCHILD (the Company) (a subsidiary of Domaines Barons de
Rothschild S.A.) as of December 31, 1994 and 1993, and the related statements of
income and retained earnings, and cash flows for each of the three years in the
period ended December 31, 1994 (all expressed in French Francs). These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing standards
in the United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, such financial statements present fairly, in all material
respects, the financial position of the Company as of December 31, 1994 and
1993, and the results of its operations and its cash flows for each of the three
years in the period ended December 31, 1994, in conformity with generally
accepted accounting principles in the United States of America.
As discussed in Notes A and B to the financial statements, the Company is
operated on a dependent basis with other operations of its parent company, and
accordingly, the Company has significant transactions with related parties.
Deloitte Touche Tohmatsu
/s/ Jean-Paul Picard
Jean-Paul Picard
Neuilly-sur-Seine, France
July 13, 1995
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SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
BALANCE SHEETS
(All amounts in thousands of French Francs)
June 30
-----------------------
1995 1994
--------- ---------
ASSETS
Cash FF 73 FF 204
Accounts receivable 2,393 2,038
Inventories:
Bulk and bottled wine 12,970 13,383
Wine production supplies 3,431 3,139
Other current assets 421 623
--------- ---------
Total current assets 19,287 19,388
Property, plant and equipment - net 12,938 13,386
--------- ---------
TOTAL ASSETS FF 32,225 FF 32,774
========= =========
LIABILITIES AND SHAREHOLDER'S EQUITY
Bank borrowings FF -- FF 374
Accounts payable 1,875 2,387
Customer deposits 45 --
Social charges and taxes, other than income 1,045 1,242
Other current liabilities 73 2
Intercompany accounts:
Interest bearing 15,712 17,428
Non-interest bearing -- --
--------- ---------
Total current liabilities 18,750 21,433
Stated value of common equity parts 10 10
Retained earnings 13,465 11,331
--------- ---------
Total shareholder's equity 13,475 11,341
--------- ---------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY FF 32,225 FF 32,774
========= =========
The accompanying notes are an integral part of these statements.
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SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
STATEMENTS OF INCOME AND RETAINED EARNINGS
(All amounts in thousands of French Francs)
June 30
-----------------------
1995 1994
--------- ---------
Wine sales to unrelated parties FF 6,449 FF 3,979
Intercompany wine sales 6,974 4,817
--------- ---------
Total Sales 13,423 8,796
Cost of sales (8,376) (6,195)
--------- ---------
Gross Profit 5,047 2,601
Selling, general and administrative expenses (791) (648)
--------- ---------
Operating income 4,256 1,953
Interest expense:
Bank loans 0 (4)
Intercompany (365) (459)
Other income 119 54
--------- ---------
Net earnings 4,010 1,544
Retained earnings, beginning of year 12,854 12,543
Less: Dividends (3,399) (2,756)
--------- ---------
Retained earnings, end of year FF 13,465 FF 11,331
========= =========
The accompanying notes are an integral part of these statements.
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SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
STATEMENTS OF CASH FLOWS
(All amounts in thousands of French Francs)
June 30
----------------------------
1995 1994
----------- -----------
Source (use) of cash
Cash flows from operating activities:
Net earnings FF 4,010 FF 1,544
Other (3,349) (2,608)
----------- -----------
Net cash provided by operating activities 661 (1,064)
Net cash used in investing activities (1,059) (776)
Net cash used in financing activities 365 2,021
----------- -----------
Net increase (decrease) in cash (33) 181
Cash at beginning of year 106 23
----------- -----------
Cash at end of Period 73 204
Interest paid 365 463
The accompanying notes are an integral part of these statements.
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SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
NOTES TO FINANCIAL STATEMENTS
Six Months ended June 30, 1995 and 1994
Note A - BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Unaudited Interim Financial Information. The financial statements for the
six-month period ended June 30, 1995, is unaudited, but includes all adjustments
(consisting of normal recurring entries) which management considers necessary
for a fair presentation.
Operating results for the six months ended June 30, 1995, are not necessarily
indicative of the results that may be expected for the year ended December 31,
1995.
10
OMNIBUS AGREEMENT
THIS AGREEMENT is entered into by and among THE CHALONE WINE GROUP, LTD.
("Chalone"), DOMAINES BARONS DE OTHSCHILD (LAFITE) ("DBR"), and SUMMUS
FINANCIAL, INC. ("Summus"), as of the 22nd day of August, 1995.
1. Transactions Involving Chalone Securities.
a. Conversion of Debentures.
(i) DBR Debentures. At the Closing (as defined in paragraph 6
hereof), and subject to the terms and conditions of this Agreement, DBR will
surrender to Chalone, for conversion and cancellation, that certain 5%
Convertible Subordinated Debenture Due 1999 issued by Chalone, dated April 19,
1989, in face amount of $3,072,000, and that certain 5% Convertible Subordinated
Debenture Due 1999 issued by Chalone, dated September 30, 1991, in face amount
of $9,312,000. In return for such surrender and cancellation, Chalone will issue
to DBR a total of 1,769,143 shares of Chalone's no par value common stock
("Common Stock").
(ii) Third-Party Debentures. Chalone shall, no later than May 15,
1995, have extended an offer to each of the other four holders of its 5%
Convertible Subordinated Debentures Due 1999, in aggregate face amount of
$8,500,000, also to surrender their debentures to Chalone at the Closing, for
conversion and cancellation, in exchange for Chalone's issuance of shares of
Common Stock at the rate of one share for each $7.00 principal amount of
debentures. (The DBR debentures discussed in subparagraph 1(a)(i) and the
Third-Party Debentures discussed in this subparagraph 1(a)(ii) shall
collectively herein be referred to as the "Debentures.") The acceptance or
non-acceptance of this offer, by any one or more of the aforesaid Third-Party
Debenture-holders, shall not in any way affect DBR's agreement to convert, as
set forth in subparagraph 1(a)(i), immediately above, nor in any way affect any
other provision of this Agreement.
(iii) Interest. Interest on all of the aforesaid Debentures will
continue to accrue and be payable, in cash, according to the terms of the
Debentures, until conversion. Accrued interest to the date of the Closing will,
for such Debentures as are surrendered for conversion hereunder, be paid at the
Closing. The foregoing notwithstanding, DBR may at its election, upon giving
five business days' prior notice to Chalone, elect to set off against the amount
that it is required to pay at the Closing under subparagraph 1(b) hereof the
amount that Chalone will be required to pay to DBR at the Closing, as accrued
interest, pursuant to this subparagraph 1(a)(iii).
b. Sale and Purchase of Stock and Warrants. At the Closing, and
subject to the terms and conditions of this Agreement, Chalone shall sell and
issue to each of DBR and Summus, and each of DBR and Summus agrees, severally
and not jointly, to purchase a total of 416,667 Units of Chalone's securities,
each Unit consisting of one share of Chalone's Common Stock and one Warrant (as
identified below) for the purchase of one share of Common Stock at an exercise
price of $8.00, for a per-Unit purchase price of $6.00 and an aggregate purchase
price of $2,500,002, each. At the Closing, Chalone shall deliver to each of DBR
and Summus a stock certificate registered in that party's name or the name of
that party's nominee (as the party shall so direct) representing the said
416,667 shares of Common Stock and a Warrant, dated as of the Closing and
substantially in the form attached hereto as Exhibit "A" ("Warrant"). Each of
DBR and Summus shall either deliver to Chalone a certified or cashier's check
payable to Chalone's order or a wire transfer of immediately available funds to
Chalone's designated bank account, each in the sum of $2,500,002.
c. Right to Purchase Additional Shares.
(i) In the event Chalone shall, subsequent to the Closing, sell
any of its Common Stock, or securities convertible into Common Stock, or grant
options for the purchase of Common Stock (collectively, "Securities") (except
for sales, grants or issuances pursuant to any of the Plans or other
reservations described in subparagraph 7(b), hereafter, and except for Common
Stock issued in exercise of previously-issued Warrants or issued to the holders
of third-party Debentures converted subsequent to the Closing), each of DBR and
Summus shall
EXHIBIT 2
<PAGE>
have the right to purchase that amount of the particular Securities then being
issued, on the same terms and conditions as the remainder of the issuance, as
will cause DBR's or Summus's (as applicable) voting power in Chalone immediately
upon the completion of such issuance to be not less than such voting power
immediately prior to the issuance.
(ii) If an offering subject to this subsection is not to be
registered under the U.S. Securities Act of 1933, Chalone shall notify DBR and
Summus of the general terms and conditions of the offering, and each of DBR and
Summus, each acting for itself, shall have 30 days thereafter in which to notify
Chalone as to whether it desires to purchase all or part of the Securities that
it has the right to purchase pursuant to this subsection.
(iii) If an offering subject to this subsection is to be
registered under the Securities Act of 1933, Chalone shall advise DBR and Summus
that such offering is being contemplated at least 30 days before the initial
filing of a registration statement, to obtain an initial expression of interest.
Chalone shall further notify DBR and Summus not less than five days prior to the
effective date of such registration statement of the anticipated terms and
initial price range of the offering. Each of DBR and Summus, each acting for
itself, shall have three days after such five-day notice within which to notify
Chalone as to whether it will purchase the Securities to which it is entitled
hereunder assuming they are sold at not more than the maximum price specified in
the anticipated price range. If either DBR or Summus has so agreed to the
purchase, prior to the effective date of such registration statement, but it is
subsequently determined that the Securities can reasonably be expected to be
sold at a price above the previously specified maximum price, Chalone shall
notify such party (DBR and/or Summus, as applicable), at least three business
days prior to any sale at such higher price, of the then anticipated maximum
offering price; DBR and/or Summus, as applicable, shall have one business day
after such notice within which to notify Chalone as to whether it will purchase
the Securities to which it is entitled hereunder assuming they are sold at not
more than the maximum of the new anticipated price range.
2. Transactions Involving Chalone's Interest In DBR.
a. Acquisition of Interest in Chateau Duhart-Milon. At the Closing,
and subject to the terms and conditions of this Agreement, Chalone will
surrender to DBR for transfer to Duhart-Milon stock certificates, currently
standing in Chalone's name, representing a total of 14,054 ordinary shares of
DBR, in exchange for a 23.5% partnership equity interest in Societe Civile
Chateau Duhart-Milon (formerly "Societe Civile De Duhart-Milon-Rothschild")
("Duhart-Milon"). Such interest shall be represented by and memorialized in an
Amendment Agreement, substantially in the form attached hereto as Exhibit "B,"
which Amendment Agreement shall, at the Closing, and subject to the terms and
conditions of this Agreement, be executed by Chalone, DBR, and Societe
Financiere Viticole, SA ("SFV"). The same parties shall, also at the Closing,
execute a Memorandum of Understanding substantially in the form attached hereto
as Exhibit "C."
b. Retention of Interest in DBR.
(i) Shareholding. At the Closing, and subject to the terms and
conditions of this Agreement, Chalone shall receive, on transfer from its
President, W. Philip Woodward ("Woodward"), and thereafter continue to hold one
ordinary share of DBR.
(ii) Right to Dividends. Chalone and Woodward will receive
dividends on their respective DBR shareholdings past and present, as and when
paid in the ordinary course, as follows: [a] Their ratable shares of 1994
dividends, for the entire year, based on Chalone's holding of 14,054 shares and
Woodward's holding of one share; [b] For years 1995 and subsequent, Chalone's
ratable share based on its holding of one share (or such other shareholding as
it shall in fact then have).
(iii) Director's Qualifying Share. For as long as Chalone has a
designee on DBR's Board of Directors, as set forth in paragraph 4 hereof, such
designee shall, if necessary under applicable law, be issued one "qualifying
share" of DBR stock, without cost to the individual designee or to Chalone,
subject to customary buy-back and custody arrangements for qualifying shares.
Such qualifying share shall not be transferred except to a permitted successor
designee.
2
<PAGE>
3. Representation on Chalone's Board of Directors and Executive Committee.
a. Board of Directors. Effective with the Closing, Chalone's Board of
Directors shall be increased in size from the current nine seats to eleven
seats. Effective as of the same date, one designee of DBR and one designee of
Summus, in each case reasonably acceptable to Chalone, shall be appointed to the
two newly-created Board seats, to serve until Chalone's next meeting of
shareholders at which the matter of directors is to be voted upon. Subject to
any limitations imposed as a matter of law or fiduciary responsibility, for so
long as the Voting Agreement referenced in subparagraph 3(c) hereof remains in
effect, Chalone shall maintain the size of the Board at eleven.
b. Executive Committee. For so long as DBR has at least two designees
on Chalone's Board of Directors, Chalone shall use its best efforts to cause two
designees of DBR to be appointed to Chalone's five-person Executive Committee.
For so long as Summus has at least one designee on the Chalone Board, Chalone
shall use its best efforts to cause a designee of Summus to be appointed to
Chalone's five-person Executive Committee. For so long as this subparagraph 3(b)
applies to either DBR or Summus, Chalone shall maintain the size of the
Executive Committee at five persons.
c. Voting Agreement. Effective with the Closing, DBR, Summus, and
Woodward will enter into a certain Voting Agreement, substantially in the form
attached hereto as Exhibit "D."
4. Representation on DBR's Board of Directors (Conseil de Surviellance).
a. Chalone Designee. Chalone shall continue, for so long as it holds
at least one share of DBR stock and for so long as at least one designee of DBR
is a member of Chalone's Board of Directors, to have the right to designate one
nominee, reasonably acceptable to DBR, to serve on the DBR Conseil de
Surviellance; and DBR agrees, subject to any limitations imposed as a matter of
law or fiduciary responsibility, to use its best efforts to see that said
designee is elected to said Conseil de Surviellance. As of the date of this
Agreement, such Chalone designee is Chalone's President, W. Philip Woodward.
b. Observer. In the event Chalone's then-serving Conseil designee is
unable to attend a duly called meeting of the Conseil, Chalone shall be entitled
to designate an observer, reasonably acceptable to DBR, to attend and
participate in such meeting but without a vote.
5. "Standstill Agreement." Effective at the Closing, the existing
"standstill agreement" between DBR and Chalone, which is part of a certain April
19, 1989, Shareholders' Agreement between Chalone and DBR, and by which each has
been restricted from acquiring shares of stock of the other party without said
other party's prior written consent, shall be terminated and of no further force
or effect. The foregoing notwithstanding, DBR covenants and agrees that it will
not, directly or indirectly, increase its total holding of Chalone Common Stock,
including securities exercisable for or convertible into Common Stock, to more
than 49.9%, on a fully diluted basis, through December 31, 1999; provided,
however, that this limitation shall not be considered violated if DBR's
percentage ownership is increased to more than 49.9% by reason of Chalone's
repurchase or other acquisition of shares of its outstanding Common Stock,
unaccompanied by any contemporaneous (or subsequent) purchase or other
acquisition by DBR. Options to purchase shares of Common Stock, obtained and
held by designees of DBR as members of Chalone's Board of Directors pursuant to
Chalone's Non-Discretionary Stock Option Plan, and shares of Common Stock issued
on exercise of such options, although in other respects the property of the
individual holder, shall be counted for computational purposes of this paragraph
5 as a part of the holding of DBR.
6. Shareholder Vote; Closing. It is agreed that approval of the material
terms of this Agreement by Chalone's shareholders, pursuant to Section 310 of
the California Corporations Code, shall be sought at a special meeting of
shareholders, tentatively contemplated as being held no later than September 29,
1995. Shareholder approval shall be obtained in accordance with all applicable
laws, including, without limitation, the rules and regulations promulgated under
the Securities Exchange Act of 1934 and the rules and regulations governing
companies listed on the NASDAQ National Market System. Chalone shall provide DBR
and Summus with copies
3
<PAGE>
of any shareholder communication prepared in connection with this paragraph 6 or
otherwise prepared in connection with such meeting, reasonably in advance of the
mailing date of such communication. Assuming receipt of such shareholder
approval (and assuming all other preconditions set forth in this Agreement have
been satisfied), the Closing shall take place as soon as practicable following
said shareholder approval and presumptively on September 29, 1995. The Closing
shall be held at Chalone's executive offices, 621 Airpark Road, Napa,
California, or such other location, within or without the United States, as the
parties shall designate.
7. Representations, Warranties and Covenants of Chalone. Except as set
forth on Schedule A hereto or expressly set forth to the contrary in this
Agreement, Chalone represents, warrants and covenants, as of the date hereof, as
follows:
a. Organization, Good Standing and Qualification. Chalone is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California. Chalone is duly qualified to do business and is
in good standing in the State of Washington and in each of the other
jurisdictions in which it owns or leases property or conducts business, except
where the failure to be so qualified would not have a material adverse effect on
its business. Chalone has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted, and
possesses all governmental or other licenses, franchises, rights, consents,
approvals and privileges material to the conduct of its business as now
conducted.
b. Capitalization. Chalone's authorized capital stock currently
consists of 15,000,000 shares of Common Stock. As of June 30, 1995, a total of
(i) 4,973,580 shares of Common Stock were issued and outstanding; (ii) 405,047
shares of Common Stock were reserved for issuance upon exercise of outstanding
options under the 1982 Incentive Stock Plan and the 1987 Stock Option Plan;
(iii) 149,930 shares of Common Stock were reserved for issuance upon exercise of
outstanding options under the Non-Discretionary Stock Option Plan and other
non-statutory option agreements; (iv) 45,323 shares of Common Stock were
reserved for issuance pursuant to the Employee Stock Purchase Plan; (v) 6,000
shares of Common Stock were reserved for issuance pursuant to the Distributors'
Stock Bonus Plan; (vi) 828,571 shares of Common Stock were reserved for issuance
on exercise of previously-granted Warrants; and (vii) 2,083,221 shares of Common
Stock were reserved for issuance upon conversion of the Debentures (prior to and
without regard for the terms of this Agreement). All of the outstanding shares
of Common Stock are duly authorized, validly issued, fully paid and
nonassessable, are not subject to preemptive rights created by statute,
Chalone's Articles of Incorporation or By-Laws or any agreement to which Chalone
is a party or is bound, and have been issued in compliance with all applicable
state and federal securities laws. Except for the right of cumulative voting,
which exists as a matter of California corporate law, the designations, powers,
preferences, rights, qualifications, limitations and restrictions, if any, in
respect of the Common Stock, Chalone's only class of authorized capital stock,
are set forth in Chalone's Articles of Incorporation, and all such designations,
powers, preferences, rights, qualifications, limitations and restrictions are
valid, binding and enforceable and in accordance with all applicable laws.
c. Authorization. Chalone has all requisite corporate power and
authority to enter into this Agreement and, subject to satisfaction of the
conditions set forth herein, to issue, sell and deliver the Common Stock and
Warrants and to consummate the other transactions contemplated hereby. This
Agreement has been duly executed and delivered by Chalone, and, similarly
subject to the conditions herein set forth, constitutes the legal, valid,
binding obligation of Chalone, enforceable according to its terms. Except as set
forth on Schedule A, no consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority is required
by or with respect to Chalone in connection with the execution and delivery of
this Agreement by Chalone or the consummation by Chalone of the transactions
contemplated hereby which have not already been obtained. The execution and
delivery by Chalone of this Agreement, the performance of all obligations of
Chalone hereunder, the issuance, sale and delivery of the Common Stock and the
Warrants, and the issuance and delivery of the Common Stock upon due exercise of
the Warrants according to their terms, have not violated and will not violate
any provision of applicable law, any order of any court or other agency of
government, the Articles of Incorporation, or the By-Laws of Chalone, as
amended, or any provision of any indenture, agreement or other instrument to
which Chalone or any of its properties or assets is bound, including, without
limitation, the Debentures, or conflict with, result in a breach of, or
constitute (with due notice or lapse of time or both) a default under any such
indenture, agreement or other instrument, or result in the creation or
imposition of any lien, charge, restriction, claim or
4
<PAGE>
encumbrance of any nature whatsoever upon any of the properties or assets of
Chalone, except as and to the extent the transactions under this Agreement
themselves constitute such a claim, encumbrance, etc., upon the properties or
assets of Chalone.
d. Valid Issuance of Common Stock and Warrants. The Common Stock, and
the Warrants with which this Agreement is concerned (collectively the
"Securities"), when issued, delivered and paid for in accordance with the terms
hereof for the consideration expressed herein, will be duly and validly
authorized and issued, fully paid and nonassessable, free and clear of any lien,
charge, restriction, claim or encumbrance, and, except as set forth on Schedule
A, not subject to preemptive or any other similar rights of stockholders of
Chalone or others. Based in part upon the representations made by DBR and Summus
in this Agreement, the Securities will be issued in compliance with all
applicable United States federal and state securities laws. The Common Stock
issuable upon the exercise of the Warrants is duly authorized and will be, as of
the Closing Date, duly and validly reserved for issuance, and, upon issuance in
accordance with the terms of the Warrants, will be duly and validly issued,
fully paid and nonassessable, free and clear of any and all liens, charges,
restrictions, claims or encumbrances.
e. No Material Adverse Change. There has been no material adverse
change in Chalone's business, properties, assets, condition (financial or
otherwise), or prospects, taken as a whole, since Chalone's Form 10-K for the
year ended December 31, 1994, which has not been disclosed in a Form 8-K filed
with the SEC under the Securities Exchange Act of 1934 (the "Exchange Act").
f. Compliance With Laws. Chalone and its business and operations, as
currently conducted, have been and are being conducted in accordance with all
applicable federal, state and local laws, rules and regulations, and with all
necessary licenses, permits or other governmental authorizations, except where
any failure so to comply would not have a material adverse effect on said
business and operations taken as a whole.
g. Rights to Acquire Capital Stock. Except as referenced in
subparagraph 7(b), above, or described on Schedule A, no subscription, warrant,
option or other right to purchase or acquire any shares of any class of capital
stock of Chalone or securities convertible into or exchangeable for such capital
stock is authorized or outstanding as of the date hereof nor will any such right
be outstanding as of the date of the Closing. Except for the transactions
contemplated by this Agreement (and Chalone's continuing obligations under such
Third-Party Debentures as are not converted and canceled pursuant to paragraph
1(a)(ii) of this Agreement), Chalone has no obligation (contingent or otherwise)
to purchase, redeem or otherwise acquire any of its equity or debt securities or
any interest therein or to pay any dividend or make any other distribution in
respect thereof.
h. Compliance With Other Instruments. Chalone is not in violation or
default of any provisions of its Articles of Incorporation or By-Laws, as
amended, or of any instrument, judgment, order, writ, decree, lease or contract
to which it is a party or by which it is bound, including, without limitation,
the Debentures or any other agreement between Chalone or any of the other
parties hereto, or, to the best of its knowledge, of any provision of federal or
state statute, rule or regulation applicable to Chalone, which violation or
default would be materially adverse to Chalone's business, properties, assets,
or condition (financial or otherwise), or to the ability of Chalone to perform
its obligations under this Agreement.
i. SEC Documents. Chalone has furnished to DBR and Summus a true and
complete copy of any statement, report, registration statement or definitive
proxy statement filed by Chalone with the SEC since December 31, 1994 (the
"Chalone SEC Documents"). As of their respective filing dates, the Chalone SEC
Documents comply or will comply in all material respects with the requirements
of the Securities Act of 1933 (the "Securities Act") or the Exchange Act, and
none of the SEC Documents contain or will contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements made therein, in light of the
circumstances under which they were made, not misleading, except to the extent
corrected by a subsequently-filed Chalone SEC Document. The audited consolidated
financial statements and the unaudited consolidated financial statements
included in such Chalone SEC Documents were prepared in accordance with U.S.
Generally accepted accounting principles applied on a consistent basis, and
fairly present the financial position of Chalone as at the respective dates
thereof and the results of its operations and changes in financial position for
the respective periods covered thereby.
5
<PAGE>
j. Further SEC-Related Undertakings. Chalone will comply with the
reporting requirements of Section 13 and 15(d) of the Exchange Act to the extent
it shall be required to do so pursuant to such Sections, and at all times while
so required shall comply with all other public information reporting
requirements of the SEC from time to time in effect and relating to the
availability of an exemption from the Securities Act for the sale of the
Securities being purchased hereunder or the registration thereof on Form S-3
under the Securities Act. As of the date of this Agreement, and subject to the
passage of time from the filing of Chalone's Form 8-K/A on August 2, 1995,
Chalone qualifies as a registrant who is eligible to register securities in a
secondary offering on a Registration Statement on Form S-3. Chalone will
cooperate with DBR and Summus in supplying such information and documentation as
may be reasonably necessary for DBR or Summus, as applicable, to complete and
file any informational reporting forms currently or hereafter required by the
SEC, including, without limitation, reporting schedules required under Section
13 of the Exchange Act and any reporting forms required as a condition to the
availability of an exemption from the Securities Act for a sale of the
Securities.
k. SEC Rule 144. Chalone covenants that, with the exception of the
late-filing of its Form 8-K/A on August 2, 1995, it: (i) is in compliance with
and will continue to comply with the current public information requirements of
Rule 144(c)(1) under the Securities Act; (ii) will furnish DBR and Summus, upon
request, all information required for the preparation and filing of Form 144;
and (iii) will on a timely basis file all reports required to be filed and made
all disclosures, including disclosures or material adverse information, required
to permit DBR or Summus, as applicable, to make the required representations on
Form 144.
l. No Actions Pending. No action, suit, arbitration or other
proceeding or investigation has been filed or commenced (other than actions that
may have been filed but without Chalone having been served or otherwise made
aware of the filing or other commencement) against Chalone or involving any of
its properties or interests or, to the best knowledge of Chalone, threatened (in
writing to an officer of Chalone or orally communicated to its President or
Chief Financial Officer) against Chalone or in respect of any of its properties
or interests, at law or in equity, before any court, governmental department,
commission, board or other federal, state, or other instrumentality, agency or
authority, foreign or domestic, an adverse decision in which could reasonably be
expected to affect adversely the power of Chalone to execute and deliver, or the
ability of Chalone to perform its obligations under, this Agreement, or result
in any material adverse change in Chalone's business, properties, assets, or
condition (financial or otherwise), taken as a whole, or which questions the
validity of this Agreement or the sale and issuance of the Securities.
m. Conflicting Agreements. Except as set forth on Schedule A, Chalone
is not a party to, or otherwise subject to any provision contained in, any
instrument evidencing indebtedness of Chalone, any agreement relating thereto or
any other contract or agreement which prohibits, restricts or otherwise limits
(i) the sale and issuance of the Securities, (ii) the payment of dividends on
the Common Stock, or (iii) any of the transactions or actions contemplated by
this Agreement.
n. Material Contracts. All contracts material to the business or
financial condition of Chalone, taken as a whole, have been filed as exhibits to
Chalone's Annual Reports on Form 10-K or incorporated therein by reference, and
all of Chalone's material contracts currently in effect are listed as exhibits
to Chalone's Annual Report on Form 10-K for 1994. A copy of the Exhibit Index
from the 1994 Form 10-K is attached hereto as Schedule B.
o. Absence of Undisclosed Liabilities. Except as set forth in its
SEC-filed financial statements, Chalone does not have any obligations or
liabilities that are material to Chalone, taken as a whole (whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become due
and regardless of when asserted), other than liabilities and obligations that
have arisen after March 31, 1995, in the ordinary course of business.
8. Representations, Warranties, Covenants and Agreements of DBR and Summus
as Purchasing Parties. Each of DBR and Summus, as purchasers of Chalone
Securities under paragraphs 1(a) and/or 1(b) hereof (for purposes of this
paragraph 8, each a "Purchasing Party"), represents, warrants, covenants and
agrees, each for itself, as follows:
a. Authorization. This Agreement has been duly executed and delivery
by such Purchasing Party. Each Purchasing Party represents that it has full
power and authority to enter into this Agreement.
6
<PAGE>
b. Purchase Entirely for Own Account. Each Purchasing Party, by its
execution of this Agreement, confirms that the Securities to be received by such
Purchasing Party are being acquired for investment for such Party's own account
and not with a view to the resale or distribution of any part thereof, and that
such Purchasing Party has no present intention of selling, granting any
participation in, or otherwise distributing the same. Each Purchasing Party
further represents that such Party does not have any contract, undertaking,
agreement or arrangement with any person to sell, transfer or grant
participation to such person or to any third person, with respect to any of the
Securities.
c. Reliances For Private Placement. Each Purchasing Party understands
that the Securities will not be registered under the Securities Act on the
ground that the sale provided for in this Agreement is exempt from such
registration pursuant to Section 4(2) of the Securities Act; and that Chalone's
reliance on such exemptions is predicated on the Purchasing Party's
representations set forth in this paragraph 8. Each Purchasing Party further
understands that the Securities will not be registered under the California
Corporate Securities Law of 1968 (the "California Securities Law"), on the
ground that the sale provided for in this Agreement is exempt from such
registration pursuant to Section 25100(o) of the California Securities Law, and
that Chalone's reliance on such exemption is predicated on each Purchasing
Party's representations set forth in this paragraph 8.
d. Restricted Securities. Each Purchasing Party understands that if a
registration statement covering the Securities under the Securities Act (or a
filing pursuant to the exemption from registration under Regulation A of the
Securities Act) is not in effect when such Purchasing Party desires to sell the
Securities, or any part thereof, the Purchasing Party may be required to hold
the Securities for an indeterminate period. Each Purchasing Party also
acknowledges that it understands that any sale of the Securities which might be
made by it in reliance upon Rule 144 may be made only in limited amounts in
accordance with the terms and conditions of that Rule.
e. Investment Experience. Each Purchasing Party represents that it has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of its investment hereunder; has the ability
to bear the economic risks of such investment; and has had access to and been
furnished with all information as the said Purchasing Party has considered
necessary or appropriate in reaching its decision to invest in the Securities;
and has had the opportunity to ask questions and receive answers respecting the
investment from Chalone, and to obtain such additional information as it has
deemed necessary to verify the accuracy of the information supplied by Chalone.
f. Accredited Investor. By its execution of this Agreement, each
Purchasing Party acknowledges that it is an accredited investor as defined in
Rule 501(a) of Regulation D of the SEC, 17 CFR ss.230.501(a). Each of DBR and
Summus represents, for itself, that it was not organized solely for the purpose
of acquiring the Securities hereunder.
g. Foreign Purchasers. DBR represents that it is a corporation duly
organized and existing under the laws of France, and is not a resident of the
United States. Summus represents that it is a corporation duly organized and
existing under the laws of the Cayman Islands, and is not a resident of the
United States.
h. Further Limitations on Disposition. Without in any way limiting the
representations set forth above, each Purchasing Party agrees not to make any
disposition of all or any portion of the Securities unless and until: (i) there
is then in effect a registration statement under the Securities Act covering
such proposed disposition and such disposition is made in accordance with such
registration statement; or (ii) such Purchasing Party shall have notified
Chalone of the proposed disposition, shall have furnished Chalone with such
information concerning the proposed disposition as Chalone may reasonably
request, and either shall have furnished Chalone with an opinion of counsel,
reasonably satisfactory in substance to Chalone, that such disposition will not
require registration of the Securities under the Securities Act, or Chalone has
reasonably determined that such disposition is in compliance with Rule 144.
i. Legends. It is understood that the certificates evidencing the
Securities may bear a restrictive legend reading substantially as follows:
7
<PAGE>
"The securities represented by this Certificate have not been
registered under the Securities Act of 1933. These securities have
been acquired for investment and not with a view to distribution or
resale, and may not be transferred without an effective registration
statement for such shares under the Securities Act of 1933, or
pursuant to Rule 144 or an opinion of counsel reasonably satisfactory
to the Company that registration is not required under such Act."
j. Removal of Legend. Any legend endorsed on a certificate pursuant to
subparagraph 8(i) hereof shall be removed (i) if the Securities represented by
such certificate shall have been effectively registered under the Securities Act
or otherwise lawfully sold in a public transaction or in accordance with Rule
144; (ii) if such Securities may be transferred in compliance with Rule 144(k);
or (iii) if the holder of such Securities shall have provided Chalone with an
opinion of counsel, in substance reasonably acceptable to Chalone and its
counsel and from attorneys reasonably acceptable to Chalone and its counsel,
stating that such sale, transfer or assignment of such Securities may be made
without registration.
k. Share Transfers. Chalone shall not be required to transfer on its
books any Securities which shall have been sold or transferred in violation of
any of the provisions in this Agreement or to treat as owner of such Securities
or to accord the right to vote as such owner or to pay dividends to any
transferee to whom such Securities shall have been so transferred.
l. Further Covenants. Each Purchasing Party further covenants that it
will not transfer the Common Stock in violation of the Securities Act, the
Exchange Act, or the rules of the SEC promulgated thereunder, including Rule
144.
9. Further Representations, Warranties and Covenants of DBR as to
Duhart-Milon. Except as set forth on Schedule C hereto or expressly set forth to
the contrary in this Agreement, DBR represents, warrants and covenants, as of
the date hereof, as follows:
a. Managing Partner. Eric de Rothschild is now, and since October 31,
1975, has been, the designated statutory Manager of Duhart-Milon.
b. Organization, Good Standing and Qualification. Duhart-Milon is a
Societe Civile duly organized, validly existing and in good standing under the
laws of the Republic of France. It is duly qualified to do business and is in
good standing in each of the other jurisdictions, if any, in which it owns or
leases property or conducts business, except where the failure to be so
qualified would not have a material adverse effect on its business. It has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, and possesses all governmental or
other licenses, franchises, rights, consents, approvals and privileges material
to the conduct of its business as now conducted.
c. Authorization. DBR has all requisite power and authority to enter
into this Agreement as representative of Duhart-Milon and, subject to
satisfaction of the conditions set forth in this Agreement, to consummate and
cause Duhart-Milon to consummate the transactions pertaining to Duhart-Milon
contemplated by this Agreement. With the exception of a required notification to
the French Treasury Department and the passage of a subsequent thirty days
without objection raised, no consent, approval, order or authorization of, or
registration, declaration or filing with, any governmental authority is required
by or with respect to Duhart-Milon in connection with the execution and delivery
of this Agreement or the consummation by DBR and Duhart-Milon of the
transactions contemplated hereby which has not already been obtained.
d. No Material Adverse Change. There has been no material adverse
change in Duhart-Milon's business, properties, assets, condition (financial or
otherwise), or prospects, taken as a whole, since February 13, 1995.
e. Compliance With Laws. Duhart-Milon and its business and operations,
as currently conducted, have been and are being conducted in accordance with all
applicable laws, rules and regulations, and with all
8
<PAGE>
necessary licenses, permits or other governmental authorizations, except where
any failure so to comply would not have a material adverse effect on said
business and operations taken as a whole.
f. Compliance With Other Instruments. Duhart-Milon is not in violation
or default of any provision of its organizational documents or of any
instrument, judgment, order, writ, decree lease, or contract to which it is a
party or by which it is bound or, to the best of its knowledge, of any provision
of statute, rule or regulation applicable to it, which violation or default
would be materially adverse to its business, properties, assets, or condition
(financial or otherwise); nor will completion of the transactions described in
paragraph 2(a) of this Agreement give rise to any such violation or default.
g. No Actions Pending. No action, suit, arbitration or other
proceeding or investigation has been filed or commenced (other than actions that
may have been filed but without DBR or Duhart-Milon having been served or
otherwise made aware of the filing or other commencement) against Duhart-Milon
or involving any of its properties or interests or, to the best knowledge of
DBR, threatened (in writing to an officer or manager of DBR or Duhart-Milon or
orally communicated to DBR's Managing Director or President) against
Duhart-Milon or in respect of any of its properties or interests, at law or in
equity, before any court, governmental department, commission, board of other
instrumentality, agency or authority, foreign or domestic, an adverse decision
in which could reasonably be expected to affect adversely the ability of DBR and
Duhart-Milon to perform their respective obligations under this Agreement, or
result in any material adverse change in Duhart-Milon's business, properties,
assets, or condition (financial or otherwise), taken as a whole, or which
questions the validity of this Agreement.
h. Conflicting Agreements. Except as set forth on Schedule C,
Duhart-Milon is not a party to, or otherwise subject to any provision contained
in, any instrument evidencing indebtedness of Duhart-Milon, any agreement
relating thereto or any other contract or agreement which prohibits, restricts
or otherwise limits the admission of Chalone as a general partner, the payment
of distributions to Duhart-Milon's partners, or any of the other terms,
conditions and transactions as set forth in paragraph 2(a) of this Agreement.
10. Conditions to Closing by DBR and Summus. The obligations of DBR and of
Summus under this Agreement are subject to the fulfillment by Chalone, on or
before the Closing, of each of the following conditions, the waiver of which
shall not be effective against a party who does not consent in writing thereto.
a. Representations and Warranties. The covenants, representations and
warranties of Chalone contained in paragraphs 7 and 15(g) of this Agreement
shall be true and correct on and as of the Closing with the same effect as
though such representations and warranties had been made on and as of the
Closing.
b. Performance. Chalone shall have performed and complied with all
agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by it on or before the Closing Date,
including, without limitation, payment of all accrued interest on all Debentures
being converted pursuant to this Agreement, as of the Closing Date; due
amendment to Chalone's By-Laws, fixing the size of the Board of Directors at
eleven persons; and receipt of the requisite shareholder approval pursuant to
paragraph 6 of this Agreement.
c. Consents. Chalone shall have obtained, in writing, the consents
referenced in subparagraph 7(c) of, and listed in Schedule A to, this Agreement,
and provided copies of such written consents to DBR and Summus.
d. No Material Adverse Change. No material adverse change shall have
occurred with respect to the business, properties, assets, condition (financial
or otherwise), or prospects of Chalone, taken as a whole, between the date of
this Agreement and the Closing.
e. Compliance Certificate. Chalone's President or Executive Vice
President shall deliver to DBR and Summus, at the Closing, a certificate
certifying that the conditions specified in subparagraphs 10(a), and 10(b),
above, have been fulfilled and stating that there has been no material adverse
change as specified in subparagraph 10(d), immediately above.
9
<PAGE>
f. State Securities Law Compliance. The offer and sale of Chalone's
Securities pursuant to this Agreement shall be exempt from qualification under
the California Securities Law or, if no exemption is applicable, the
Commissioner of Corporations of the State of California shall have issued a
permit qualifying such offer and sale. Chalone shall have complied with all
applicable requirements of federal and California securities laws.
g. Registration Rights. Chalone shall have extended the registration
rights set forth in Section 8 of that certain Common Stock Purchase Agreement
dated as of March 29, 1993 ("the 1993 Agreement"), to the Common Stock and the
Common Stock issuable upon exercise of the Warrants, and pursuant to paragraph
12 hereof.
11. Conditions to Closing by Chalone. The obligations of Chalone under this
Agreement are subject to the fulfillment on or before the Closing, of the
following conditions by DBR and, except as otherwise expressly stated, by
Summus:
a. Representations and Warranties. The covenants, representations and
warranties contained in paragraphs 8 and 9 and 15(g) hereof shall be true on and
as of the Closing with the same effect as though such representations and
warranties had been made on and as of the Closing.
b. Performance. DBR and Summus shall have performed and complied with
all agreements, obligations and conditions contained in this Agreement that are
required to be performed or complied with by them, and each of them, on or
before the Closing.
c. Cash Payment for Securities. DBR and Summus shall each have
delivered or provided the cash purchase price specified in subparagraph 1(b) of
this Agreement.
d. Conversion of Debenture. DBR shall have surrendered its Debentures
in principal amount of $12,384,000 for conversion and cancellation, in exchange
for Common Stock, as set forth in subparagraph 1(a)(i) of this Agreement.
e. State Securities Law Compliance. The offer and sale of Chalone's
Securities pursuant to this Agreement shall be exempt from qualification under
the California Securities Law or, if no exemption is applicable, the
Commissioner of Corporations of the State of California shall have issued a
permit qualifying such offer and sale.
f. No Material Adverse Change. No material adverse change shall have
occurred with respect to the business, properties, assets, condition (financial
or otherwise), or prospects of Duhart-Milon, taken as a whole, between the date
of this Agreement and the Closing.
g. Compliance Certificate. DBR shall have caused Duhart-Milon's
Managing Partner to prepare and have delivered to Chalone, at the Closing, a
certificate of said Managing Partner of Duhart-Milon, certifying that the
conditions specified in paragraph 9 of this Agreement have been fulfilled and
stating that there has been no material adverse change with respect to
Duhart-Milon's partnership agreement, ownership, business, properties, assets,
conditions (financial or otherwise), or prospects, taken as a whole, since the
date of this Agreement.
h. Duhart-Milon Amendment Agreements. DBR, SFV, and Chalone shall have
executed the Duhart-Milon Amendment Agreement and the Memorandum of
Understanding referenced in subparagraph 2(a).
i. Duhart-Milon Certificate. Chalone shall have received an
attestation of Duhart-Milon in customary form, evidencing Chalone's 23.5% equity
ownership therein.
j. French Treasury Department. Chalone shall have received evidence of
due compliance with the notification requirements set forth in subparagraph
9(c).
10
<PAGE>
k. Free Expatriation of Funds. Chalone shall have satisfied itself
that there is no legal proscription, in law, regulation, or rule, which would
prohibit or in any way deter or impede the free transfer of funds received by
Chalone as a result of its investment and interest in Duhart-Milon from France
to the United States.
12. Registration Rights. Each of the parties hereto was a party to the 1993
Agreement referenced in subparagraph 10(g) hereof, pursuant to which certain
registration rights were granted by Chalone to the Purchaser signatories to said
1993 Agreement under the terms of Section 8 thereof. Subsequently, by action of
its Board of Directors at a meeting duly called and held September 14, 1994,
Chalone granted a second registration right, independent of the right obtained
and exercised by T. Rowe Price Small-Cap Value Fund, to the remaining
Purchasers, including DBR and Summus. The parties hereto hereby agree that (i)
subject to the obtaining of the consent of the remaining signatories to the 1993
Agreement (excluding T. Rowe Price), Section 8 of the 1993 Agreement, as
modified by the said Board action, shall be further amended so as to provide
that the Common Stock and Warrants issued in accordance with this Agreement
shall be deemed to be "Registerable Securities" within the meaning of said
Section 8, and all rights arising under and obligations undertaken in said
Section 8 of the 1993 Agreement shall apply equally to the Securities purchased
and sold hereunder; or (ii) in the event the consents contemplated in clause
(i), immediately above, are not obtained on or prior to the Closing, Chalone and
the parties hereto shall enter into a separate agreement granting the
registration rights provided for in the 1993 Agreement, as modified by the
aforesaid Board action, to DBR and Summus in respect of the Common Stock and the
Common Stock issuable upon exercise of the Warrants.
13. 1989 Shareholders' Agreement Between Chalone and DBR. That certain
Shareholders' Agreement between Chalone and DBR dated April 19, 1989, shall, as
of the Closing, be and become null, void, and of no further force or effect.
14. Closing With Third-Party Debenture-Holders. If and to the extent any
one or more of the four third-party holders of Debentures shall have accepted
the conversion offer set forth in subparagraph 1(a)(ii) of this Agreement, the
pertinent provisions of this Agreement, and particularly (but not by way of
limitation) the provisions of paragraphs 7, 10, and 12 shall be extended to any
such converting debenture-holder conterminously with such converting
debenture-holder's subscription to the applicable provisions of paragraphs 8 and
11. This extension of the reciprocal benefits and burdens may be effected by an
Addendum to this Agreement executed by Chalone and the converting
debenture-holder(s) or by such other document as Chalone and the converting
debenture-holder(s) shall agree, and shall not require execution by DBR or
Summus.
15. Miscellaneous.
a. Survival of Warranties. The warranties, representations and
covenants contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement and the Closing and shall in no way be
affected by any investigation of the subject matter thereof made by or on behalf
of any other party.
b. Successors and Assigns. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
c. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
d. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. A party may execute one
or more counterparts of this Agreement. This Agreement shall be effective when
each party has executed at least one counterpart.
11
<PAGE>
e. Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
f. Notices. Any consent, notice or report required or permitted to be
given or made under this Agreement by one of the parties hereto to the other
party shall be in writing, delivered personally or by facsimile (and promptly
confirmed by personal delivery, first-class mail, courier or hand delivery),
first-class mail, courier or hand delivery, postage or charges prepaid (where
applicable), addressed to such other party at its address indicated below, or to
such other address as the addressee shall have last furnished in writing to the
addressor and (except as otherwise provided in this Agreement) shall be
effective upon receipt by the addressee.
If to Chalone: The Chalone Wine Group, Ltd.
621 Airpark Road
Napa, CA 94558-6272
Attn: William L. Hamilton
Fax No. (707) 254-4201
with a copy to: F. Conger Fawcett, Esq.
621 Airpark Road, Suite 200
Napa, CA 94558-6272
Fax No. (707) 254-4260
If to DBR: Domaines Barons de Rothschild (Lafite)
33, Rue de la Baume
75008 Paris, France
Attn: Baron Eric de Rothschild
Fax No. (011) 33-1-42-56-28-79
with a copy to: Piper & Marbury, LLP
53 Wall Street
New York, NY 10005-2899
Attn: Michael A. Varet
Fax No. (212) 858-5326
If to Summus: Summus Financial, Inc.
c/o HM International, Inc.
5810 E. Skelly Drive, Suite 1000
Tulsa, OK 74135-6403
Fax No. (918) 664-1914
with a copy to: Baker & Botts, LLP
910 Louisiana
Houston, TX 77002-4995
Attn: Gray Jennings
Fax No. (713) 229-1522
g. Broker's or Finder's Fee. Each of the parties hereto represents,
each for itself, that it neither now is nor will hereafter be obligated for any
broker's or finder's fee or commission in connection with this transaction. Each
party agrees to indemnify and hold any and all of the other parties hereto
harmless from any liability for any commission or compensation in the nature of
a broker's or finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which such indemnifying party or any of its
officers, partners, employees or representations is responsible.
h. Expenses of the Transaction. With the exception of certain costs
incurred in connection with a current appraisal and audit of Duhart-Milon, which
the parties have agreed are to be for the account of Chalone, each
12
<PAGE>
of the parties hereto shall bear its own costs and expenses, including
attorneys', accountants', and investment bankers' fees and charges, incurred in
connection with the transaction, whether prior to, concurrent with, or
subsequent to the date of this Agreement, and through the Closing. The foregoing
includes, without limitation, services of Hambrecht & Quist Incorporated,
retained by Chalone, and services of Rothschild Inc., retained by DBR; each of
said parties shall be solely responsible for the fees and expenses of the
aforesaid entity retained by it.
i. Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the parties to such action
shall request the court to allocate the cost and expenses, including reasonable
attorney's fees, based on the merits of the parties' relative positions, in
addition to any other relief to which such parties, or any of them, may be
entitled.
j. Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively) only with
the written consent of each of the parties hereto. Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each holder of
any Securities purchased under this Agreement at the time outstanding, each
future holder of all such Securities, and Chalone.
k. Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of this Agreement shall be interpreted insofar as
possible to maintain the original intent and integrity of this Agreement.
l. Entire Agreement. Except as expressly provided otherwise in this
Agreement, this Agreement constitutes the entire, complete and final agreement
between the parties, relative to the matters of concern herein. Any and all
prior agreements and negotiations are merged herein.
m. Further Assurances. Each of the parties agrees to take any and all
other acts and to execute, deliver and file any and all other documents
necessary or proper to accomplish and give effect to the transactions
contemplated by this Agreement.
IN WITNESS WHEREOF, the parties have duly executed and delivered this
Agreement as of the date first written above.
THE CHALONE WINE GROUP, LTD.
By /s/ W. Philip Woodward
--------------------------------------
W. Philip Woodward, President
DOMAINES BARONS DE ROTHSCHILD (LAFITE)
By /s/ Eric de Rothschild
--------------------------------------
Eric de Rothschild
Managing Director (Gerant)
SUMMUS FINANCIAL, INC.
By /s/ Richard C. Hojel
--------------------------------------
Richard C. Hojel, President
13
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<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JUL-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 3
<SECURITIES> 0
<RECEIVABLES> 5,129
<ALLOWANCES> 0
<INVENTORY> 26,553
<CURRENT-ASSETS> 32,355
<PP&E> 33,086
<DEPRECIATION> (11,891)
<TOTAL-ASSETS> 70,733
<CURRENT-LIABILITIES> 16,229
<BONDS> 0
<COMMON> 24,515
0
0
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 70,733
<SALES> 0
<TOTAL-REVENUES> 5,380
<CGS> 3,445
<TOTAL-COSTS> 4,683
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 743
<INCOME-PRETAX> (42)
<INCOME-TAX> (13)
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (29)
<EPS-PRIMARY> .00
<EPS-DILUTED> (.01)
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