SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Amendment No. ______________)
Filed by the Registrant /X/
Filed by a party other than the Registrant / /
Check the appropriate box:
/X/ Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/ / Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Sec. 240.14a-11(c) or Sec. 240.14a-12
CHALONE WINE GROUP
------------------------------------------------
(Name of Registrant as Specified in Its Charter)
CHALONE WINE GROUP
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2)
or Item 22(a)(2) or Schedule 14A
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transactions applies:
- ----------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- ----------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing
fee is calculated and state how it was determined):
- ----------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- ----------------------------------------------------------------------------
(5) Total fee paid:
- ----------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
(1) Amount previously paid:
- ----------------------------------------------------------------------------
(2) Form, Schedule or Registration Statement No.:
- ----------------------------------------------------------------------------
(3) Filing party:
- ----------------------------------------------------------------------------
(4) Date filed:
- ----------------------------------------------------------------------------
<PAGE>
================================================================================
CHALONE
Wine Group
================================================================================
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
OF
THE CHALONE WINE GROUP, LTD.
September 21, 1995
PLEASE TAKE NOTICE THAT a Special Meeting of Shareholders of THE
CHALONE WINE GROUP, LTD., will be held at the Company's executive offices, 621
Airpark Road, Napa, California, on Thursday, September 21, 1995, commencing at
the hour of 10:00 a.m..
Shareholders of record as of the close of business on August 2, 1995,
will be entitled to vote at the meeting.
The meeting will be held for the following purposes:
1. For approval of transactions with Domaines Barons de Rothschild
(Lafite) and Summus Financial, Inc., et al., pursuant to the terms
of an Omnibus Agreement dated August , 1995.
----
2. Consideration and action on any other matter of business properly
brought before the meeting.
Management's proxy and proxy statement are enclosed.
You are requested to date and sign the enclosed proxy, which is
solicited by the Company's Board of Directors, and to return it promptly in the
envelope which is also enclosed. Shareholders who execute and return proxies
retain the right to revoke them at any time prior to the voting thereof.
By Order of the Board of Directors
F. Conger Fawcett
Secretary
Napa, California
August , 1995
-----
YOUR VOTE IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN. WHETHER OR
NOT YOU PLAN TO BE PRESENT AT THE MEETING, PLEASE COMPLETE, DATE, SIGN, AND
RETURN THE ENCLOSED PROXY PROMPTLY.
<PAGE>
================================================================================
CHALONE
Wine Group
===============================================================================
PROXY STATEMENT
-------------------------------------------
SPECIAL MEETING OF SHAREHOLDERS
September 21, 1995
--------------------------------------------
INFORMATION CONCERNING THE SOLICITATION
This Proxy Statement is furnished in connection with the solicitation
of proxies by the Board of Directors of THE CHALONE WINE GROUP, LTD. ("the
Company"), for a Special Meeting of Shareholders to be held September [21],
1995. The proxies solicited are revocable at any time prior to the voting
thereof. All properly executed proxies received by the Company and not revoked
will be voted as directed or, if no direction is given, will be voted (except
where excluded):
For approval of transactions with Domaines Barons de Rothschild
(Lafite) and Summus Financial, Inc., et al., pursuant to the terms
of an Omnibus Agreement dated August , 1995.
---
The proxies will also be voted in the discretion of the appointed proxy-holders
on any other matter of business properly brought before the meeting.
The cost of soliciting proxies in the enclosed form will be borne by
the Company. The Company may reimburse brokerage firms and other persons
representing beneficial owners of shares for their expenses incurred in
forwarding solicitation materials to such beneficial owners. Proxies may also be
solicited personally or by telecommunication by one or another of the Company's
directors, officers, and/or employees, at no additional compensation.
Pursuant to Section 2.9 of the Company's By-Laws, the record date for
the determination of the shareholders of the Company entitled to vote at the
Special Meeting has been fixed at August 2, 1995. The Company had outstanding,
as of such record date, a total of 4,973,580 shares of its common stock, its
only class of voting securities. At the Special Meeting, and subject to the
qualification set forth in the next paragraph, each shareholder will be entitled
to one vote for each share held on the record date.
Any proxy given pursuant to this solicitation may be revoked by a
shareholder prior to the voting at the Special Meeting by written notice to the
Secretary of the Company, by submission of another proxy bearing a later date,
or upon oral request at the meeting.
The Meeting requires for due convocation the presence of a quorum
(2,486,791 shares) of total shares issued and outstanding; the Company will
count shares duly represented but abstaining, including broker non-votes,
towards the determination of whether a quorum exists. The proposal for which the
Meeting is convened is being submitted for shareholder approval pursuant to
Section 310 of the California Corporations Code. The Company has determined that
the matter will require, for adoption, the affirmative vote of a majority of a
quorum of the outstanding shares, excluding the shares held by Domaines Barons
de Rothschild (Lafite) and Summus Financial, Inc., as interested parties to the
transaction.
1
<PAGE>
APPROVAL OF THE TRANSACTIONS CONTEMPLATED BY THE OMNIBUS AGREEMENT
DATED AUGUST , 1995
---
INTRODUCTION
The Board of Directors is seeking to strengthen the Company's balance
sheet with a substantial increase in its equity base, and to convert its
essentially passive investment in Domaines Barons de Rothschild (Lafite) ("DBR")
into an active and more significant interest in Chateau Duhart-Milon, one of
DBR's properties. This is being done (1) to reduce debt that was accumulated
during a period of rapid expansion, thereby substantially reducing the Company's
interest expense, and (2) to increase the earnings reported on the Company's
foreign investment. The Company's Board of Directors believes that this will
allow the Company to be in a stronger position to take advantage of future
opportunities.
SUMMARY OF TERMS
On April 26, 1995, the Company reached agreement in principle with its
two largest shareholders, DBR and Summus, for the infusion of substantial new
equity into the Company and a restructuring of the Company's operational
relationship with DBR and its affiliated group of companies. On August ___,
1995, the Company, DBR, and Summus executed a formal agreement, designated the
Omnibus Agreement ("the Agreement"), reducing the points of agreement in
principle to binding contract, subject to the approval of the Company's
shareholders here being sought. A copy of the Agreement, with its Exhibits, is
included as Appendix I to this Proxy Statement. The principal terms of the
Agreement may be summarized as follows:
1. DBR will convert its $12.4 million principal amount of the Company's
convertible debentures (the "DBR debentures"), at a conversion price of $7.00,
into 1,769,143 shares of common stock. (A similar conversion offer was extended
to the third-party holders of an additional $8.5 million in similar debentures,
none of whom, however, elected to convert).
2. The Company will receive a total of $5 million, in cash, contributed
in equal amounts of $2.5 million by DBR and Summus, in return for the issuance
to each of 416,667 units, each unit consisting of one share of common stock and
one warrant for the purchase of one share of common stock, at a per-unit price
of $6.00. The warrants, which have a five-year term, are exercisable at
$8.00/share.
3. The Company will contribute essentially all of its existing
ownership in DBR for a 23.5% interest in Societe Civile Chateau Duhart-Milon
(sometimes "Societe Civile De Duhart-Milon-Rothschild") ("Duhart-Milon"), an
affiliated company of DBR and a classified fourth-growth Bordeaux wine-producing
estate located in Pauillac, France. The effect of this element of the overall
transaction will be to convert an essentially passive 11.3% interest in DBR into
an interest in an active, operating vineyard and winery operation, with
potentially significantly greater earnings for the Company.
4. The Company will retain one share of stock in DBR and will continue
to hold one seat on DBR's board of directors (Conseil de Surveillance), with the
Company's President continuing to fill that seat.
5. The Company's Board of Directors will be increased from the current
nine to eleven positions, with each of DBR and Summus given the right to
designate a nominee to one of the newly created positions.
6. DBR will be released from its existing "standstill" restriction on
increasing its ownership position in the Company, but with a commitment not to
increase that position to over 49.9% of total shares outstanding, on a fully
diluted basis, through December 31, 1999.
ECONOMIC EFFECTS
The conversion of the DBR debentures will at once terminate an annual
interest expense to the Company of approximately $600,000. Application of the
proceeds from the $5 million in new equity to reduce line-of-credit debt will
save approximately an additional $400,000 in annual interest costs. These two
together, therefore, will reduce the Company's annual interest expense by
approximately $1 million.
The conversion of the Company's 11.3% equity interest in DBR to a 23.5%
equity interest in Duhart-Milon is also expected to have a marked positive
effect in the Company's financial position. Dividend income on the Company's DBR
stock has typically amounted to approximately $60,000 per annum. Conversely, the
23.5% interest in the Duhart-Milon partnership is expected, based on 1994
performance, to amount to something in the vicinity of $280,000 per annum.
As shown in the pro forma financial statements which follow in a later
section of this Proxy Statement, if the transaction had been in effect for all
of 1994, net earnings per share would have risen from essentially zero to
$0.10/share, and, for the first quarter of 1995, would have reduced the per
share loss from $0.05 to $0.01.
2
<PAGE>
FAIRNESS OPINION
Because of the broad scope and importance of the transaction, the
Company's Board of Directors (acting throughout the negotiations as a committee
of six, that is, exclusive of the two directors affiliated with DBR and the one
director affiliated with Summus) engaged the services of Hambrecht & Quist LLC
("Hambrecht & Quist") to assist in the negotiations, to act as financial advisor
in evaluating the various elements of the transaction, and ultimately to render
an opinion to the Board as to the fairness of the terms of the transaction to
the Company from a financial point of view.
Hambrecht & Quist is an internationally recognized investment banking
firm and is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, corporate
restructurings, strategic alliances, negotiated underwritings, secondary
distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. The Company's Board selected
Hambrecht & Quist on the basis of such experience and its knowledge of the
Company through prior engagements.
In the past, Hambrecht & Quist has provided investment banking and
other financial advisory services to the Company and has received customary fees
for rendering these services. Hambrecht & Quist may in the future provide
further similar services to the Company. In the ordinary course of business,
Hambrecht & Quist acts as a market maker and broker in the publicly traded
securities of the Company and receives customary compensation in connection
therewith. In the ordinary course of business, Hambrecht & Quist actively trades
in the publicly traded securities of the Company for its own account and for the
accounts of its customers and, accordingly, may at any time hold a long or short
position in such securities.
Pursuant to the terms of the Company's engagement letter with Hambrecht
& Quist, the Company agreed to pay Hambrecht & Quist, upon consummation of the
transaction, a fee of $100,000 for its services, which included the rendering of
its opinion. The Company also agreed to reimburse Hambrecht & Quist for its
reasonable out-of-pocket expenses, including certain fees and expenses of
counsel, and to indemnify Hambrecht & Quist against liabilities under the
federal securities laws or relating to or arising out of Hambrecht & Quist's
engagement as financial advisor.
Hambrecht & Quist assisted the Board throughout the negotiations, both
those leading up to the agreement in principle announced April 27, 1995, and
those ensuing thereafter, in the preparation of final documents.
In connection with its review of the transaction, and in arriving at
its opinion, Hambrecht & Quist, among other things: (i) reviewed the publicly
available financial statements of the Company for recent years and interim
periods to date and certain other relevant financial and operating data of the
Company made available from published sources and from the internal records of
the Company; (ii) reviewed certain internal financial and operating information,
including certain projections, relating to the Company's prepared by the
management of the Company; (iii) discussed the business, financial condition and
prospects of the Company with certain of its officers and directors; (iv)
reviewed the information provided by DBR regarding the relative values of the
DBR holdings; (v) reviewed the terms of the convertible debentures; (vi)
reviewed publicly available information to determine the range of discounts from
publicly traded stock prices offered in private placements; (vii) participated
in the negotiations of the terms of the Agreement; (viii) reviewed the
Agreement; (ix) discussed the tax and accounting treatment of the transaction
with the Company and the Company's counsel; and (x) performed such other
analyses and examinations and considered such other information, financial
studies, analyses and investigations and financial, economic and market data as
were deemed relevant. The Company imposed no limitations on Hambrecht & Quist
with respect to the scope of its investigation or the procedures followed in
preparing and rendering its opinion.
Hambrecht & Quist did not assume responsibility for independent
verification of the information concerning either the Company or DBR considered
in connection with its review of the transaction, but, for purposes of its
fairness opinion, assumed and relied upon the accuracy and completeness of all
such information as provided to it. Hambrecht & Quist did not prepare or obtain
any independent valuation or appraisal of the assets or liabilities of either
the Company or DBR, nor did it conduct a physical inspection of the properties
or facilities of either the Company or DBR. For purpose of its opinion,
Hambrecht & Quist assumed that neither the Company nor DBR is a party to any
pending transactions, including external financings, recapitalizations or merger
discussions, other than those of concern here and those arising in the ordinary
course of conducting their respective businesses. Hambrecht & Quist advises that
its opinion is necessarily based on market, economic, financial and other
conditions as they existed and could be evaluated on the date of the opinion,
and any change in such conditions would require a reevaluation of the opinion.
Hambrecht & Quist performed a variety of financial analyses, in
connection with the rendering of its opinion. The following is a summary of the
financial analyses so performed and reviewed with the Company's Board prior to
the issuance of the opinion. The preparation of a fairness opinion involves
various determinations as to the most appropriate and relevant quantitative and
qualitative methods of financial analyses and the application of those methods
to particular circumstances, and, therefore, such an opinion is not readily
susceptible to summary description. The summary of the analyses set forth below
does not purport to be a complete description of the presentation made by
Hambrecht & Quist to the Company's Board. In arriving at its opinion, Hambrecht
& Quist did not attribute any particular weight to any analysis or factor
considered by it, but rather made qualitative judgments as to the significance
and relevance of each analysis and factor. Accordingly, Hambrecht & Quist
believes that its analyses and the summary set forth below must be considered as
a whole
3
<PAGE>
and that selecting portions of its analyses without considering all analyses, or
portions of the following summary without considering all factors and analyses,
could create an incomplete view of the processes underlying the analyses set
forth in the Hambrecht & Quist presentation and opinion. In performing its
analyses, Hambrecht & Quist made numerous assumptions with respect to industry
performance, general business and economic conditions and other matters, many of
which are beyond the control of the Company. The analyses performed by Hambrecht
& Quist are not necessarily indicative of actual values of actual future
results, which may be significantly more or less favorable than suggested by
such analyses. Additionally, analyses relating to the values of businesses do
not purport to be appraisals or to reflect the prices at which businesses
actually may be sold.
Analysis of the Company's Convertible Debt. Hambrecht & Quist analyzed
the value of the convertible debentures by comparing the coupon rate to that of
other bonds estimated to have similar investment risk profiles and by computing
the value of the conversion feature using a derivative of the "Black-Scholes"
option pricing model. The result of this analysis was then divided by the
current share price and compared to the negotiated terms.
Review of Private Placement Discounts. Hambrecht & Quist reviewed
publicly available information to determine the range of discounts from the
publicly traded stock price offered in private placements. These discounts were
compared to the negotiated terms.
Analysis of Duhart-Milon Exchange. Hambrecht & Quist analyzed the
relative value of the Duhart-Milon asset as compared to the Company's ownership
interest in DBR. Hambrecht & Quist compared the value of the DBR holdings with
and without Duhart-Milon. Hambrecht & Quist then computed the percentage
ownership the Company should receive in Duhart-Milon based on its contribution
of its DBR interest to the Duhart-Milon partnership. This percentage interest
was then compared to the negotiated terms.
Based on its analysis, on August , 1995, Hambrecht & Quist issued
----
its written opinion that, as of that date, the terms of the transaction were
fair to the Company from a financial point of view. No opinion was expressed as
to the adequacy of any consideration received in the transaction by DBR, Summus,
or any affiliate of either of them, other than the Company itself. Moreover, the
opinion addressed only the fairness of the terms of the transaction to the
Company from a financial point of view, and should not be considered as a
recommendation to any shareholder of the Company as to how to cast his or her
vote.
A copy of the August , 1995, fairness opinion, which sets forth the
----
assumptions made, the matters considered, the scope and limitations of the
review undertaken, and the procedures followed, is attached as Appendix II to
this Proxy Statement. The foregoing discussion and summary is qualified in its
entirety by reference to that full opinion.
4
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA
The following selected financial data for the years ended December 31,
1994, 1993, 1992, 1991, and 1990, and the three months ended March 31, 1995, are
derived from the audited financial statements of the Company and of
Duhart-Milon. The pro forma table is expanded upon in the next section, PRO
FORMA FINANCIAL INFORMATION. The data presented should be read in conjunction
with the financial statements of the Company on file with the Securities and
Exchange Commission and the financial statements of Duhart-Milon included as
Appendix III to this Proxy Statement.
<CAPTION>
3 Months
Ended Year Ended December 31,
March 31, ------------------------------------------------------------
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
The Chalone Wine Group, Ltd.
Statement of Operations Data:
Wines sales ..................................... $ 4,423 $ 21,132 $ 18,325 $ 17,319 $14,951 $ 14,182
Gross profit .................................... 1,497 7,504 6,395 6,309 6,855 6,886
Selling, general and
administrative expenses ...................... 1,221 4,633 4,432 4,610 4,119 3,760
Operating income ................................ 276 2,871 1,963 1,699 2,736 3,126
Other expense ................................... (727) (2,561) (2,482) (2,494) (2,144) (1,518)
Minority interest ............................... (5) (188) (372) (269) (429) (454)
Net (loss) earnings ............................. (263) 20 (691) (741) 58 650
(Loss) Earnings per common
share ........................................ (0.05) -- (0.16) (0.19) 0.02 0.18
Balance Sheet Data:
Working capital ................................. 16,680 17,136 15,291 11,606 13,349 12,892
Total assets .................................... 70,299 72,225 72,078 70,413 67,928 50,030
Long-term obligations ........................... 26,339 26,425 27,387 30,418 31,944 19,658
Shareholders' equity ............................ 23,931 24,199 22,699 17,030 17,081 16,295
Societe Civile de Duhart-Milon-Rothschild
Statement of Operations Data:
Wines sales ..................................... FF 4,464 FF14,738 FF12,031 FF18,854 n/a n/a
Gross profit .................................... 1,354 4,735 2,887 8,980 n/a n/a
Selling, general and
administrative expenses ...................... 164 1,267 888 1,411 n/a n/a
Operating income ................................ 1,190 3,468 1,999 7,569 n/a n/a
Other income (expense) .......................... (160) (401) (490) 191 n/a n/a
Net (loss) earnings ............................. 1,030 3,067 1,509 7,760 n/a n/a
Balance Sheet Data:
Working capital (deficit) ....................... (2,836) (140) (1,107) n/a n/a n/a
Total assets .................................... 33,138 33,142 31,469 n/a n/a n/a
Long-term obligations ........................... -- -- -- n/a n/a n/a
Shareholders' equity ............................ 10,495 12,864 12,553 n/a n/a n/a
</TABLE>
5
<PAGE>
<TABLE>
SELECTED FINANCIAL DATA (CONTINUED)
<CAPTION>
3 Months
Ended Year Ended December 31,
March 31, -------------------------------------------------------
1995 1994 1993 1992 1991 1990
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
The Chalone Wine Group, Ltd.-Pro Forma
Statement of Operations Data:
Wines sales .................................. $ 4,423 $ 21,132 n/a n/a n/a n/a
Gross profit ................................. 1,497 7,504 n/a n/a n/a n/a
Selling, general and
administrative expenses ................... 1,214 4,605 n/a n/a n/a n/a
Operating income ............................. 283 2,899 n/a n/a n/a n/a
Other expense ................................ (472) (1,605) n/a n/a n/a n/a
Earnings of equity interest .................. 67 282 n/a n/a n/a n/a
Minority interest ............................ (5) (188) n/a n/a n/a n/a
Net (loss) earnings .......................... (69) 774 n/a n/a n/a n/a
(Loss) Earnings per common
share ........................................ (0.01) 0.10 n/a n/a n/a n/a
Balance Sheet Data:
Working capital .............................. 22,125 n/a n/a n/a n/a n/a
Total assets ................................. 71,110 n/a n/a n/a n/a n/a
Long-term obligations ........................ 13,955 n/a n/a n/a n/a n/a
Shareholders' equity ......................... 42,249 n/a n/a n/a n/a n/a
</TABLE>
6
<PAGE>
PRO FORMA FINANCIAL INFORMATION
Pro Forma Balance Sheet Information
The following table sets forth pro forma unaudited condensed balance
sheet information for the Company as of March 31, 1995, adjusted to reflect the
various economic elements of the transaction, including the acquisition of the
interest in Duhart-Milon (treated as a purchase for accounting purposes), as
described in the accompanying footnotes. The pro forma balance sheet information
is based, in relevant part, on the separate balance sheets of the Company and
Duhart-Milon, as if the entire transaction, including the Duhart-Milon element,
had taken place on December 31, 1994.
The pro forma information should be read in conjunction with the
financial statements of the Company on file with the Securities and Exchange
Commission and the financial statements of Duhart-Milon included as Appendix III
to this Proxy Statement.
The pro forma information is presented for informational purposes only,
and is not necessarily indicative of the financial position of the Company had
the transactions in fact been consummated on December 31, 1994, nor as it may be
in the future.
<TABLE>
The Chalone Wine Group, Ltd.
Balance Sheet
(in thousands)
<CAPTION>
Pro Forma Pro Forma
March 31, 1995 Adjustments March 31,1995
-------------------------------------------
<S> <C> <C> <C>
Inventories .......................... $ 28,740 -- $ 28,740
Other current assets ................. 4,013 $ 580(1) 4,593
-------- --------
TOTAL CURRENT ASSETS .............. 32,753 33,333
DBR investment ....................... 12,524 (12,524)(2) --
Duhart-Milon investment -- 12,524(2) 12,873
349(3)
Property, plant and equipment - net .. 20,299 20,299
Other assets ......................... 4,723 (118)(4) 4,605
-------- --------
TOTAL ASSETS ...................... $ 70,299 $ 71,110
======== ========
Bank lines of credit ................. $ 13,708 (5,000)(5) $ 8,708
Income taxes payable ................. 135(6) 135
Other current liabilities ............ 2,365 2,365
-------- --------
TOTAL CURRENT LIABILITIES .......... 16,073 11,208
Long term debt less current maturities 5,455 5,455
Convertible subordinated debentures .. 20,884 (12,384)(7) 8,500
Other liabilities .................... 3,956 (258)(1) 3,698
Common stock ......................... 24,467 12,384(7) 41,851
5,000(5)
(118)(4)
Shareholder deficit .................. (536) 934(6) 398
-------- --------
TOTAL SHAREHOLDERS' EQUITY ........ 23,931 42,249
-------- --------
TOTAL LIABILITIES & EQUITY ........ $ 70,299 $ 71,110
======== ========
<FN>
- --------------------------------------
(1) To record increased cash from lower interest expense net of reduced
interest expense attributable to converted debentures.
(2) To eliminate 14,054 shares of DBR held by the Company and set up
Duhart-Milon investment.
(3) To record effect of equity in earnings of Duhart-Milon for the year
ended December 31, 1994 and the quarter ended March 31, 1995.
(4) To write off unamortized balance of capitalized debenture costs on
converted debentures against common stock.
(5) To issue 416,667 shares of common stock at $6.00/share to each of DBR
and Summus and reduce bank lines of credit using proceeds from issuance
of common stock.
(6) To reflect the effect of (5) and (7) on shareholder deficit, net of
taxes.
(7) To eliminate debentures held by DBR converted to common stock at
$7.00/share and issue 1,769,143 shares of common stock at $7.00/share
for the DBR debentures converted.
</FN>
</TABLE>
7
<PAGE>
PRO FORMA FINANCIAL INFORMATION (CONTINUED)
Pro Forma Operating Information
The following two tables set forth pro forma condensed unaudited
statements of operation for the Company as of December 31, 1994, and March 31,
1995, respectively, adjusted to reflect the various economic elements of the
transaction, including the acquisition of the interest in Duhart-Milon, as
described in the accompanying footnotes. The statements are based, in relevant
part, on the historical results of operations of the Company and of
Duhart-Milon, as if the entire transaction, including the Duhart-Milon element,
had taken place on December 31, 1994. These pro forma statements should be used
in conjunction with the financial statements of the Company on file with the
Securities and Exchange Commission and the financial statements of Duhart-Milon
included as Appendix III to this Proxy Statement.
The pro forma information is presented for informational purposes only,
and is not necessarily indicative of the results of operations had the
transactions in fact been consummated on December 31, 1994, or as they may be in
the future.
The Chalone Wine Group, Ltd.
Income Statement
(in thousands, except per share data)
12 Months Ending Pro Forma
December 31, Pro Forma December 31,
1994 Adjustments 1994
------------------------------------------
Wine sales ..................... $ 21,132 $ 21,132
Cost of sales .................. 13,628 13,628
----------------------------------------
Gross Profit ............... 7,504 7,504
SG&A expenses .................. 4,633 $ (29)(1) 4,605
----------------------------------------
Operating Income ........... 2,870 2,899
Interest, net .................. (2,753) 400(2) (1,734)
619(3)
Other, net ..................... 192 (63)(4) 128
----------------------------------------
Total Other ................ (2,561) (1,605)
Earnings of equity interest .... 282(5) 282
Minority interest .............. (188) (188)
----------------------------------------
Earnings before tax ........ 121 1,388
Income taxes ................... 101 513(6) 614
----------------------------------------
Net Earnings ................... $ 20 $ 754 $ 774
========================================
Net Earnings per share ......... $ 0.00 $ 0.10
Average number of shares ....... 4,826 2,602(7) 7,429
========================================
- ---------------------------------
(1) To reduce amortization of capitalized DBR debenture costs assumed to have
been written off on January 1, 1994.
(2) To reduce interest expense by assuming that the $5,000,004 proceeds from
issuance of common stock to DBR and Summus are applied against the
Company's bank lines of credit. Interest on such lines of credit is
variable based on the prime rate and the average rate for 1994 is
estimated as 8%.
(3) To reduce interest expense on DBR debentures as if converted at the
beginning of the year.
(4) To reduce dividend income for the year on 14,054 shares of DBR stock.
(5) To record effect of equity in earnings of Duhart-Milon for the year ended
December 31, 1994.
(6) To adjust income tax expense by change in earnings before income tax
using the statutory income tax rate of 40.5% applicable to the Company
during 1994.
(7) To increase average number of shares outstanding for earnings per share
calculation due to the issuance of 1,769,143 shares of common stock for
DBR debentures converted, and 416,667 shares issued to each of DBR and
Summus.
8
<PAGE>
PRO FORMA FINANCIAL INFORMATION (CONTINUED)
The Chalone Wine Group, Ltd.
Income Statement
(in thousands, except per share data)
Three Months
Ended Pro Forma
March 31, Pro Forma March 31,
1995 Adjustments 1995
--------------------------------------
Wine sales ........................ $ 4,423 $ 4,423
Cost of sales ..................... 2,926 -- 2,926
--------------------------------------
Gross Profit .................. 1,497 -- 1,497
SG&A expenses ..................... 1,221 $ (7)(1) 1,214
--------------------------------------
Operating Income .............. 276 -- 283
Interest, net ..................... (736) 155(2) (481)
100(3)
Other, net ........................ 9 -- 9
--------------------------------------
TOTAL OTHER ..................... (727) -- (472)
Earnings of equity interest ....... -- 67(4) 67
Minority interest ................. (5) -- (5)
--------------------------------------
Earnings before tax ........... (456) -- (127)
Income taxes ...................... (193) 135(5) (58)
--------------------------------------
Net Earnings .................. $ (263) 194- $ (69)
======================================
--
Net Earnings per share ............ $ (0.05) -- $ (0.01)
======== =======
Average shares outstanding ........ 4,961 2,602(6) 7,563
======================================
- ----------------------------
(1) To reduce amortization of capitalized DBR debenture costs assumed to have
been written off on January 1, 1994.
(2) To reduce interest expense on DBR debentures as if converted in the
previous period.
(3) To reduce interest expense by assuming that the $5,000,004 proceeds from
issuance of common stock to DBR and Summus are applied against the
Company's bank lines of credit. Interest on such lines of credit is
variable based on the prime rate and the average rate for the first
quarter of 1995 is estimated as 8%.
(4) To record effect of equity in earnings of Duhart-Milon for the year ended
December 31, 1994.
(5) To adjust income tax expense by change in earnings before income tax
using the statutory income tax rate of 40.5% applicable to the Company
during 1995.
(6) To increase average number of shares outstanding for earnings per share
calculation due to the issuance of 1,769,143 shares of common stock for
DBR debentures converted, and 416,667 shares issued to each of DBR and
Summus.
9
<PAGE>
EQUITY OWNERSHIP
A result of the transaction will be to increase the equity positions of
DBR and Summus to, respectively, 40.6% and 13.8% of shares of the Company's
common stock actually issued and outstanding, and 36.0% and 16.3% on a
fully-diluted basis. DBR has committed not to increase its fully-diluted equity
position over 49.9% through December 31, 1999.
BOARD REPRESENTATION
DBR currently has two nominees on the Company's Board of Directors,
Baron Eric de Rothschild and Christophe Salin, DBR's Managing Director and
President, respectively. Summus currently has one nominee on the Company's
Board, its President, Richard C. Hojel. Under the Omnibus Agreement, the size of
the Company's Board will be increased from the current nine to eleven, and each
of DBR and Summus is given the right to designate one additional nominee.
Assuming shareholder approval of the transaction and Agreement, these two
nominees will be appointed to the Board of Directors effective immediately. The
Company has undertaken to include the three DBR designees and the two Summus
designees in management's recommended slate of directors to be elected at the
1996 Annual Meeting of Shareholders. The Company has no contractual commitment
respecting directorships beyond that point, except for the maintenance of the
Board size at eleven. However, DBR, Summus, and the Company's President, Mr.
Woodward, acting in his individual capacity, will enter into a voting agreement
amongst themselves respecting future directorship votes. The Voting Agreement, a
true copy of which is attached as Exhibit D to Appendix I, has a five-year term.
A prior voting Agreement, which came into existence in 1993, will
contemporaneously be canceled.
ANTI-DILUTION ADJUSTMENT OF THIRD-PARTY CONVERTIBLE DEBENTURES
In addition to the $12.4 million in convertible debentures held by DBR
and committed to be converted as a major part of this transaction, there are
additionally four other convertible debentures, essentially identical in terms
to the DBR debentures, in a total principal sum of $8.5 million. Although
offered the right to convert their debentures on the same terms as the DBR
debentures will be converted, the four third-party holders declined. As a
result, those continuing debentures will experience a further anti-dilution
adjustment to the conversion price, occasioned by the DBR debenture conversion
and the issuance of new stock and warrants. The unadjusted conversion rate is
now $10.02 per share; upon adjustment the conversion rate will be $8.81 per
share. If and to the extent the warrants being issued to DBR and Summus in this
transaction, and/or any of the earlier issued and outstanding warrants, are not
exercised, appropriate readjustment to that conversion rate will be made, in the
manner set forth in the debentures.
FINANCIAL STATEMENTS ATTACHED AND INCORPORATED
Attached hereto as Appendix III are the following Financial Statements
of Societe Civile De Duhart-Milon-Rothschild (Societe Civile Chateau
Duhart-Milon):
a. Balance Sheets at December 31, 1994 and 1993;
b. Statements of Income and Retained Earnings for 12 months ended
December 31, 1994, 1993 and 1992;
c. Statements of Cash Flows for 12 months ended December 31, 1994,
1993 and 1992;
d. Notes to Financial Statements;
e. Independent Auditors' Report
f. Balance Sheets at March 31, 1995 and 1994 (unaudited);
g. Statements of Income and Retained Earnings for three months ended
March 31, 1995 and 1994 (unaudited);
h. Statements of Cash Flows for three months ended March 31, 1995 and
1994 (unaudited).
Additionally, there are incorporated herein by reference, the Company's
financial statements and schedules, and other information, contained in its
Annual Report on Form 10-K dated March 22, 1995, and its Quarterly Reports on
Form 10-Q dated May 9, 1995, and August , 1995.
---
10
<PAGE>
Finally, the documents subsequently filed by the Company pursuant to
Sections 13(a), 13(c), 14 and/or 15(d) of the Securities Exchange Act of 1934,
from the date of this Proxy Statement through the date of the Special Meeting to
which it pertains, currently called for September 21, 1995, shall be deemed to
be incorporated herein by reference.
REQUIRED VOTE; RECOMMENDATION
Under Section 310 of the California Corporations Code and the terms of
the Agreement, approval of the transaction requires the affirmative vote of a
majority of the outstanding shares, excluding from the vote the shares held by
DBR and Summus. Thus the minimum required affirmative vote is 1,711,831 of the
Company's outstanding shares.
The Board of Directors of the Company, acting by and through its
six-member disinterested majority, strongly recommends approval of the
transaction.
OTHER MATTERS
The Company knows of no matters other than that discussed hereinabove
to be considered at the Special Meeting. Should any other matter properly come
before the Meeting, the holder of the proxies herein solicited will vote thereon
in their discretion.
Dated: August , 1995.
----
By Order of The Board of Directors
F. Conger Fawcett
Secretary
11
<PAGE>
THE CHALONE WINE GROUP, LTD.
PROXY SOLICITED ON BEHALF OF MANAGEMENT
For Special Meeting of Shareholders, September 21, 1995
KNOW ALL MEN BY THESE PRESENTS that the undersigned, shareholder(s) of
THE CHALONE WINE GROUP, LTD. do(es) hereby appoint W. PHILIP WOODWARD and F.
CONGER FAWCETT, and each of them, proxies, each with full power of substitution,
for and in the name and stead of the undersigned at a Special Meeting of
Shareholders of THE CHALONE WINE GROUP, LTD., to be held on September 21, 1995,
and at any and all adjournments thereof, to vote all shares of capital stock
held by the undersigned, with all powers that the undersigned would possess if
personally present, on each of the matters referred to herein.
If no direction is made, this proxy will be voted FOR the proposal set
forth in management's proxy solicitation for the Meeting.
SEE REVERSE
SIDE
(Continued and to be signed on reverse side)
O-B-V-E-R-S-E
Please mark
votes as in
this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING PROPOSAL:
FOR AGAINST ABSTAIN
PROPOSAL: Approval of the transactions with Domaines Barons de
Rothschild (Lafite) and Summus Financial, Inc., et al.,
pursuant to Omnibus Agreement dated August , 1995.
----
MARK HERE
FOR ADDRESS
CHANGE AND
NOTE AT LEFT
This proxy revokes any and all other
proxies heretofore given by the
undersigned.
Please sign exactly as name appears
hereon. When shares are held by joint
tenants, both should sign. When signing
as attorney, executor, administrator,
trustee, guardian or in a fiduciary
capacity, please give full title as
such. If a corporation, please sign in
full corporate name by President or
other authorized person.
Signature: Date
--------------- ---------
Signature: Date
--------------- ---------
R-E-V-E-R-S-E
<PAGE>
APPENDIX I
OMNIBUS AGREEMENT
THIS AGREEMENT is entered into by and among THE CHALONE WINE GROUP,
LTD. ("Chalone"), DOMAINES BARONS DE ROTHSCHILD (LAFITE) ("DBR"), and SUMMUS
FINANCIAL, INC. ("Summus"), this 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 worth of debenture
principal. (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.
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 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
<PAGE>
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 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 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 Delayed
Closing (as defined in paragraph 6 hereof), 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 (sometimes
also "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 Delayed Closing, and subject to the terms and conditions
of this Agreement, be executed by Chalone, DBR, and Societe Financierre
Viticole, SA ("SFV"). The same parties shall, also at the Delayed 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 Delayed 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; Delayed 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 21, 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 no later than September 22, 1995,
and the Delayed Closing shall take place September 29, 1995 (effective September
30, 1995). The Closing and the Delayed 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) 5,000
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,
4
<PAGE>
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
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 cancelled 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.
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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.
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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.
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 Section 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
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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:
"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.
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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
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 and/or Delayed Closing, as applicable (use of the singular
word "Closing" hereafter in this paragraph 10 understood to mean the Closing
and/or the Delayed Closing, as applicable), 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.
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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.
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 and/or
Delayed Closing, as applicable (use of the singular word "Closing" hereafter in
this paragraph 11 understood to mean the Closing and/or the Delayed Closing, as
applicable), 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.
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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 a share
certificate of Duhart-Milon 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).
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), as listed in subparagraph 10(gb) of this
Agreement, 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.
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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.
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
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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: J. Patrick Garrett
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 the current appraisal and audit of
Duhart-Milon referenced in subparagraph 2(a)(v) of this Agreement, which the
parties have agreed are to be for the account of Chalone, each 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.
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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
-----------------------------------------
W. Philip Woodward, President
DOMAINES BARONS DE ROTHSCHILD (LAFITE)
By
-----------------------------------------
Eric de Rothschild
Managing Director (Gerant)
SUMMUS FINANCIAL, INC.
By
-----------------------------------------
Richard C. Hojel, President
14
<PAGE>
EXHIBIT "A"
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.
THE SALE OR TRANSFER OF THIS INSTRUMENT IS RESTRICTED PURSUANT TO PARAGRAPH 4
HEREOF.
No. [95-1][95-2]
WARRANT
to Purchase 416,667 Shares of Common Stock
of
THE CHALONE WINE GROUP, LTD.
This is to certify that, for value received, (the
------------
"Holder"), is entitled to purchase, subject to the provisions of this Warrant,
from THE CHALONE WINE GROUP, LTD. (the "Company"), an aggregate of 416,667 fully
paid and nonassessable shares of the Company's no par value common stock
("Common Stock") at a price per share (the "Exercise Price") of U.S. $8.00. The
number of shares of Common Stock which may be received upon the exercise of this
Warrant and the Exercise Price are subject to adjustment from time to time as
hereinafter set forth. The terms and conditions set forth in this Warrant shall
be binding upon and inure to the benefit of the Holder and the Company and their
respective successors.
1. Exercise of Warrant. Subject to the provisions hereof, this Warrant
may be exercised (i) in whole, or (ii) in part, in increments of not less than
Ten Thousand (10,000) shares (except for any final increment which is less than
10,000 shares, which may be exercised for the full amount of that increment), at
any time after the issuance hereof, until the termination date set forth in
paragraph 9 hereof, by presentation and surrender to the Company, at the
principal office of the Company, of this Warrant, accompanied by a written
Notice of Exercise, substantially in the form attached hereto, and payment to
the Company, for the account of the Company and in immediately available funds,
of the Exercise Price for the number of shares of Common Stock specified in the
Notice. Upon such presentation, the Company shall promptly cause a certificate
or certificates for the shares to which the Holder is entitled to be issued and
delivered to the Holder. If the exercise is a partial exercise as hereinabove
permitted, the Company shall cause the appropriate notation to be made on the
Exercise Schedule attached to this Warrant and shall return the Warrant, with
the executed Schedule, to the Holder.
2. Reservation of Shares; Preservation of Rights of Holder. The Company
hereby agrees that at all times there shall be reserved for issuance and/or
delivery upon exercise of this Warrant, free from preemptive rights or any other
similar rights of stockholders of the Company or others, such number of shares
of authorized but unissued or treasury shares of its Common Stock as shall be
required for issuance or delivery upon exercise of this Warrant. The Company
further agrees (i) that it will not, by charter amendment or through
reorganization, consolidation, merger, dissolution or sale of assets, or by any
other voluntary act or inaction, avoid or seek to avoid the observance or
performance of any of the covenants, stipulations or conditions to be observed
or performed hereunder by the Company, and (ii) promptly to take all action as
may from time to time be required (including compliance with applicable federal
and state laws and regulations) in order to permit the Holder to exercise this
Warrant and the Company duly and effectively to issue Common Stock pursuant
hereto.
<PAGE>
3. Fractional Shares. The Company shall not be required to issue
fractional shares of Common Stock upon any exercise of this Warrant but shall
pay for any such fraction of a share, in cash, at the applicable percentage of
the Exercise Price.
4. Loss of Warrant. Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of this
Warrant, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification provided by the Holder, at the Holder's expense, or
upon surrender of this Warrant, if mutilated, the Company will execute and
deliver a new Warrant of like tenor and date.
5. Rights of the Holder. The Holder shall not by virtue hereof be
entitled to any rights of a shareholder in the Company.
6. Adjustment Provisions.
a. The number of shares of Common Stock purchasable upon the
exercise hereof shall be subject to adjustment from time as provided in this
paragraph 6.
(1) In case the Company shall pay or made a dividend or
other distribution on any class of capital stock of the
Company in Common Stock, the number of shares of Common Stock
purchasable upon exercise hereof shall be increased by
multiplying the number of shares so purchasable immediately
prior to such distribution by a fraction of which the
denominator shall be the number of shares of Common Stock
outstanding at the close of business on the day immediately
preceding the date of such distribution and the numerator
shall be the sum of such number of shares and the total number
of shares constituting such dividend or other distribution,
such increase to become effective immediately after the
opening of business on the day following such distribution.
(2) In case outstanding shares of Common Stock shall be
subdivided into a greater number of shares of Common Stock,
the number of shares of Common Stock purchasable upon exercise
hereof at the opening of business on the day following the
date upon which such subdivision becomes effective shall be
proportionately increased, and, conversely, in case
outstanding shares of Common Stock shall be combined into a
smaller number of shares of Common Stock, the number of shares
of Common Stock purchasable upon exercise hereof at the
opening of business on the day following the day upon which
such combination becomes effective shall be proportionately
decreased, such increase or decrease, as the case may be, to
become effective immediately after the opening of business on
the day following the day upon which such subdivision or
combination becomes effective.
(3) In the event the Company shall make a distribution on
its Common Stock in securities other than Common Stock, the
number of shares of Common Stock purchasable upon exercise of
the Warrant immediately prior thereto shall be adjusted so
that the Warrant shall be exercisable into the kind and number
of securities of the Company which the Holder would have owned
or been entitled to receive after the happening of such event
had the Warrant been exercised immediately prior to the
happening of such event.
(4) The reclassification (including any reclassification
upon a merger in which the Company is the continuing
corporation) of Common Stock into securities other than Common
Stock shall be deemed to involve a subdivision or combination,
as the case may be, of the number of shares of Common Stock
outstanding immediately prior to such reclassification into
the number of shares of Common Stock outstanding immediately
thereafter and the effective date of such reclassification
shall be deemed to be "the day upon which such subdivision
becomes effective" or "the day upon which such combination
becomes effective," as the case may be, within the meaning of
subparagraph (2), above.
2
<PAGE>
(5) In case of any reclassification or capital
reorganization of outstanding shares of Common Stock, or in
case of any consolidation or merger of the Company with or
into another corporation (other than a merger with a
subsidiary in which merger the Company is the continuing
corporation and which does not result in any reclassification
or capital reorganization of outstanding shares of Common
Stock of the class issuable upon exercise of the Warrant) or
in case of any sale, lease or conveyance to another
corporation of the property of the Company as an entirety, the
Company shall, as a condition precedent to such transaction,
cause effective provisions to be made so that the Holder shall
have the right thereafter, by exercising the Warrant at any
time prior to the expiration of the Warrant, to purchase the
kind and amount of shares of stock and other securities and
property receivable upon such reclassification or capital
reorganization and consolidation, merger, sale or conveyance.
Any such provision shall include provision for adjustments
which shall be as nearly equivalent as may be practicable to
the adjustments provided for in the Warrant. The foregoing
provisions of this subparagraph (5) shall similarly apply to
successive reclassification or capital reorganizations of
shares of Common Stock and to successive consolidations,
mergers, sales or conveyances. In the event that in connection
with any such capital reorganization or reclassification,
consolidation, merger, sale or conveyance, additional shares
of Common Stock shall be issued in exchange, conversion,
substitution or payment, in whole or in part, for a security
of the Company other than Common Stock, any such issue shall
be treated as an issue of Common Stock covered by the
provisions of subparagraph a(1) of this paragraph 6.
(6) If the Company shall issue shares of Common Stock
(including issuance upon exercise of a conversion right under
securities convertible into Common Stock, but excluding
issuances pursuant to any of the Plans or other reservations
described in subparagraph 7(b) of that certain Omnibus
Agreement dated August , 1995), for a consideration per
----
share less than the lower of the Exercise Price or the Current
Market Price on the date of issuance of the Common Stock, the
number of shares of Common Stock purchasable upon exercise of
this Warrant shall be increased by multiplying the number of
shares so purchasable immediately prior to such issuance by a
fraction, the denominator of which shall be the sum of (a) the
number of shares of Common Stock outstanding at the close of
business on the day immediately preceding the date of such
issuance, and (b) the number of shares of Common Stock that
would be purchasable at the Exercise Price for the aggregate
consideration being paid for the newly issued shares (the
"Purchasable Shares"), and the numerator of which shall be the
sum of (i) the number of shares of Common Stock outstanding at
the close of business on the day immediately preceding the
date of such issuance and (ii) the total number of shares
constituting such issuance, such increase to become effective
immediately after the opening of business on the day following
such issuance. For purposes of this subparagraph, "Current
Market Price" shall mean the current market price per share of
Common Stock on any date shall be the average of the daily
high and low prices as quoted on the NASDAQ National Market
System, or the average of the daily bid and asked prices if
the Common Stock is quoted on NASDAQ but not on the National
Market System, or, if the Common Stock is not quoted on either
of the above, the average of the closing sale prices on the
primary securities exchange where the Common Stock is traded,
for the thirty (30) consecutive trading days commencing sixty
(60) trading days before such date, or, if such high and low
prices (or bid and asked prices) are not reported, the current
market price shall be determined by the Company on the basis
of such quotations as it considers appropriate; and
"Purchasable Shares" shall mean the number of shares
determined by multiplying (a) the consideration per share
received by the Company for the newly issued shares by (b) the
number of shares of Common Stock issued, and dividing the
product thereof by the Exercise Price on the date of issuance.
b. Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as herein provided, the Exercise Price shall be
adjusted by multiplying the Exercise Price by a fraction in which the numerator
is equal to the number of shares of Common Stock purchasable prior to the
adjustment and the denominator is equal to the number of shares of Common Stock
purchasable after the adjustment.
3
<PAGE>
c. Whenever the number of shares of Common Stock for which this
Warrant is exercisable is adjusted as provided in subparagraph (a), the Company
shall promptly compute such adjustment and mail to the Holder a certificate,
signed by a duly authorized officer of the Company, setting forth the number of
shares of Common Stock for which this Warrant is exercisable and the adjusted
Exercise Price as a result of such adjustment, a brief statement of the facts
requiring such adjustment, the computation thereof, and the date upon which such
adjustment will or has become effective.
7. Compliance With Securities Laws.
a. The Holder represents and agrees that this Warrant is being
received, and the Common Stock, if the Warrant is exercised, will be purchased,
only for investment, for the Holder's own account, and without any present
intention of sale or distribution.
b. The Holder acknowledges and agrees that this Warrant has not
been and the Common Stock to be issued upon exercise of this Warrant will not be
registered under the U.S. Securities Act of 1993 (the "Act") and, accordingly,
neither the Warrant nor the Common Stock will be transferable except as
permitted under the various exemptions from the Act and regulations issued by
the Securities and Exchange Commission pursuant to the Act. The Holder
understands that the certificate(s) evidencing the Common Stock will be
imprinted with a legend which prohibits the transfer of the shares of Common
Stock unless they are registered, or unless such transfer is made pursuant to
Rule 144, or unless the Company receives an opinion of counsel reasonably
satisfactory to the Company that such registration is not required.
8. Registration Rights. The Holder shall have certain registration
rights as to the Common Stock as provided in paragraphs 10(g) and 12 of that
certain Omnibus Agreement executed by and among the Company, Domaines Barons de
Rothschild (Lafite), and Summus Financial, Inc., dated , 1995 (the
-----------
"Omnibus Agreement").
9. Termination. This Warrant shall terminate, as to any portion not
theretofore exercised, five (5) years from the date hereof.
10. Miscellaneous. This Warrant shall be governed by the laws of the
State of California. Neither this Warrant nor any term hereof may be changed,
waived, discharged or terminated except by an instrument in writing signed by
the Company and the registered Holder hereof. All notices and other
communications from the Company to the Holder shall be given in accordance with
paragraph 15(f) of the Omnibus Agreement.
ISSUED this day of , 1995.
--- --------
THE CHALONE WINE GROUP, LTD.
By
---------------------------------
William L. Hamilton
Executive Vice President and
Chief Financial Officer
4
<PAGE>
EXHIBIT "B"
SOCIETE CIVILE CHATEAU DUHART-MILON
AMENDMENT AGREEMENT
THIS AGREEMENT dated August 29, 1995, among THE CHALONE WINE GROUP,
LTD., a California (USA) corporation ("CWG"), DOMAINES BARONS DE ROTHSCHILD
(LAFITE), a French limited liability partnership company (societe en commandite
par actions) ("DBR"), and SOCIETE FINANCIERE VITICOLE SA, a French limited
liability company (societe anonyme) ("SFV").
Recitals
CWG has concurrently with the execution of this Agreement become a
partner in Societe Civile Chateau Duhart-Milon ("CDM") by acquiring [3,072]
shares therein of the value of 10 French Francs each, representing 23.5 percent
of CDM's outstanding capital.
CWG, DBR and SFV (collectively hereinafter "the Partners") constitute
all of the partners of CDM, and wish by this Agreement (the "Agreement") to
memorialize that partnership status, record certain agreements among them
regarding CDM, and pro tanto amend the Articles of Association (Statuts) of CDM.
Terms of Agreement
1. Amendment to Articles of Association. The Articles of Association
(Statuts) of CDM dated June 30, 1995 (the "CDM Statuts"), are hereby amended as
hereinafter set forth. The provisions of this Agreement are intended to augment
and in certain particulars to supersede provisions of the CDM Statuts. If and to
the extent there is any conflict between the CDM Statuts and this Agreement, the
terms of this Agreement shall govern. Otherwise, the CDM Statuts shall remain in
effect. A true copy of the CDM Statuts as in effect immediately prior to this
Agreement shall be attached to this Agreement and incorporated herein by
reference.
2. Capital. CDM's stated capital is set at [13,072] French Francs, and
is divided into [13,072] equal shares, with a stated value of [one] French Franc
each. The respective partners' interests are as follows:
DBR -- [9,990] shares
SFV -- [10] shares
CWG -- [3,072] shares.
3. Dealings with Related Parties.
3.1 CWG acknowledges that CDM is part of an affiliated group of
companies consisting of DBR and certain other companies (collectively, the "DBR
Group") and that CDM engages in business relationships with one or another
member of the DBR Group on a regular basis. The Partners agree that CDM may
continue to engage in transactions with other members of the DBR Group including
(a) sale of wine (including en primeur sales) to GranCru S.A. on substantially
the same terms as sales to other negotiants; (b) borrowing or lending funds;
provided that the interest rate for funds borrowed or lent shall be the same
rate as applied to loans between other members of the DBR Group from time to
time, shall not differ materially from the then-prevailing market rate
applicable to similar loan transactions between unrelated third parties, and
shall not exceed the Legal Rate (as defined below); (c) obtaining various
services from Societe de Gestion et d'Assistance Viticole ("SGDAV") including,
but not limited to, management services for which SGDAV receives a management
fee of six percent of all wine sales (including en primeur sales) and computer
services which are billed on a time spent basis; and (d) obtaining operational,
administrative and technical support services from DBR and Societe Civile
Chateau Lafite. In all such cases, the terms of CDM's dealings with other
members of the DBR Group shall be no less favorable to CDM than are the terms
afforded to other, similarly situated members of the DBR Group, and no less
favorable than could have been obtained in similar transactions with unrelated
third parties. Any change in the terms upon which CDM engages in transactions
with other members of the DBR Group which will materially increase the amount
paid by CDM or
<PAGE>
materially decrease the amount received by CDM, as the case may be, shall
require the written approval of all of the Partners, which shall not be
unreasonably withheld. For purposes of this Agreement, "Legal Rate" means the
maximum interest rate deductible for French tax purposes as authorized by the
French fiscal authorities under Article 39-1 3 of the Code Generale des
Impots.
3.2 CDM shall not, without the written approval of all of the
Partners, make any capital investment in any company in which, immediately prior
to the making of the investment, either DBR or an Affiliate of DBR (other than
CDM) has a material investment; provided, this Section 3.2 shall not apply to
any investment by CDM in any company in which CDM has an existing investment.
3.3 For purposes of this Agreement, an entity is an "Affiliate" of
another entity if it is controlled by, controls, or is under common control with
the other entity.
4. Anti-Dilution. If at any time CDM shall increase its capital by way
of issuance of additional shares, CWG shall have the right to acquire additional
shares of CDM's capital up to such number as shall be necessary to maintain
CWG's share of CDM's capital immediately following such increase in capital at
the same percentage level as it held immediately prior to such increase in
capital. In any such case the additional CDM shares shall be sold to CWG at the
same price as the shares being issued in the transaction which gives rise to
CWG's right to acquire the additional CDM shares pursuant to this Section 4.
5. Right of Cosale.
5.1 Notwithstanding Article 10 of the CDM Statuts ("Article 10"),
if any one of the Partners (the "Selling Holder") intends to sell any of its CDM
shares (other than to an Affiliate), it may do so only if all of the conditions
of Article 10 are complied with and the proposed purchaser (the "Buyer") agrees
to purchase the same percentage of CDM shares owned by each of the other
Partners (the "Other Holders") as it is offering to purchase from the Selling
Holder, on the same terms and conditions as the Buyer has offered for the
Selling Holder's CDM shares. The Selling Holder shall give notice to the Other
Holders of the intended sale (the "Sale Notice") as required by Article 10. In
addition to the information required by Article 10, the Sale Notice shall
include a reasonably detailed statement of the terms of the proposed sale (the
"Offer"), including the identity of the Buyer, the total number of CDM shares
that the Buyer is willing to purchase, a detailed description of the
consideration to be paid for the CDM shares which are the subject of the Offer,
and a written undertaking by the Buyer to purchase from each Other Holder who so
elects up to the same percentage of such Other Holder's CDM shares as the Buyer
is offering to purchase from the Selling Holder. Each of the Other Holders shall
notify the Selling Holder within twenty (20) business days following receipt of
the Sale Notice whether such Other Holder wishes to sell its CDM shares (or
portion thereof) to the Buyer on the terms and conditions of the Offer. If all
the Other Holders advise the Selling Holder that they do not wish to sell any of
their CDM shares to the Buyer, the Selling Holder may, subject to compliance
with the provisions of Article 10, sell to the Buyer on the terms and conditions
of the Offer up to the total number of CDM shares which were the subject of the
Offer. If any of the Other Holders advises the Selling Holder that it wishes to
sell all or, subject to Section 5.2 hereof, a pro rata portion of its CDM shares
to the Buyer on the terms of the Offer, then the Selling Holder may not sell any
of its CDM shares unless the Buyer purchases on the terms of the Offer all or,
subject to Section 5.2, a pro rata portion of the CDM shares of the Other
Holder(s) who have so advised the Selling Holder.
5.2 If the Offer is to purchase fewer than all of the CDM shares
owned by the Selling Holder and an Other Holder wishes to exercise its right to
participate in a sale pursuant to Section 5.1, such Other Holder may sell,
pursuant to the Offer, such proportion of the Other Holder's total holding of
CDM shares as equals a fraction, the numerator of which is the number of CDM
shares being sold by the Selling Holder and the denominator of which is the
total number of CDM shares owned by the Selling Holder.
6. Management. CDM will continue to be managed in accordance with the
CDM Statuts by its duly appointed Gerant. Nevertheless, the Gerant will from
time to time consult with CWG concerning the operation of
2
<PAGE>
CDM's vineyards, marketing strategy, and overall operations, and will so consult
prior to making significant investments, out of the ordinary course of business.
7. DBR Shares. CDM is acquiring 14,054 shares in DBR (the "CWG-DBR
Shares") from CWG in exchange for the CDM shares being issued to CWG
contemporaneously herewith. DBR and SFV hereby agree to cause CDM to sell the
CWG-DBR Shares for cash, in an amount not less than 58,885,000 French Francs, by
December 31, 1995. The proceeds from such sale shall not, except with CWG's
contemporaneous written consent, be used other than (a) for payment of
pre-existing CDM debt; (b) for ratable distribution to the Partners; (c) for
retention as working capital of CDM; and/or (d) subject to Section 3.2, for
making investments (either by way of equity or in financial instruments such as
debt obligations or convertible securities) in the wine and/or alcoholic
beverage industries.
8. CDM Financial Statements/Audit. The financial statements of CDM
shall be prepared and maintained, and audited annually by a firm of independent
auditors, in form sufficient to satisfy the requirements of the U.S. Securities
and Exchange Commission ("SEC") in connection with CWG's reporting obligations.
The cost of the normal audit shall be paid by CDM; any cost incurred in
connection with meeting said SEC requirements in excess of CDM's normal cost of
maintenance and audit of its financial records shall be the direct financial
responsibility of CWG.
9. Term. This Agreement shall continue in effect until the sooner to
occur of: (a) the date on which CWG ceases to be a partner of CDM, and (b) the
expiration of CDM's duration as provided in Article 5 of the CDM Statuts.
10. Miscellaneous. This Agreement shall be governed by French law,
expresses the entire agreement of the Partners as to its subject matter, may be
amended only by a writing signed by all of the Partners, and shall be binding
upon and inure to the benefit of the Partners and their respective successors
and assigns.
11. Notices. All notices pursuant to this Agreement shall be sent by
mail, air courier or facsimile transmission, and shall be deemed effective on
the business day when actually received at the recipient's address (or if
received on a day which is not a business day, on the next succeeding business
date). Unless and until written notification has been given and received of a
different address, notices shall be directed to the respective Partners as
follows:
If to CWG:
The Chalone Wine Group, Ltd.
621 Airpark Road
Napa, California 94558-6272
Attention: Mr. William L. Hamilton
Fax No.: (707) 254-4201
With a copy to:
F. Conger Fawcett, Esq.
621 Airpark Road, Suite 200
Napa, California 94558-6272
Fax No.: (707) 254-4265
3
<PAGE>
If to DBR:
Domaines Barons de Rothschild (Lafite)
33, Rue de la Baume
75008 Paris, France
Fax No.: (011) 33-1-42-56-28-79
With a copy to:
Piper & Marbury L.L.P.
53 Wall Street
New York, New York 1005
Attention: Michael A. Varet, Esq.
Fax No.: (212) 858-5326
If to SFV:
Societe Financiere Viticole SA
33, Rue de la Baume
75008 Paris, France
Fax No.: (011) 33-1-42-56-28-79
With a copy to:
Piper & Marbury L.L.P.
53 Wall Street
New York, New York 10005
Attention: Michael A. Varet, Esq.
Fax No.: (212) 858-5326
Execution
IN WITNESS WHEREOF, the parties hereto have executed this Agreement by
their duly authorized representatives, as of the date first recited above.
THE CHALONE WINE GROUP, LTD.
By:
------------------------------------
W. Philip Woodward
President
DOMAINES BARONS DE ROTHSCHILD (LAFITE)
By:
------------------------------------
------------------------------------
------------------------------------
SOCIETE FINANCIERE VITICOLE SA
By:
------------------------------------
------------------------------------
------------------------------------
4
<PAGE>
EXHIBIT "C"
SOCIETE CIVILE CHATEAU DUHART-MILON
MEMORANDUM OF UNDERSTANDING
August 29, 1995
This is to confirm that an understanding has been reached among the
partners of Societe Civile Chateau Duhart-Milon ("CDM") that CDM will distribute
to The Chalone Wine Group, Ltd., twenty three and one-half percent (23.5%) of
the entire distribution made by CDM to its partners for the calendar year 1995,
as and when such distribution is made in the ordinary course of CDM's business.
It is the intention of CDM partners that CDM will distribute one hundred percent
(100%) of its earnings for 1995, as determined in accordance with generally
accepted accounting principles used in France, consistently applied in
accordance with CDM's past practice. Distributions for years subsequent to
calendar 1995 shall be determined and made in accordance with CDM's Statuts.
DOMAINES BARONS DE ROTHSCHILD (LAFITE)
By
------------------------------------------
SOCIETE FINANCIERE VITICOLE SA
By
------------------------------------------
THE CHALONE WINE GROUP, LTD.
By
------------------------------------------
<PAGE>
EXHIBIT "D"
1995 VOTING AGREEMENT
This Voting Agreement ("Agreement") is entered into by and among the
undersigned, Domaines Barons de Rothschild (Lafite) ("DBR"), Summus Financial,
Inc. ("Summus"), and W. Philip Woodward ("Woodward") this day of
----
, 1995.
- -------------
WHEREAS, DBR, Summus, and Woodward are all holders of significant
quantities of the no par value common stock ("Common Stock") of The Chalone Wine
Group, Ltd. (the "Company"), and Woodward is, additionally, the Company's
President and Chief Executive Officer; and
WHEREAS, concurrently with the execution of this Agreement, DBR and
Summus are entering into a certain Omnibus Agreement with the Company (the
"Omnibus Agreement"), pursuant to which, inter alia, DBR and Summus are
acquiring additional Common Stock and Warrants for the acquisition of more
Common Stock; and
WHEREAS, upon the effectiveness of the Omnibus Agreement, DBR will have
three (3) designees on the Company's board of directors, Summus, two (2)
designees, and Woodward, himself a current director, will have one (1) designee;
and
WHEREAS, each of the undersigned acknowledges that it or he will
benefit from the economic benefits rendered the Company as a result of DBR and
Summus entering into the Omnibus Agreement; and
WHEREAS, the making of this Agreement is a material consideration for
DBR's and Summus' entering into and undertaking the transactions contemplated by
the Omnibus Agreement:
NOW THEREFORE IT IS AGREED as follows:
1. Commencing with the 1996 Annual Meeting of Shareholders of the
Company (or such earlier date as the matter of election of directors of the
Company may be considered), and for so long as, and from time to time at any
time that, any one of the parties hereto holds a beneficial interest in and
voting control over Common Stock equal to or in excess of the applicable
threshold percentage hereafter set forth, such party shall use its best efforts
to insure that, subject to any limitations imposed by law or fiduciary
responsibility, the designee(s) of such party then serving as director(s) of the
Company will vote for each of the other parties' designees to be nominated to
management's slate of director nominees, whenever proposed for election. Each
party shall be entitled to receive the affirmative vote of each of the other
parties hereto in favor of the designees of such party, if and to the extent so
nominated to serve as director(s) of the Company; and each of the undersigned
herewith agrees so to vote all of the shares of Common Stock over which it or he
may at the time exercise voting control. During the entire term of this
Agreement, whether or not a party holds a beneficial interest in and voting
control over Common Stock entitling the party to designate a nominee or nominees
to the Company's board of directors at the same level as in effect on the date
of this Agreement, the party shall vote all of the shares of Common Stock over
which it or he may at the time exercise voting control in accordance with the
requirements of this Section 1. The threshold percentages and the entitlements
related to such percentages are as follows: Twenty-six percent (26%) or greater
of total Common Stock outstanding, three (3) directorship positions; twelve
percent (12%) or greater, but less than twenty-six percent (26%), two (2)
directorship positions; five percent (5%) or greater, but less than twelve
percent (12%), one (1) directorship position. If a party loses its or his
entitlement to have the other parties vote in favor of one or more designees of
the party to directorship positions because of a decline in the party's
beneficial interest in and voting control over Common Stock, the other parties
shall agree upon the designation of a replacement designee or designees and all
the parties (including the party who has so lost its entitlement) shall remain
obligated to vote the shares of Common Stock in which they have a beneficial
interst and over which they have voting control in favor of the designees
(including replacement designees named in accordance with this sentence) of the
parties who continue to have the right to designate director nominees.
<PAGE>
2. For purposes of this Agreement, Common Stock held (a) by DBR shall
include Common Stock held by Eric de Rothschild and/or Christophe Salin; (b) by
Summus shall include Common Stock held by Richard C. Hojel; and (c) by Woodward,
shall include Common Stock held by members of Woodward's family and/or trusts
established for his or their benefit, as defined in Section 424(d) of the U.S.
Internal Revenue Code.
3. Each of the undersigned agrees, for the benefit of each of the other
undersigned parties, that it or he will exercise its or his best efforts to
cause the other, third parties identified and grouped with the particular party,
pursuant to paragraph 2, immediately above, to vote their shares of Common Stock
in accordance with the provisions of this Agreement.
4. Nothing in this Agreement shall be construed to restrict the
transfer of shares of Common Stock held by any of the undersigned. Shares
transferred by a party to this Agreement to a person or entity who is not a
party to this Agreement may be transferred free and clear of the rights and
obligations under this Agreement provided that the transferor no longer
exercises voting control over such shares.
5. Unless earlier terminated, this Agreement and each of the
undersigned's obligations under it shall automatically terminate on the fifth
anniversary of the date hereof.
6. That certain voting Agreement executed by each of the undersigned
and certain other individuals, directors of the Company, dated March 29, 1993,
shall, with the effectiveness of this Agreement, be superseded and of no further
force or effect; and each of the signatories thereto who are not parties to this
Agreement are hereby absolved of and from any further responsibilities
thereunder.
7. This Agreement shall be governed by the laws of the State of
California.
DOMAINES BARONS DE ROTHSCHILD (LAFITE)
By
------------------------------------
Eric de Rothschild
Managing Director
SUMMUS FINANCIAL, INC..
By
------------------------------------
Richard C. Hojel
President
--------------------------------------
W. PHILIP WOODWARD
2
<PAGE>
APPENDIX II
HAMBRECHT & QUIST LLC
ONE BUSH STREET
SAN FRANCISCO, CALIFORNIA 94104
(415)576-3300
FAX (415) 576-3624
August , 1995
Confidential DRAFT
The Board of Directors
THE CHALONE WINE GROUP, LTD.
621 Airpark Road
Napa, California 94558.
Gentlemen:
You have requested our opinion as to the fairness from a financial point of view
to THE CHALONE WINE GROUP, LTD. ("Chalone" or the "Company") of the terms
negotiated by the Company in connection with the proposed early conversion of
the convertible debentures with DOMAINES BARONS DE ROTHSCHILD (LAFITE) ("DBR"),
the exchange of Chalone's interest in DBR for a direct ownership interest in
Duhart-Milon ("Duhart"), a wine producing vineyard in the Bordeaux Valley, and
the private issuance of 416,667 Chalone common shares at $6.00 per share and an
equal number of warrants to purchase Chalone common shares at an exercise price
of $8.00 per share (the "Proposed Transaction") under the terms of the Omnibus
Agreement, dated as of August , 1995, among Chalone, DBR and SUMMUS FINANCIAL,
INC. ("Summus") and the related Exhibits and Schedules to such agreement
(collectively, the "Agreement").
We understand that the terms of the Agreement provide, among other things, that
(i) Chalone will permit the conversion of the existing convertible debentures at
a conversion price of $7.00 per share; (ii) Chalone will exchange its 11.3%
ownership in DBR for a direct 23.5% ownership interest in Duhart; (iii) DBR and
Summus will agree to purchase a 416,667 shares of common stock at a price of
$6.00 per share and receive a similar number of warrant with an exercise price
of $8.00; and (iv) DBR has agreed to modify its existing standstill agreement
with the Company whereby DBR will not acquire an ownership interest in Chalone
greater that 49.9% prior to December 31, 1999.
Hambrecht & Quist LLC ("Hambrecht & Quist"), as part of its investment banking
services, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, strategic transactions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes. We have acted as a financial advisor to the Board of
Directors of Chalone in connection with the Proposed Transaction, and contingent
upon closing of the Proposed Transaction we will receive a fee for our services,
which include the rendering of this opinion.
SAN FRANCISCO * NEW YORK * BOSTON
MEMBERS NEW YORK STOCK EXCHANGE * AMERICAN STOCK EXCHANGE
* PACIFIC STOCK EXCHANGE
<PAGE>
Confidential
------------
The Board of Directors
THE CHALONE WINE GROUP, LTD.
Page 2 DRAFT
In the past, we have provided investment banking and other financial advisory
services to Chalone and have received fees for rendering these services. In the
ordinary course of business, Hambrecht & Quist acts as a market maker and broker
in the publicly traded securities of Chalone and receives customary compensation
in connection therewith. In the ordinary course of business, Hambrecht & Quist
actively trades in the equity securities of Chalone for its own account and for
the accounts of its customers and, accordingly, may at any time hold a long or
short position in such securities. Hambrecht & Quist may in the future provide
additional investment banking or other financial advisory services to Chalone.
In connection with our review of the Proposed Transaction, and in arriving at
our opinion, we have, among other things:
(i) reviewed the publicly available financial statements of Chalone for
recent years and interim periods to date and certain other relevant financial
and operating data of Chalone made available to us from published sources and
from the internal records of Chalone;
(ii) reviewed certain internal financial and operating information,
including certain projections, relating to Chalone prepared by the management of
Chalone;
(iii) discussed the business, financial condition and prospects of
Chalone with certain of its officers and directors;
(iv) reviewed the information provided by DBR regarding the relative
values of the DBR holdings;
(v) reviewed the terms of the convertible debentures;
(vi) reviewed the discounts offered to the public trading price in the
private placement of publicly traded securities;
(vii) participated in the negotiations of the terms of the Agreement;
(viii) reviewed the Agreement;
(ix) discussed the tax and accounting treatment of the Proposed
Transaction with Chalone and Chalone's lawyers; and
(x) performed such other analyses and examinations and considered such
other information, financial studies, analyses and investigations and financial,
economic and market data as we deemed relevant.
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of all of the information provided to us concerning Chalone and DBR
considered in connection with our review of the Proposed Transaction, and we
have not assumed any responsibility for independent verification of such
information or any independent valuation or appraisal of any of the assets or
liabilities of Chalone, DBR or Duhart, nor have we conducted a physical
inspection of the properties and facilities of Chalone, DBR or Duhart. With
respect to the financial forecasts and projections made available to us and used
in our analysis, we have assumed that they reflect the best currently available
estimates and judgments of the expected future financial performance of Chalone.
For purposes of this opinion, we have assumed that neither Chalone, DBR nor
Duhart is a party to any pending transactions, including external financings,
recapitalizations or material merger discussions, other than the Proposed
Transaction and those activities undertaken in the ordinary course of conducting
the respective businesses. Our opinion is necessarily based upon
<PAGE>
Confidential
------------
The Board of Directors
THE CHALONE WINE GROUP, LTD.
Page 3 DRAFT
market, economic, financial and other conditions as they exist and can be
evaluated as of the date of this letter and any change in such conditions would
require a reevaluation of this opinion.
Our advisory services and the opinion expressed herein are provided solely for
the use of the Board of Directors of Chalone in its evaluation of the Proposed
Transaction and are not on behalf of, and are not intended to confer rights or
remedies upon any security holder of Chalone, DBR or Summus, or any person other
than Chalone's Board of Directors. Except as required by applicable law,
including without limitation federal securities laws, our opinion may not be
published or otherwise used or referred to, nor shall any public reference to
Hambrecht & Quist be made, without our prior written consent.
Based upon and subject to the foregoing and after considering such other matters
as we deem relevant, we are of the opinion that as of the date hereof the terms
of the Proposed Transaction are fair to the Company from a financial point of
view. We express no opinion, however, as to the adequacy of any consideration
received in the Proposed Transaction by DBR or any of its affiliates other than
Chalone.
Very truly yours,
HAMBRECHT & QUIST LLC
By
------------------------------------
James A. Davidson
Managing Director
<PAGE>
<TABLE>
APPENDIX III
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
BALANCE SHEETS
(All amounts in thousands of French Francs)
<CAPTION>
December 31
-------------------------------------
1994 1993
---------------- ----------------
<S> <C> <C>
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
================ ================
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
<PAGE>
<TABLE>
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
STATEMENTS OF INCOME AND RETAINED EARNINGS
(All amounts in thousands of French Francs)
<CAPTION>
Year ended December 31
--------------------------------------------------
1994 1993 1992
--------------- ---------------- ---------------
<S> <C> <C> <C>
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
=============== ================ ===============
<FN>
The accompanying notes are an integral part of these statements.
</FN>
</TABLE>
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. The company operated on
dependent basis with other operations of DBR, and all costs of its operations,
or sources of revenue, may not be measured in the accompanying financial
statements. 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.
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. The costs or benefits of
such transactions have not been measured by the Company. 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.
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
July 13, 1995
6
<PAGE>
<TABLE>
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
BALANCE SHEETS
(All amounts in thousands of French Francs)
<CAPTION>
March 31
--------------------------------------
1995 1994
----------------- -----------------
<S> <C> <C>
ASSETS
Cash FF 93 FF 38
Accounts receivable 1,334 1,798
Inventories:
Bulk and bottled wine 15,602 14,624
Wine production supplies 2,497 1,676
Other current assets 281 201
----------------- -----------------
Total current assets 19,807 18,337
Property, plant and equipment - net 13,331 13,386
----------------- -----------------
TOTAL ASSETS FF 33,138 FF 31,723
================= =================
LIABILITIES AND SHAREHOLDER'S EQUITY
Bank borrowings FF 85 FF 287
Accounts payable 1,179 1,660
Customer deposits 1,750 640
Social charges and taxes, other than income 1,040 904
Other current liabilities 1,152 2
Intercompany accounts:
Interest bearing 16,667 17,624
Non-interest bearing 770 265
----------------- -----------------
Total current liabilities 22,643 21,382
Stated value of common equity parts 10 10
Retained earnings 10,485 10,331
----------------- -----------------
Total shareholder's equity 10,495 10,341
----------------- -----------------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY FF 33,138 FF 31,723
================= =================
</TABLE>
7
<PAGE>
<TABLE>
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
STATEMENTS OF INCOME AND RETAINED EARNINGS
(All amounts in thousands of French Francs)
<CAPTION>
March 31
--------------------------------------
1995 1994
---------------- -----------------
<S> <C> <C>
Wine sales to unrelated parties FF 2,082 FF 1,455
Intercompany wine sales 2,382 2,446
---------------- -----------------
Total Sales 4,464 3,901
Cost of sales (3,110) (2,863)
---------------- -----------------
Gross Profit 1,354 1,038
Selling, general and administrative expenses (164) (296)
---------------- -----------------
Operating income 1,190 742
Interest expense:
Bank loans 0 (2)
Intercompany (197) (228)
Other income 37 32
---------------- -----------------
Net earnings 1,030 544
Retained earnings, beginning of year 12,854 12,543
Less: Dividends (3,399) (2,756)
---------------- -----------------
Retained earnings, end of year FF 10,485 FF 10,331
================ =================
</TABLE>
8
<PAGE>
<TABLE>
SOCIETE CIVILE DE DUHART-MILON-ROTHSCHILD
STATEMENTS OF CASH FLOWS
(All amounts in thousands of French Francs)
<CAPTION>
March 31
--------------------------------------
1995 1994
---------------- -----------------
<S> <C> <C>
Source (use) of cash
Cash flows from operating activities:
Net earnings FF 1,030 FF 544
Other (2,189) (2,648)
---------------- -----------------
Net cash provided by operating activities (1,159) (2,104)
Net cash used in investing activities (1,028) (276)
Net cash used in financing activities 2,175 2,395
---------------- -----------------
Net increase (decrease) in cash (13) 15
Cash at beginning of year 106 23
---------------- -----------------
Cash at end of Period 93 38
Interest paid 243 266
</TABLE>
