AMENDMENT TO
JOINT VENTURE AGREEMENT
OF
EDNA VALLEY VINEYARD
THIS AMENDMENT (the "Amendment") is made and entered into as of this
23rd day of December, 1996, by and between Paragon Vineyard Co., Inc., a Nevada
corporation ("Paragon"), and Chalone Wine Group, Ltd., a California corporation
("Chalone").
RECITALS
A. Paragon and Chalone entered into a Joint Venture Agreement on April
18, 1980, pursuant to which the parties established the Edna Valley Vineyard
Joint Venture. The original Joint Venture Agreement was amended and restated as
of January 1, 1991 (hereinafter, the "1991 Joint Venture Agreement"). The 1991
Joint Venture Agreement, as amended herein, is referred to hereinafter as the
"Joint Venture Agreement," and the joint venture established thereby is referred
to hereinafter as the "Joint Venture."
B. Paragon and Chalone desire to amend the 1991 Joint Venture Agreement
in those respects specified herein, and only in those respects specified herein.
IN CONSIDERATION of the foregoing and the mutual covenants set forth
herein, Paragon and Chalone agree as follows:
1. Amendments to Article I (Defined Terms)
The terms defined in Article I of the 1991 Joint Venture Agreement are
hereby revised to read as follows:
"Amended Grape Purchase Agreement" refers to the Revised Grape Purchase
Agreement by and between Paragon and the Joint Venture, dated January 1, 1991,
as amended by that Amended and Restated Grape Purchase Agreement substantially
in the form of Exhibit A hereto.
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"Amended Ground Lease" refers to the Ground Lease by and between
Paragon and the Joint Venture, dated as of June 1, 1991, as amended by that
Amendment to Ground Lease substantially in the form of Exhibit B hereto.
"Brand Name LLC" refers to Edna Valley Brand Name LLC, a California
limited liability company, to be organized pursuant to the provisions of Section
6.1 of the Joint Venture Agreement.
"Chalone" refers to Chalone Wine Group, Ltd., a California corporation.
"Change in Control" refers to (i) the acquisition, directly or
indirectly, by a single Person or a group of Affiliated Persons, even if such
Person or group of Affiliated Persons is or are, as of the date of the 1991
Joint Venture Agreement, shareholders of Chalone, of more than fifty percent
(50%) of the outstanding shares of voting capital stock of a Joint Venture
Partner (or of securities convertible into more than fifty percent (50%) of the
outstanding shares of voting capital stock of a Joint Venture Partner), or (ii)
the consummation of any merger or reorganization of a Joint Venture Partner or
any sale of or other disposition, in one transaction or in a series of related
transactions, of all or substantially all of its assets, if, as a result of such
merger, reorganization, or disposition of assets, the holders (excluding
therefrom any holder or holders that, directly or through Affiliates, control
the surviving, reorganized, or acquiring corporation or entity) of the shares of
voting capital stock of the Joint Venture Partner, immediately before
consummation of such transaction, own, immediately after consummation of such
transaction, equity securities (other than options, warrants, or rights to
acquire equity securities) possessing less than fifty percent (50%) of the
voting power of the surviving, reorganized, or acquiring corporation (or any
corporation in control of the surviving, reorganized, or acquiring corporation).
"Change in Control" shall also refer to any acquisition of the outstanding
shares of voting capital stock of a Joint Venture Partner or the consummation of
any merger or reorganization of a Joint Venture Partner or any sale of or other
disposition of all or substantially all of its assets that is part of a plan or
scheme to avoid the precise definitions of the term "Change in Control" as
specified in clauses (i) or (ii) above. Notwithstanding any of the foregoing, no
Change in Control of Paragon shall be deemed to have occurred solely by reason
of a sale by Paragon of the Vineyard or other assets pursuant to the provisions
of Article XI hereof, and no change in control of Chalone shall be deemed to
have occurred if one or any combination of W. Philip Woodward, Domaines Barons
de Rothschild (Lafite) Summus Financial, Inc., Hook Financial, Inc., or Ojai
Ranch and Investment Company, Inc., acquires control of Chalone, or controls a
corporation or entity into which Chalone is merged or to which Chalone sells all
or
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substantially all of its assets, or acquires control of Chalone as a result of
any reorganization of Chalone. In addition, for purposes of this definition,
there shall be disregarded transfers by a shareholder of a Joint Venture Partner
to the shareholder's lineal descendants and ancestors, to the shareholder's
brothers, sisters, nephews, nieces, spouses, former spouses, and issue of
spouses or former spouses, and to trusts established for the shareholder or for
any of the foregoing.
"Joint Venture" refers to the joint venture created under the Old
Agreement and modified and continued by the 1991 Joint Venture Agreement, as
amended by the Amendment.
"Option" is deleted as a definition of Article I.
"Revised License Agreement" refers to the License Agreement by and
between Paragon and the Joint Venture, dated as of January 1, 1991, as amended
by that Revised License Agreement substantially in the form of Exhibit C-1
hereto.
"Substantial Change in Management" is deleted as a definition of
Article I.
2. Amendments to Article II of the 1991 Joint Venture Agreement
(Formation, Name, Place of Business, and Purpose)
Article II of the 1991 Joint Venture Agreement is hereby amended in its
entirety to read as follows:
2.1 Formation
The parties entered into this Joint Venture on April 18, 1980,
and by the 1991 Joint Venture Agreement, as amended by this Amendment, wish to
define their rights and obligations. The Joint Venture shall be governed by the
Uniform Partnership Act of the State of California, as from time to time
amended, except as expressly provided herein to the contrary.
2.2 Name, Place of Business
The Joint Venture shall be conducted under the name "EDNA
VALLEY VINEYARD." Unless and until changed by the Review Committee, the
principal executive office of the Joint Venture shall be 621 Airpark Road, Napa,
California 94558."
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3. Amendments to Article III of the 1991 Joint Venture Agreement (Term)
Article III of the 1991 Joint Venture Agreement is hereby amended in
its entirety to read as follows:
3.1 Term
The Joint Venture commenced on April 18, 1980, and shall
continue indefinitely until dissolution pursuant to the provisions hereof.
3.2 Chalone's Deposit and Application Thereof
Pursuant to Section 3.3 of the 1991 Joint Venture Agreement,
Chalone has deposited with Paragon One Million Seventy Thousand Dollars
($1,070,000) (hereinafter, the "Deposit") for the purpose of ensuring Chalone's
right to extend the term of the Joint Venture from December 31, 1999 to an
indefinite term. Chalone shall apply one-third of the Deposit to reduce each of
the payments required by Sections 3.4, 3.5, and 3.6 hereof.
3.3 Chalone's Purchase of a 14.1711% Vested Interest in the Joint
Venture
For the purpose of acquiring a 14.1711% vested interest in the
Joint Venture, and subject to the provisions of Section 3.9 hereof, Chalone
shall pay to Paragon, on or before November 15, 1996, One Million Five Hundred
Ninety Thousand Dollars ($1,590,000). If the aforesaid payment is not paid on or
before November 15, 1996, then the aforesaid amount shall be paid by Chalone to
Paragon, within three (3) days after the date of execution of this Amendment,
together with interest thereon at the Compound Rate from November 15, 1996.
3.4 Chalone's Purchase of An Additional 12.5371% Vested Interest
in the Joint Venture
For the purpose of acquiring an additional 12.5371% vested
interest in the Joint Venture, and subject to the provisions of Section 3.9
hereof, Chalone shall pay to Paragon, on or before December 15, 1997, One
Million Four Hundred Six Thousand Six Hundred Sixty-Seven Dollars ($1,406,667),
$1,050,000 in cash and $356,667 by application of one-third of the Deposit.
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3.5 Chalone's Purchase of An Additional 12.5371% Vested Interest
in the Joint Venture
For the purpose of acquiring an additional 12.5371% vested
interest in the Joint Venture, and subject to the provisions of Section 3.9
hereof, Chalone shall pay to Paragon, on or before December 15, 1999, One
Million Four Hundred Six Thousand Six Hundred Sixty-Seven Dollars ($1,406,667),
$1,050,000 in cash and $356,667 by application of one-third of the Deposit.
3.6 Chalone's Purchase of An Additional 10.7547% Vested Interest
in the Joint Venture
For the purpose of acquiring an additional 10.7547% vested
interest in the Joint Venture, and subject to the provisions of Section 3.9
hereof, Chalone shall pay to Paragon, on or before December 15, 2001, One
Million Two Hundred Six Thousand Six Hundred Sixty-Seven Dollars ($1,206,666),
$850,000 in cash and $356,666 by application of one-third of the Deposit.
3.7 Chalone's Purchase of a 50% Interest in Brand Name LLC
Concurrently with its payment for an additional 10.7547%
vested interest in the Joint Venture pursuant to Section 3.6 hereof, and subject
to the provisions of Section 3.9 hereof, Chalone shall pay to Paragon Two
Hundred Thousand Dollars ($200,000) for 50% of the issued and outstanding
membership interests in Brand Name LLC, pursuant to an Option to Purchase
Membership Interest substantially in the form of Exhibit C-5 hereto.
3.8 Grace Period for Payments Called For by Section 3.4, 3.5, 3.6,
and 3.7 Hereof
Chalone shall have a ten (10) day grace period beyond the due
date of any payment called for by Sections 3.4, 3.5, 3.6, or 3.7 hereof or, if
later, three (3) days after notice by Paragon to Chalone demanding any payment
called for by Sections 3.4, 3.5, 3.6, or 3.7 hereof, during which it may make
the payment called for thereunder, without interest.
3.9 Paragon's Rights in the Event that Chalone Fails to Make Any
Payment Called for by Section 3.4, 3.5, 3.6 or 3.7 Hereof
(a) In the event that Chalone elects not to make any payment
called for by Section 3.4, 3.5, 3.6 or 3.7 hereof, and such failure continues
beyond the grace period provided for by Section 3.8 hereof (hereinafter, a "No
Payment Election"), then and in such event Chalone shall have no right to
acquire an additional vested interest in the Joint Venture pursuant to the
provisions of Section 3.4, 3.5, or 3.6 hereof, as the case may be,
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shall have no right to acquire an interest in Brand Name LLC pursuant to the
provisions of Section 3.7 hereof, shall forfeit to Paragon the unallocated
portion of the Deposit, shall have no right to receive any portion of the
proceeds of sale of the Brand Name pursuant to the provisions of Section 6.2 of
the Joint Venture Agreement, and, in addition, Paragon, by written notice to
Chalone, may remove Chalone as Managing Joint Venture Partner of the Joint
Venture and appoint one or more persons to act as Chalone's successor (which
persons may include Paragon), which person(s) shall assume those duties and
responsibilities and be entitled to those rights and benefits of the Managing
Joint Venture Partner under the Joint Venture Agreement.
(b) In the event that Chalone makes a No Payment Election,
then and in such event, from and after the effective date of the No Payment
Election, the procedures of the Review Committee shall be modified in the
following respects, and in the following respects only:
(i) All decisions made by the Review Committee shall
be by approval of a "majority in interest" of the members of the
Review Committee. For this purpose, the members of the Review
Committee appointed by Chalone shall have, in the aggregate, a
voting interest on matters subject to Review Committee decision or
approval equal to the vested interest in the Joint Venture
actually paid for by Chalone pursuant to the foregoing provisions
of this Article III of the Joint Venture Agreement (not taking
into account, in the amount considered paid for by Chalone, that
portion of the Deposit forfeited by Chalone pursuant to the
provisions of Section 3.9 hereof), and the members of the Review
Committee appointed by Paragon shall have, in the aggregate, a
voting interest on matters subject to the decision or approval of
the Review Committee equal to 100% minus the voting interest of
the members of the Review Committee appointed by Chalone,
determined as aforesaid.
(ii) Notice of regular and special meetings of the
Review Committee shall be provided as set forth in Section 8.2(d)
and (e) of the 1991 Joint Venture Agreement.
(iii) The attendance at a meeting of the Review
Committee of one or more members possessing a majority in interest
of the voting power of the Review Committee shall constitute a
quorum of the Committee for the transaction of business.
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(iv) The transaction of any meeting of the Committee,
however called and noticed and wherever held, shall be as valid as
though had at a meeting duly held after regular call or notice if
a quorum be present and if, either before or after the meeting,
the members possessing a majority in interest of the voting power
of the members of the Review Committee sign a written waiver of
notice, a consent to holding such a meeting, or an approval of the
minutes thereof. All such waivers, consents, or approvals shall be
filed with the records of the Committee and made part of the
minutes of the meeting.
(v) Any action required or permitted to be taken by
the Review Committee may be taken without a meeting and without
prior notice if all members of the Committee shall individually or
collectively consent in writing to such action. Such consent or
consents shall have the same effect as a unanimous vote of the
Committee and shall be filed with the minutes of the proceedings
of the Committee.
(vi) The members of the Committee may participate in
meetings of the Committee as permitted by Section 8.2(g) of the
1991 Joint Venture Agreement.
(vii) The Review Committee shall possess the power to
hire and discharge the winemaker of the Winery: the provisions of
Section 8.1(c) of the Joint Venture Agreement shall be of no
further force or effect, and Chalone shall no longer have the
power, granted by Section 8.1(c) of the Joint Venture Agreement,
to force a discharge of the general manager of the Winery or, if
there is no general manager of the Winery, the winemaker of the
Winery by an expression of 'no confidence.'
3.10 Revision of Article VII of Joint Venture Agreement
(a) In the event that Chalone makes a No Payment Election,
then and in such event, from and after the effective date of the No Payment
Election, all distributions of Available Cash made pursuant to Section 7.1 of
the Joint Venture Agreement shall be allocated and distributed to Chalone in an
amount equal to the vested interest in the Joint Venture actually paid for by
Chalone pursuant to the foregoing provisions of this Article III of the Joint
Venture Agreement (not taking into account, in the amount considered paid for by
Chalone, that portion of the Deposit forfeited by Chalone pursuant to the
provisions of Section 3.9 hereof), with the balance of the distributions of
Available Cash allocated and distributed to Paragon. The relative percentages of
distributions of Available Cash,
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determined as aforesaid, shall also be used in allocating any "remaining gain"
to be allocated to the Joint Venture Partners pursuant to the provisions of
Section 7.2(b) of the Joint Venture Agreement, and in allocating between the
Partners all income, gains, losses, deductions, and credits, and each item
thereof, to be allocated between the Joint Venture Partners pursuant to the
provisions of Section 7.2(c) of the Joint Venture Agreement."
4. Amendments to Article IV of the 1991 Joint Venture Agreement (Chalone's
Purchase of a One-half Interest in the Winery and the Expansion
Thereof)
Article IV of the 1991 Joint Venture Agreement is hereby amended in the
following respects and in the following respects only.
Section 4.7 is hereby added to Article IV to read in its entirety as
follows:
4.7 Amended Ground Lease
The Joint Venture shall, concurrently with this Amendment,
enter into an Amended Ground Lease with Paragon, substantially in the form of
Exhibit B hereto. Pursuant to the Amended Ground Lease, the Joint Venture shall
lease additional acreage from Paragon, and shall pay increased rent to Paragon
under the Amended Ground Lease equal to the rent called for under the Ground
Lease for any applicable period multiplied by a fraction, the numerator of which
is the acreage included in the Amended Ground Lease and the denominator of which
is the acreage included in the Ground Lease."
5. Amendments to Article V of the 1991 Joint Venture Agreement (Supply of
Grapes by Paragon to the Joint Venture)
Article V of the 1991 Joint Venture Agreement is hereby amended in its
entirety to read as follows:
5.1 Revision of Grape Purchase Agreement
(a) Paragon and the Joint Venture shall, concurrently with the
execution of this Amendment, enter into an Amended and Restated Grape Purchase
Agreement, substantially in the form of Exhibit A hereto. The Joint Venture may,
upon Review Committee approval, purchase and resell, or vint as bulk wine, a
portion of the grapes required to be purchased by the Joint Venture from
Paragon.
(b) The obligation of Paragon to use its best reasonable
efforts to supply the Joint Venture with Chardonnay grapes pursuant to the
Amended Grape Purchase
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Agreement shall be subject to Paragon's obligations to customers other than the
Joint Venture (as said customers may be replaced by new customers from time to
time). By way of illustration and not limitation, should weather conditions or
other circumstances beyond Paragon's control limit the harvest in any one year,
then the grapes sold to the Joint Venture by Paragon would be reduced pro-rata
based upon the Joint Venture's share of the year's projected harvest, as
determined in good faith by Paragon. It is agreed that because of the fact that
different customers of Paragon may purchase grapes for delivery at different
times during the harvest, any good faith allocation made by Paragon of its
harvest among its customers on or prior to September 1st of each year shall be
binding and conclusive upon the Joint Venture.
(c) Other than as expressly contemplated by Article XI hereof,
by the Amended Grape Purchase Agreement, or as expressly provided by the
business plan adopted pursuant to the provisions of Section 8.5(a) hereof, as
the same may be amended from time to time, or as permitted by Paragon's written
consent, the Joint Venture shall not purchase bulk wine or vint grapes from any
source other than Paragon."
6. Amendments to Article VI of the 1991 Joint Venture Agreement (License
of Brand Name)
Article VI of the 1991 Joint Venture Agreement is hereby amended in its
entirety to read as follows:
6.1 Ownership of the Brand Name
The brand name "Edna Valley Vineyard" (the "Brand Name") is
currently the property of Paragon. The Brand Name is licensed to the Joint
Venture pursuant to that certain License Agreement by and between Paragon and
the Joint Venture, dated as of January 1, 1991 (the "License Agreement").
Concurrently with the execution of this Amendment, the Joint Venture and Paragon
shall enter into a Revised License Agreement substantially in the form of
Exhibit C-1 hereto. On December 12, 1996, Paragon organized a California limited
liability company with the name "Edna Valley Brand Name, LLC" (hereinafter,
"Brand Name LLC") pursuant to Articles of Organization and an Operating
Agreement in the form of C-2 and C-3 hereto. The two members of Brand Name LLC
are Paragon and James H. Niven. Mr. Niven shall withdraw as a member of Brand
Name LLC at such time as Chalone acquires an interest in and becomes a member of
Brand Name LLC pursuant to the provisions of Section 3.7 of the Joint Venture
Agreement. Concurrently with the execution of this Amendment, Paragon shall
contribute all of its right, title, and interest in and to the Brand Name to
Brand Name LLC, in exchange for substantially all of the membership interests in
Brand Name LLC. Concurrently with the
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execution of this Amendment, Paragon shall assign all of its right, title, and
interest as licensor under the Revised License Agreement to Brand Name LLC, and
Brand Name LLC shall assume all rights and obligations of Paragon, as licensor,
under the Revised License Agreement pursuant to an Assignment and Assumption
Agreement, substantially in the form of Exhibit C-4 hereto. No member of Brand
Name LLC may transfer its interest in Brand Name LLC without the prior written
consent of the other member, which consent may be withheld in the member's sole
and absolute discretion; provided, however, that the aforesaid restriction shall
not prevent a transfer of the interest in Brand Name LLC by a member pursuant to
a Change in Control of the member, as the term Change in Control is defined by
the Joint Venture Agreement.
6.2 Sharing of Proceeds From Any Sale of the Brand Name
(a) Should Brand Name LLC, during the term of the Joint
Venture Agreement, sell its rights to the Brand Name, whether by themselves or
as a part of the sale by Paragon of the Vineyard, and, at the time of such sale,
Chalone has not yet exercised the option granted to it by the Option to Purchase
Membership Interests, then and in such event Paragon (on its own behalf and on
behalf of Brand Name LLC) agrees that Chalone shall be entitled to 50% of the
proceeds from any such sale attributable to the Brand Name; provided, however,
that Chalone's entitlement to 50% of the proceeds as aforesaid is conditional
upon Chalone's having timely made all payments called for by Sections 3.4, 3.5,
and 3.6 hereof theretofore falling due, and upon its prompt payment of such sums
as remain to be paid under said Sections in full to Paragon; provided further,
however, that Chalone's entitlement to 50% of the proceeds as aforesaid is
further conditioned upon Chalone's purchasing a 50% membership in Brand Name LLC
pursuant to the provisions of 3.7 hereof. In addition, if Chalone has timely
made all payments called for by Sections 3.4, 3.5, and 3.6 hereof, theretofore
falling due, any sale, assignment, encumbrance, or other transfer by Paragon of
its rights to the Brand Name occurring prior to the time that Chalone becomes a
members of Brand Name LLC shall require the consent of Chalone, which consent
shall not be unreasonably withheld or delayed.
(b) If, at the time of sale, Chalone has not yet exercised the
option granted to it by the Option to Purchase Membership Interests, and the
sale of the Brand Name by Brand Name LLC is to a third party not Affiliated with
Paragon, and such sale consists only of the Brand Name, then the proceeds from
sale of the Brand Name shall be conclusively established by the agreement of
sale entered into by Brand Name LLC and said third party. If the Brand Name is
sold as part of other assets to a third party not Affiliated with Paragon, and
the agreement of sale does not allocate that portion of the
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purchase price allocable to the Brand Name, then and in such event Paragon and
Chalone shall attempt to apportion the purchase price of the assets sold by
Paragon between the Brand Name and the other assets sold. If the parties are
unable to agree on an allocation, then the proceeds of the sale attributable to
the Brand Name shall be determined by arbitration pursuant to the provisions of
Article XVIII hereof. If the Agreement of Sale does apportion the proceeds of
sale to the Brand Name and the other assets sold by Paragon to the third party,
then said allocation shall conclusively establish the proceeds from sale of the
Brand Name for purposes of this Section 6.2. If Brand Name LLC sells its rights
to the Brand Name to a party Affiliated with Paragon, and Paragon and Chalone
are not able to agree upon the portion of the proceeds from sale attributable to
the Brand Name, then the proceeds from sale thereof shall likewise be determined
by arbitration pursuant to the provisions of Article XVIII hereof. Chalone's
rights under this Section 6.2 shall terminate and be of no further force or
effect upon the occurrence of any Event of Default committed by it under the
provisions of Article XVII hereof or any election by Chalone not to make any
payment called for by Sections 3.4, 3.5, 3.6, or 3.7 hereof and the continuation
of any such election for a period of five (5) or more days beyond the due date
of any payment called for by any such Section.
6.3 Purchase of Brand Name by Joint Venture in the Event of Sale
of the Assets of the Joint Venture
Should both of the Joint Venture Partners agree to sell all or
substantially all of the assets of the Joint Venture, then and in such event,
pursuant to the Revised License Agreement with Brand Name LLC, the Joint Venture
shall have the option, but not the obligation, to acquire Brand Name LLC's
entire interest in the Brand Name for a payment of Four Hundred Thousand Dollars
($400,000) to Brand Name LLC. The foregoing option shall not be exercisable by
the Joint Venture unless and until Chalone has made all payments to Paragon
called for by Sections 3.4, 3.5, 3.6, and 3.7 hereof. The payment of $400,000 by
the Joint Venture to Brand Name LLC shall be made concurrently with the closing
of the sale of all or substantially all of the assets of the Joint Venture.
Other than as contemplated by this Section 6.3, the Joint Venture shall have no
right to acquire the interest of Brand Name LLC as licensor of the Brand Name
under the Revised License Agreement."
7. Amendments to Article VIII of the 1991 Joint Venture Agreement
(Management of the Joint Venture)
Article VIII of the 1991 Joint Venture Agreement is hereby amended in
the following respects, and in the following respects only.
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Section 8.1(b)(iv) is hereby amended in its entirety to read as
follows:
"(iv) Select or discharge the winemaker of the Winery or
select or discharge the general manager of the Winery;"
Section 8.1(c) is hereby amended in its entirety to read as follows:
"(c) The selection of a winemaker and any general manager of
the Winery shall be made on the recommendation of the Managing Joint
Venture Partner and approved by the Review Committee as provided by
subsection (b)(iv) above; any dispute regarding the selection of a
winemaker or the general manager of the Winery may not be taken to
arbitration. Either Joint Venture Partner may, at any time, in its sole
discretion, by notice to the other Joint Venture Partner, express "no
confidence" in the general manager of the Winery or, if there is no
general manager of the Winery, in the winemaker. Upon any such
expression of no confidence, the Review Committee shall promptly meet
to discuss the no confidence notice of the Joint Venture Partner. If,
after such meeting, the Joint Venture Partner continues to express no
confidence in the general manager or winemaker, as the case may be,
then the Joint Venture shall proceed to discharge the general manager
or the winemaker, as the case may be. In such event, the Managing Joint
Venture Partner shall proceed to search for and recommend a successor
to the Review Committee. The officer of the Managing Joint Venture
Partner to whom the general manager of the Winery or, if there is no
general manager, the winemaker of the Winery, shall report to and act
under the supervision of shall be as designated from time to time by
the Review Committee. If the Review Committee cannot agree upon the
selection of such officer, then the individual to whom the general
manager or the winemaker, as the case may be, shall report to and act
under the supervision of shall be the Managing Director of the
Committee as determined under Section 8.3(d) of the Joint Venture
Agreement."
Section 8.3(d) is hereby amended in its entirety to read as follows:
"(d) The Managing Director of the Committee shall be W. Philip
Woodward, so long as Mr. Woodward serves as an officer of Chalone
primarily responsible for the conduct of Chalone's day-to-day business
and as long as Chalone remains the Managing Joint Venture Partner of
the Joint Venture. In the event that Mr. Woodward is no longer
qualified or is unable to serve, at a point in time when Chalone is the
Managing Joint Venture Partner of
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the Joint Venture, then the position of Managing Director of the
Committee shall be filled as follows: Chalone shall, by written notice
to Paragon, identify three candidates each of whom is an officer or
director of Chalone and each of whom, by reason of his or her
education, training, experience, and knowledge of the wine business and
the business of the Joint Venture, is qualified to serve as Managing
Director of the Committee. The written notice shall specify, in
reasonable detail, the qualifications of each candidate to serve as
Managing Director of the Committee. Within thirty (30) days of receipt
of the aforesaid notice from Chalone, Paragon shall notify Chalone, in
writing, of its agreement to the selection of one of the three
candidates identified by Chalone to serve as Managing Director of the
Committee, and such person shall thereafter serve as Managing Director
of the Committee pursuant to the terms and provisions of the Joint
Venture Agreement. If Paragon does not notify Chalone, in writing, of
its agreement to the selection of one of the three candidates
identified by Chalone within thirty (30) days of Paragon's receipt of
the notice from Chalone as aforesaid, then Chalone may, by notice to
Paragon, select one of the three candidates identified by Chalone as
the Managing Director of the Committee. In the event that Chalone
ceases to be the Managing Joint Venture Partner of the Joint Venture,
then the position of Managing Director of the Committee shall forthwith
become vacant and the individual who shall serve as Managing Director
of the Committee shall be determined by the Review Committee. The
Managing Director of the Committee shall preside at all meetings of the
Committee and shall exercise and perform such other powers and duties
as may from time to time be assigned to him by the Committee."
Section 8.3(f) is hereby added to the Joint Venture Agreement to read
in its entirety as follows:
"(f) The general manager of the Winery or, if there is no
general manager of the Winery, the winemaker of the Winery, shall
attend all meetings of the Review Committee for the purpose of
reporting on the business and activities of the Joint Venture under his
or her supervision."
Section 8.5(a) is hereby amended in its entirety to read as follows:
"(a) As long as it remains a Joint Venture Partner of the
Joint Venture, and subject to the provisions of Section 3.9 and Article
XVII of the Joint Venture Agreement and of this Section 8.5, Chalone
shall serve as the Managing Joint Venture Partner of the Joint Venture.
Chalone may be removed
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at any time as Managing Joint Venture Partner by the Review Committee.
In addition, should there occur at any time a Change in Control of
Chalone, then and in such event the position of Managing Joint Venture
Partner shall forthwith become vacant, and the Review Committee shall
select its successor; provided, however, that, if at the time of a
Change in Control of Chalone, there has previously occurred a Change in
Control of Paragon, then and in such event the position of the Managing
Joint Venture Partner shall not become vacant, and Chalone shall
continue as Managing Joint Venture Partner, notwithstanding a Change in
Control of Chalone; provided further, however, that notwithstanding any
Change in Control of Chalone, if the following procedure is followed,
then the position of Managing Joint Venture Partner shall not become
vacant, and Chalone shall continue as Managing Joint Venture Partner of
the Joint Venture, to serve as such pursuant to the terms and
provisions of the Joint Venture Agreement:
(i) Attached hereto as Exhibit D is a business plan for the
Joint Venture for the three years ending December 31, 1999. The
business plan establishes objectives for the Joint Venture in terms of
case sales, by category of varietal wine to be produced and marketed by
the Joint Venture, pricing, gross margins, and related matters. Each
year thereafter, on or before December 31 of each year, the Review
Committee shall revise and update the business plan. For the year ended
December 31, 1997, the business plan shall be revised to address the
three years ended December 31, 2000, and for the year ended December
31, 1998, the business plan shall be expanded to address the four years
ended December 31, 2002. The business plan shall be updated thereafter
to address the four years following adoption of the revision by the
Review Committee.
(ii) A Change in Control of Chalone shall not result in the
position of Managing Joint Venture Partner becoming vacant if, by no
later than thirty (30) days after the effective date of a Change in
Control of Chalone, the Person(s) acquiring control of Chalone
(hereinafter, the "Acquiror") provides written notice to Paragon
specifying each of the following: (A) that the Acquiror adopts and
agrees to the terms and provisions of the business plan most recently
adopted by the Review Committee prior to the effective date of a Change
in Control of Chalone (hereinafter, the "Benchmark Plan"); and (B) that
the Acquiror agrees to take no steps to cause Chalone not to use
Chalone's best reasonable efforts, as Managing Joint Venture Partner of
the Joint Venture, to implement fully the terms and provisions of the
Benchmark Plan.
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In the event that there occurs at any time a Change in Control of
Chalone, and the Acquiror does not provide the written notice
called for by paragraph (ii) above, then and in such event the
position of Managing Joint Venture Partner shall forthwith become
vacant, and the Review Committee shall select its successor. If
the members of the Review Committee cannot agree upon a successor
to the Managing Joint Venture Partner or cannot agree upon the
duties and responsibilities of the successor, or if the position
of Managing Joint Venture Partner remains vacant for 60 or more
days after a Change in Control of Chalone, then and in such event
Paragon (if it is still then a Joint Venture Partner and is not in
default under this Agreement) shall have the right to appoint, in
its sole discretion, the successor (which may be Paragon) to
Chalone as Managing Joint Venture Partner, which successor shall
assume all duties and responsibilities of Managing Joint Venture
Partner of the Joint Venture, including, without limitation, the
right and power, upon ninety (90) days notice, to remove Chalone
as distributor of the Winery's wine in the State of California,
and to appoint one or more persons to act as Chalone's successor
(which persons may include Paragon), which person(s) shall assume
those duties and responsibilities of Chalone as distributor of the
Winery's wine in the State of California as are delegated to them
by the Managing Joint Venture Partner, and shall be entitled to
those rights and benefits of the distributor under the Joint
Venture Agreement as are assigned to them by the Managing Joint
Venture Partner; and the right and power to appoint one or more
distributors (which may include Paragon) of the Winery's wine for
jurisdictions outside of the State of California, pursuant to such
terms and conditions as the Managing Joint Venture Partner
determines. Any disagreement between the members of the Review
Committee with respect to the appointment of a successor to the
Managing Joint Venture Partner or with respect to the duties and
responsibilities of any such successor shall not be subject to
resolution by arbitration pursuant to the provisions of Article
XVIII of the Joint Venture Agreement."
Section 8.5(b) is hereby amended in its entirety to read as follows:
"(b) Subject to the provisions of this subsection 8.5(b),
Chalone may also be removed, for cause, by Paragon (assuming Paragon is
then a Joint Venture Partner and is not in default under this
Agreement). A ground for removal for cause of Chalone by Paragon shall
include, without limitation, in the event that there has been a Change
in Control of Chalone and the Acquiror (Section 8.5(a) hereof), has
provided the written notice called for by Section
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8.5(a)(ii) hereof, the subsequent failure by Chalone to use its best
reasonable efforts, as Managing Joint Venture Partner of the Joint
Venture, to implement fully the terms and provisions of the then
applicable business plan adopted by the Review Committee. If Paragon
elects to remove Chalone for cause, it shall give written notice to
Chalone of its election to remove Chalone as Managing Joint Venture
Partner, specifying its reasons for the election. Chalone shall have
thirty (30) days within which to satisfy the concerns expressed by
Paragon. If, at the end of said 30-day period, Chalone has not
satisfied Paragon's concerns and if Chalone disputes Paragon's
election, then the Joint Venture Partners shall submit the question of
whether sufficient grounds exist to remove Chalone, for cause, as
Managing Joint Venture Partner of the Joint Venture, to dispute
resolution pursuant to the provisions of Article XVIII hereof. Until
resolution of the dispute pursuant to Article XVIII, Chalone shall
continue to serve as Managing Joint Venture Partner of the Joint
Venture. If, pursuant to the dispute resolution mechanisms of Article
XVIII, Paragon's election to remove Chalone as Managing Joint Venture
Partner of the Joint Venture for cause is confirmed, then and in such
event Paragon shall have the right to nominate and appoint the
successor (which may be Paragon) to Chalone as Managing Joint Venture
Partner or as manager of the Joint Venture without being a Partner of
the Joint Venture. If Chalone does not agree with Paragon's nominee to
serve as Managing Joint Venture Partner or manager of the Joint
Venture, then either party may submit the dispute to resolution
pursuant to the provisions of Article XVIII hereof, with the sole issue
to be determined whether or not Paragon's nominee is fit to serve as
Managing Joint Venture Partner or manager of the Joint Venture. Unless
both parties agree otherwise, the aforesaid proceeding shall be brought
as a separate proceeding from any proceeding brought to determine the
validity of Paragon's election to remove Chalone for cause."
Section 8.5(d)(iv) is hereby amended in its entirety to read as
follows:
"(iv) Supervising the general manager of the Winery or, if
there is no general manager of the Winery, the winemaker;"
8. Clarification of Article IX of the 1991 Joint Venture Agreement
(Transfer of Joint Venture Interests)
The Joint Venture Partners hereby confirm that the interest of a Joint
Venture Partner subject to the provisions of Article IX of the 1991 Joint
Venture Agreement
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includes the interest of the Joint Venture Partner as a member of Brand Name LLC
to the extent, and only to the extent, that the Joint Venture Partner is a
member of Brand Name LLC. For purposes of Section 17.2 of the Joint Venture
Agreement, the interest of a Joint Venture Partner in the Joint Venture shall
include the interest of the Joint Venture Partner as a member of Brand Name LLC
only from and after such time as Chalone becomes a member of Brand Name LLC by
the exercise of the option granted to it pursuant to the provisions of Section
3.7 of the Joint Venture Agreement. Prior to Chalone's becoming a member of
Brand Name LLC, the interest of neither Joint Venture Partner of the Joint
Venture shall, for purposes of Section 17.2 of the Joint Venture Agreement,
include the interest of the Joint Venture Partner as a member of Brand Name LLC.
From and after the date that Chalone becomes a member of Brand Name LLC, then,
for the purposes of Section 17.2 of the Joint Venture Agreement, the interest of
a Joint Venture Partner in the Joint Venture shall include the Joint Venture
Partner's membership in Brand Name LLC and, for purposes of Section 17.2, there
shall be credited to the "Capital Account" of a Joint Venture Partner,
attributable to the Partner's membership interest in Brand Name LLC, Two Hundred
Thousand Dollars ($200,000).
9. Amendment to Article X of the 1991 Joint Venture Agreement (Right of
Purchase Upon Change in Control)
Article X of the 1991 Joint Venture Agreement is hereby deleted in its
entirety. From and after the effective date of this Amendment, the provisions of
Article X shall have no further force or effect and, upon any "Change in
Control" of a Joint Venture Partner, the other Joint Venture Partner shall have
no right or option to purchase the Joint Venture Partner's interest in the Joint
Venture. A Change in Control of Chalone, however, may result in the position of
the Managing Joint Venture Partner becoming vacant (Section 8.5(a) of the Joint
Venture Agreement), and a Change in Control of Chalone shall trigger payment of
the Escalated Purchase Price Credit (Section 12.2(vii) of the Joint Venture
Agreement).
10. Amendments to Article XII of the 1991 Joint Venture Agreement
(Escalated Purchase Price Credit for Paragon)
Article XII of the 1991 Joint Venture Agreement is hereby amended in
the following respects, and in the following respects only.
"12.2 Events Calling for Payment or Credit of Escalated Purchase
Price Credit
The Escalated Purchase Price Credit shall be paid to
or credited for the benefit of Paragon upon the occurrence of any
of the following events:
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(i) A purchase by Chalone of Paragon's interest in
the Joint Venture pursuant to the provisions of Article IX
hereof;
(ii) A purchase by Paragon of Chalone's interest in
the Joint Venture pursuant to the provisions of Article IX
hereof;
(iii) A sale of all or any portion of the Joint
Venture as an entity or all or any portion of its assets not
in the ordinary course of business;
(iv) A sale by Paragon of the Brand Name under
circumstances pursuant to which Chalone is entitled to share
in the proceeds from the sale of the Brand Name pursuant to
Section 6.2 hereof but, in such event, Chalone shall pay to
Paragon the lesser of the Escalated Purchase Price Credit or
its share of the proceeds from sale of the Brand Name (with
the balance of the Escalated Purchase Price Credit, if not
paid in full, payable upon the occurrence of any of the other
events specified in this Section 12.2 or in this Agreement);
(v) A sale by Chalone of its interest in the Joint
Venture pursuant to the provisions of Article IX hereof;
(vi) The admission to the Joint Venture of one or
more third-party Joint Venture Partners; or
(vii) A Change in Control of Chalone.
If the event calling for payment or credit of the Escalated
Purchase Price Credit represents a sale of less than all of a Joint
Venture Partner's interest in the Joint Venture (clauses (i) or (ii)
above) or a sale of less than the entire business of the Joint Venture
or less than all of its assets not in the ordinary course of business
(clause (iii) above), then an appropriate pro ration of the Escalated
Purchase Price Credit shall be made. In all events, a pro ration of the
Escalated Purchase Price Credit shall be made upon any event described
in clause (vi) above equal to the percentage obtained by dividing (i)
the percentage interest in the Joint Venture obtained by the new Joint
Venture Partner or Partners in the Joint Venture by (ii) 50%. If the
event calling for payment or credit of the Escalated Purchase Price
Credit is a Change in Control of Chalone (clause (vii) above), then and
in such event Chalone shall pay to Paragon an amount equal to the
Escalated Purchase Price Credit within thirty (30) days after the
effective date of the Change in Control of Chalone."
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11. Amendments to Article XIII of the 1991 Joint Venture Agreement
(Emergency Loan Assistance)
Article XIII of the 1991 Joint Venture Agreement is hereby amended in
its entirety to read as follows:
"13.1 Termination of Emergency Loan Facility; Revision of December
28, 1995 Promissory Note
Pursuant to the provisions of Section 13.1 of the 1991 Joint
Venture Agreement, Paragon, on or about November 2, 1995, requested
emergency loan assistance from Chalone in the amount of Five Hundred
Thousand Dollars ($500,000). Chalone granted this request and on or
about December 28, 1995, loaned Paragon this sum. The loan is evidenced
by Paragon's Promissory Note in the amount of $500,000, dated December
28, 1995, a copy of which is attached hereto as Exhibit E-1. The
obligations of Paragon pursuant to said Promissory Note are secured by
that certain Pledge Agreement, dated December 28, 1995, a copy of which
is attached hereto as Exhibit E-2. Paragon shall have no right to make
a further request of Chalone for emergency loan assistance from and
after the date of this Amendment."
12. Amendments to Article XVII of the 1991 Joint Venture Agreement (Default
and Dissolution)
Article XVII of the 1991 Joint Venture Agreement is hereby amended in
the following respects, and in the following respects only.
(a) Subsection (i), and only subsection (i), of Section 17.1
is deleted.
(b) Nothing in Section 17.2(a) of the 1991 Joint Venture
Agreement shall require Chalone, upon any payment by Chalone for
Paragon's interest in the Joint Venture, if Paragon is the "Defaulting
Partner" under Section 17.2, to include, in the amount payable by
Chalone to Paragon, the Escalated Purchase Price Credit twice.
(c) Section 17.7 is hereby added to read in its entirety as
follows:
"17.7 Rules of Construction
All references in this Article, after the effective
date of the Amendment, to Sections 3.3 or 3.4 of the Joint
Venture Agreement shall be deemed to refer instead to Section
3.4, 3.5, 3.6 and 3.7 of the Joint Venture
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Agreement, as the context requires. In addition, all
references to the components of a buy-out price in Section
17.2(a) of the Joint Venture Agreement (other than the
component consisting of the Capital Account balance of a Joint
Venture Partner) shall, to the extent not explicitly stated
therein, be calculated to the extent that such item is not
then reflected in the Joint Venture Partner's Capital
Account."
13. Amendments to Article XVIII of the 1991 Joint Venture Agreement
(Arbitration)
Article XVIII of the 1991 Joint Venture Agreement is hereby amended in
its entirety to read as follows:
"18.1 Scope; Dispute Resolution Forum
(a) The parties agree that all disputes arising under
this Agreement, and all matters specifically to be submitted
to arbitration under this Agreement, shall be determined as
provided for in this Article XVIII. Notwithstanding the
foregoing, it is not the intent of the parties hereby to
mediate or arbitrate disputes that may arise from time to time
among members of the Review Committee, such as matters to be
decided by the Review Committee pursuant to the provisions of
Section 8.1(b) hereof. Any such dispute shall not be within
the scope of this Article XVIII.
(b) Should any dispute within the scope of subsection
(a) of this Section 18.1 arise between the Joint Venture
Partners that the Partners are incapable of resolving
themselves through good faith negotiation, then such dispute
or controversy shall first be submitted for mediation by
J.A.M.S./ENDISPUTE ("JAMS") in San Francisco, California,
pursuant to the mediation services provided by JAMS. Should
the dispute between the Joint Venture Partners not be
successfully mediated by JAMS within 60 days of its submission
(subject to any extension agreed to by the Partners) then and
in such event the dispute shall be submitted for binding
arbitration, not by JAMS (unless the Partners explicitly agree
to arbitration by JAMS), but in accordance with the following
procedure:
(i) Within thirty (30) days of the date that the
Partners determine to resolve their dispute by arbitration,
each Partner shall notify the other of an arbitrator
designated by the Partner. The two arbitrators shall promptly
meet and confer in an attempt to resolve the dispute. If the
two arbitrators so named are unable to resolve the dispute,
they shall appoint a third arbitrator. The decision of two of
the three arbitrators shall be conclusive and binding upon the
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parties and may be confirmed as provided by Sections 1285 et
seq. of the Code of Civil Procedure. The arbitrators shall
consider such evidence and follow such procedures as they may
deem relevant or appropriate to resolve the dispute submitted
to them.
18.2 Costs; Submission to Jurisdiction
It is agreed that the prevailing party in any
arbitration brought pursuant to this Article XVIII or other
action arising from or relating to this Agreement shall be
entitled to reimbursement of its reasonable costs and
expenses, including attorneys' fees. Each Joint Venture
Partner consents to the exercise over it of personal
jurisdiction by the arbitrator(s) selected by the Partners to
resolve any dispute hereunder."
14. Due Execution and Validity of This Amendment
(a) Chalone represents and warrants to Paragon that this Amendment has
been duly authorized and executed by it pursuant to all necessary corporate
action and, upon its due execution by Paragon, this Amendment shall be a valid
and binding agreement of Chalone, enforceable against it in accordance with its
terms and conditions.
(b) Paragon hereby represents and warrants to Chalone that this
Amendment has been duly authorized and executed by it pursuant to all necessary
corporate action and, upon its due execution by Chalone, shall be a valid and
binding agreement of Paragon, enforceable against it in accordance with its
terms and conditions.
15. Continued Validity of the 1991 Joint Venture Agreement
Other than as expressly amended hereby, the terms and provisions of the
1991 Joint Venture Agreement shall remain in full force and effect, binding upon
Chalone and Paragon and their respective successors and assigns.
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IN WITNESS WHEREOF, the parties have executed this Amendment of the
1991 Joint Venture Agreement as of the day and year first above written.
PARAGON VINEYARD CO., INC.
By /s/ James H. Niven
___________________________________
James H. Niven
President
CHALONE WINE GROUP, LTD.
By /s/ W. Philip Woodward
___________________________________
W. Philip Woodward
President