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:
/ / Preliminary proxy statement
/ / Confidential, for use of the Commission only (as permitted by
Rule 14a-6(e)(2))
/X/ 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)
------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (Check the appropriate box):
/X/ No fee required.
/ / $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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing party:
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(4) Date filed:
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================
CHALONE
Wine Group
================
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
OF
THE CHALONE WINE GROUP, LTD.
Monday, May 15, 1997
TO ALL SHAREHOLDERS:
PLEASE TAKE NOTICE that the Annual Meeting of Shareholders of The
CHALONE Wine Group, Ltd., will be held at the Company's executive offices, 621
Airpark Road, Napa, California 94558-6272, on Monday, May 15, 1997, commencing
at the hour of 10:00 a.m. local time.
Shareholders of record as of the close of business on March 20, 1997,
will be entitled to vote at the meeting and any adjournments thereof.
The meeting will be held for the following purposes:
1. Election of directors for the ensuing year.
2. Approval of the Company's 1997 Stock Option Plan.
3. Ratification of the appointment of the Company's independent
certified public accountants.
4. Consideration and action on any other matter properly brought
before the meeting or any postponement or adjournment thereof.
Management's proxy and proxy statement are enclosed.
You are requested to date, complete 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
/s/William L. Hamilton
----------------------
William L. Hamilton
Secretary
Napa, California
April 11, 1997
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.
================
CHALONE
Wine Group
================
Acacia Canoe Ridge Vineyard Carmenet Chalone Vineyard
Edna Valley Vineyard Chateau Duhart-Milon
PROXY STATEMENT
- --------------------------------------------------------------------------------
ANNUAL MEETING OF SHAREHOLDERS
May 15, 1997
- --------------------------------------------------------------------------------
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 the 1997 Annual Meeting of Shareholders, to be held May 15,
1997. 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):
1. For election of management's proposed slate of directors, as
described herein, for the ensuing year.
2. For approval of the Company's 1997 Stock Option Plan.
3. For ratification of the appointment of Deloitte & Touche LLP as
the Company's certified public accountants.
The proxies will also be voted in the discretion of the appointed
proxyholders on any other matter of business properly brought before the meeting
or any postponement or adjournment thereof.
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 more of the Company's
directors, officers, and/or employees, at no additional compensation. This Proxy
Statement is first being mailed to shareholders of the Company on or about April
11, 1997.
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
Annual Meeting has been fixed at March 20, 1997. The Company had outstanding, as
of such record date, a total of 7,648,675 shares of its common stock, its only
class of voting securities. At the Annual Meeting, each shareholder will be
entitled to one vote for each share held on the record date, except that, for
the election of directors, upon request therefor made prior to the commencement
of voting, each shareholder will be accorded cumulative voting rights, under
which (s)he will be entitled to as many votes as equals the number of shares of
stock held, multiplied by the number of directorship positions to be filled
(eleven), all of which votes may be cast for a single candidate or distributed
among any or all of the candidates in such proportions as each shareholder sees
fit.
Any proxy given pursuant to this solicitation may be revoked by a
shareholder prior to the voting at the Annual 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.
Under the Company's By-Laws and the laws of the State of California,
assuming a quorum (3,824,338 shares) is present, the eleven director-nominees
receiving the highest number of affirmative votes of the shares represented and
voting will be elected as directors. All other matters require the affirmative
vote of a majority of the shares represented and voting at the meeting. The
Company will count shares duly represented but abstaining, including broker
non-votes, towards the determination of whether a quorum exists.
621 Airpark Road, Napa California 94558-6272
707.254.4200 Fax 707.254.4201
ELECTION OF DIRECTORS
(Proxy Item No. 1)
The Company's Board of Directors consists of 11 persons. The Company is
proposing re-election of the present 11 directors. Three of these nominees,
Messrs. Istel, Rothschild and Salin, have been designated by Domaines Barons de
Rothschild (Lafite) ("DBR") and two nominees, Messrs. Hojel and Plant, have been
designated by SFI Intermediate, Ltd. ("SFI"), pursuant to the terms of a voting
agreement between the Company, DBR, SFI, and the Company's President, Mr. W.
Philip Woodward, as more fully described below under the caption "Voting
Agreement."
At the Annual Meeting, directors will be elected to serve until the
1998 Annual Meeting or until their successors have been duly elected and
qualified. Each nominee has consented to be named in this proxy statement and
has consented to serve as a director if so elected. The Company has no reason to
believe that any of the nominees will not be available to serve; if, however,
any nominee would for any reason become unable or unwilling to serve, the shares
represented by proxies received by the Company will (unless otherwise directed)
be voted for the election of such person as the Board of Directors may
recommend, in place of the unavailable nominee.
The eleven nominees are listed in the following section, together with
summary biographical information.
Director Nominees
Richard H. Graff. Age 60. Mr. Graff served as President and Chief
Executive Officer of the Company from its formation in June of 1969 until 1974,
when he relinquished the presidency to Mr. Woodward, continuing as Chairman of
the Board. From 1974 through 1992, he served as the Company's Chief Operating
Officer, with overall responsibility for the Company's vineyard and winemaking
activities. In February of 1994, he resigned as an employee of the Company in
order to pursue other interests. He continues as Chairman of the Board and as a
consultant to the Company on an independent-contractor basis. Mr. Graff is a
Founder, and Chairman Emeritus of the American Institute of Wine and Food. He
has been a director of the Company since its formation in 1969.
W. Philip Woodward. Age 57. Mr. Woodward joined the Company as Vice
President and Chief Financial Officer in 1972 and in 1974 became its President
and Chief Executive Officer. He continued as Chief Financial Officer until 1983.
He has overall responsibility for all aspects of the Company's operations. He is
a director of DBR, the Northern Trust Bank of California, and Hog Island Oyster
Company. Mr. Woodward is serving as President and a director of the Marin
Theatre Company. He has been a director of the Company since 1972.
William L. Hamilton. Age 52. Mr. Hamilton joined the Company as Chief
Financial and Administrative Officer in September of 1985. In 1986, his title
was changed to Vice President, Finance and Administration, and he was also
appointed Assistant Secretary. In 1990, he was appointed Executive Vice
President of the Company, and in 1996 was appointed Secretary of the Company. He
is a trustee of the Marin Community Foundation. He has been a director of the
Company since 1986.
C. Richard Kramlich. Age 61. Mr. Kramlich has, since 1978, been
Managing General Partner of New Enterprise Associates, a San Francisco-based
venture capital company. He was a director of Carmenet Vineyard, Inc., from its
inception until its merger into the Company in 1984. From that date until his
election as a director, he served as an Advisor to the Board. He is a director
of Ascend Communications, Inc., Macromedia, Corp., Neopath, Inc., Silicon
Graphics, Inc., Syquest Technology, Inc., Graphix Zone and Lumisys, Inc. He has
been a director of the Company since 1990, and is a member of the Executive and
Audit Committees.
James H. Niven. Age 54. Since 1989, Mr. Niven has been President of
Paragon Vineyard Co., Inc., a grape-growing firm located in San Luis Obispo
County, California. Paragon is the Company's partner in the Edna Valley Vineyard
joint venture. Mr. Niven has, since 1985, been a partner in Niven & Smith, a San
Francisco law firm specializing in real estate matters. Mr. Niven has been a
director of the Company since 1993.
Eric de Rothschild. Age 57. Baron Eric de Rothschild has, since 1982,
been a Managing Partner of DBR as well as Chairman of one of DBR's major
shareholders, Paris Orleans, S.A., a French publicly-held company, Chairman of
Francarep, a subsidiary of Paris-Orleans, and Managing Partner of another of
DBR's major shareholders, Chateau Lafite Rothschild. DBR holds a significant
interest in the Company (see "Shareholding By Other Owners of More Than Five
Percent"). Since 1981, Baron Eric de Rothschild has been a partner in Rothschild
& Cie. Banque, Paris, and is also a director of N.M. Rothschild & Sons, London,
a director of J. I. B., a director of Rothschild Continuation and Chairman of
Rothschild Assets Managements. He has been a director of the Company since 1989,
and is a member of the Executive Committee.
Christophe Salin. Age 41. Since 1990, Mr. Salin has been President and
a director of DBR, which company he joined in 1985. He is also the Chairman of
Domaines Barons de Rothschild (Lafite) Distribution and of Societe de Gestion et
d'Assistance Viticole, and a director of Chateau Rieussec, Societe Financiere
Viticole, Domaines Barons de Rothschild Developpement, Vina Los Vascos, and
Quinta do Carmo, La Viticole de
2
Participation, and all affiliated companies of DBR. He has been a director of
the Company since 1991, and is the Chairman of the Executive Committee.
Yves-Andre Istel. Age 61. Since 1993, Mr. Istel has served as the Vice
Chairman of Rothschild Inc., a New York banking firm. Prior to that, from 1988
through 1993, Mr. Istel was Managing Director of Wasserstein Perella & Co.,
Inc., a New York banking firm. He is also the Vice Chairman of Rothschild
Europe, B.V. and a Director of Rothschild et Cie. Banque, Paris, France. Mr.
Istel was appointed a director of the Company in November of 1995.
Mark A. Hojel. Age 28. Since 1996, Mr. Hojel has served as Marketing
Manager of Monte Xanic, a premium winery located in Ensenada, Baja California.
Mr. Hojel holds a Masters Degree in Business Administration from the Anderson
School at the University of California at Los Angeles and was employed as an
Industrial Engineer from January of 1992 through August of 1994 at PGI
International. Mr. Hojel was appointed a director of the Company in November of
1995.
Phillip M. Plant. Age 51. Since 1985, Mr. Plant has served as Senior
Vice-President, Manager, of Rauscher, Pierce, Refsnes, Inc., an investment
banking and brokerage firm. Mr. Plant is an advisory director of the American
National Bank, and an advisory director for Plymouth Mortgage Investments and
for Rauscher, Pierce & Clark, London, England. Mr. Plant was appointed a
director of the Company in February of 1996, and is a member of the Executive
Committee.
William G. Myers. Age 69. Since 1962, Mr. Myers has served as Chief
Executive Officer of Ojai Ranch and Investment Company, Inc., which has
agribusiness and investment interests. Mr. Myers currently serves as director of
Security Capital Industrial Trust, Security Capital Pacific Trust, S.E.E.
International, The Library of Congress, James Madison Council, of Washington,
D.C., California Historical Society Foundation, of San Francisco, California,
H.C. and R.C. Merritt Trusts, Santa Barbara Botanic Garden, The Nature
Conservancy and St. Joseph's Health & Retirement Center Foundation. Mr. Myers
has served as a director in the past for Idetek, Inc., Bank of A. Levy, Bradley
REIT, Oregon Shakespeare Festival and Santa Barbara Museum of Art. Mr. Myers was
appointed a director of the Company in May of 1996, and is a member of the
Executive and Audit Committees.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" MANAGEMENT'S NOMINEES.
3
Shareholding Information as to Directors, Director Nominees and Management
The following table sets forth information respecting security
ownership of the Company's no par value common stock, the Company's only class
of voting securities, beneficially owned by each of the Company's directors,
director nominees and executive officers, and all directors, director nominees
and executive officers as a group, as of March 20, 1997.
The persons named in the table have sole voting and investment power
with respect to all shares shown as beneficially owned by them, respectively,
subject to applicable community property laws and to the qualifications
contained in the footnotes to the table.
Name of Beneficial Owner Shares Beneficially Owned Percent of Class
------------------------ ------------------------- ----------------
W. Philip Woodward(1) 454,680 5.8%
William G. Myers 363,244 4.7%
William L. Hamilton(2) 120,067 1.5%
Richard H. Graff(3) 81,080 1.0%
Larry M. Brooks(4) 51,962 *
C. Richard Kramlich(5) 40,586 *
Robert B. Farver(6) 21,081 *
Eric de Rothschild(7) 7,760 *
Christophe Salin(8) 10,380 *
James H. Niven(9) 4,990 *
Mark A. Hojel(10) 1,760 *
Phillip M. Plant(11) 1,100 *
Yves-Andre Istel(12) 760 *
All directors, director nominees and 1,159,450 14.3%
executive officers as a group (13
persons)(13)
<FN>
* Less than 1% ownership.
- ----------------
(1) Includes 13,259 shares held by Mr. Woodward's wife, of which Mr. Woodward
disclaims beneficial ownership. Includes 22,100 shares held by trusts of
which Mr. Woodward is the beneficiary. Includes 124,500 shares issuable on
exercise of options which are vested or will vest within the next 60 days,
warrants for the purchase of an aggregate of 42,857 shares collectively
held by Mr. Woodward and the aforesaid trusts, and 1,680 shares in the
Company's Profit Sharing Plan.
(2) Includes 329 shares held by Mr. Hamilton's wife, of which Mr. Hamilton
disclaims beneficial ownership. Includes 100,500 shares issuable to Mr.
Hamilton on exercise of options which are vested or will vest within the
next 60 days. Also includes 1,246 shares in the Company's Profit Sharing
Plan held by Mr. Hamilton and 150 shares in the Company's Profit Sharing
Plan held by Mr. Hamilton's wife, of which Mr. Hamilton disclaims
beneficial ownership.
(3) Includes 81,080 shares issuable to Mr. Graff on exercise of options which
are vested or will vest within the next 60 days.
(4) Includes 43,388 shares issuable to Mr. Brooks on exercise of options which
are vested or will vest within the next 60 days. Also includes 998 shares
in the Company's Profit Sharing Plan held by Mr. Brooks.
(5) Includes 15,880 shares issuable to Mr. Kramlich on exercise of options
which are vested or will vest within the next 60 days.
(6) Includes 16,500 shares issuable to Mr. Farver on exercise of options which
are vested or will vest within the next 60 days. Also includes 724 shares
in the Company's Profit Sharing Plan held by Mr. Farver.
(7) Consists of shares issuable on exercise of options which are vested or will
vest within the next 60 days. Excludes shares held and acquirable by DBR,
of which Baron Eric de Rothschild is Managing Partner, which holdings are
set forth in the next section, and as to which he disclaims beneficial
ownership.
(8) Consists of shares issuable on exercise of options which are vested or will
vest within the next 60 days. Excludes shares held and acquirable by DBR,
of which Mr. Salin is President, which holdings are set forth in the next
section, and as to he disclaims beneficial ownership.
(9) Consists of shares issuable on exercise of options which are vested or will
vest within the next 60 days. Excludes 10,000 shares held by Paragon
Vineyard Co., Inc., of which Mr. Niven is President, as to which Mr. Niven
disclaims beneficial ownership.
(10) Includes 760 shares issuable to Mr. Hojel on exercise of options which are
vested or will vest within the next 60 days. Excludes shares held and
acquirable by SFI as set forth in the next section, as to which Mr. Hojel
disclaims beneficial ownership.
(11) Includes 100 shares held by Mr. Plant's wife, of which Mr. Plant disclaims
beneficial ownership.
(12) Includes 760 shares issuable to Mr. Istel on exercise of options which are
vested or will vest within the next 60 days.
(13) Includes 406,498 shares issuable on exercise of options which are vested or
will vest within the next 60 days, warrants for the purchase of 42,857
shares, and 4,798 shares in the Company's Profit Sharing Plan.
</FN>
4
Voting Agreement
In 1995, DBR, SFI and Mr. Woodward entered into a voting agreement
which provides that they will vote their shares (and use their best efforts to
have certain others vote their shares) of Company common stock in favor of the
other signatories' designees to the Company's Board of Directors, including the
nomination of such designees for directorship positions. The agreement provides
for a signatory's right to designate one or more nominees, according to the
percentage of total shares outstanding then held by the particular signatory, as
follows: 26% or greater, three designees; 12%-26%, two designees; and 5%-12%,
one designee. The agreement has a five-year term and supersedes a prior 1993
voting agreement among the parties and certain other directors and officers of
the Company.
Shareholding By Other Owners of More Than Five Percent
In addition to the foregoing shareholdings by directors, director
nominees and management, the Company is aware of two other beneficial owners of
more than 5% of the Company's common stock, as described in the following table
and explanatory paragraphs. The information disclosed below is based on
information furnished by the holders or contained in filings made with the
Securities and Exchange Commission. The percentage number is based on shares
outstanding on March 20, 1997:
Shares Percent of Class
Name of Beneficial Owner Beneficially Owned Beneficially Owned
------------------------ ------------------ ------------------
Domaines Barons de Rothschild (Lafite) 3,871,668(1) 50.6%
33 rue de la Baume
75008 Paris, France
SFI Intermediate, Ltd. 1,757,919(2) 22.9%
5810 East Skelly Drive, Suite 1000
Tulsa, Oklahoma 74135-6403
<FN>
- -----------------------
1. The holding of DBR consists of 3,097,858 shares held outright, and 773,810
shares acquirable on exercise of warrants.
2. The holding of SFI consists of 1,055,538 shares held outright, and 702,381
shares acquirable on exercise of warrants. SFI Intermediate, Ltd. and Hook
Investments, LLC and GHA1 Holdings, Inc. and Phyllis S. Hojel share voting
power and the power to dispose or direct the disposition of such shares.
</FN>
Committees
Executive Committee. The Company has a five-person Executive Committee,
which has specific jurisdiction over employment and compensation matters
concerning the Company's senior executive officers, compensation and benefits
for other employees and such additional matters customarily handled by such
committees. The Committee's membership currently includes Messrs. Kramlich,
Rothschild, Salin, Plant, and Myers. The Committee met five times in 1996.
Audit Committee. The Audit Committee, currently comprised of Messrs.
Kramlich and Myers, concerns itself with the Company's internal accounting
controls as well as meeting and conferring with the Company's certified public
accountants and reviewing the results of their auditing engagement. The
Committee typically meets in March of each year, in conjunction with the annual
audit, and so met in 1996.
Nominating Committee. The Company has no standing nominating committee.
Board Meetings and Director Compensation
The Company's Board of Directors met four times during 1996. Each
director attended at least 75% of the aggregate number of those meetings and the
meetings of those committees of which he was a member, with the exception of
Messrs. Rothschild and Istel.
Each director who is not an employee of the Company is compensated on
the basis of $500 per year plus $100 for each Board of Directors meeting
attended, and receives reimbursement of extraordinary travel costs to attend
meetings. No additional compensation is or has been paid for committee
participation or special assignments. Non-employee directors also receive
quarterly grants of options to purchase the Company's common stock (see
"Approval Of 1997 Stock Option Plan-Automatic Quarterly Grants to Outside
Directors"). During 1996, pursuant to the Company's Non-Discretionary Stock
Option Plan, which expired on December 31, 1996, the nine non-employee directors
received options to purchase a total of 3,040 shares. The exercise price in each
instance was the market value of the stock on the date of grant. The weighted
average per-share exercise price of all such options was $10.25.
5
During 1996, Mr. Graff received $32,500 for consulting services
rendered to the Company. In July 1996, the Company and Mr. Graff entered into a
Consulting and Non-Competition Agreement for the duration of Mr. Graff's
lifetime which provides for annual compensation to Mr. Graff of $10,000 for the
first five years, $12,000 for the next five years and $14,000 for the remaining
term of the agreement.
EXECUTIVE COMPENSATION
The following table shows compensation paid by the Company for the past
three years to its Chief Executive Officer and each other executive officer of
the Company (the "Named Executive Officers").
Summary Compensation Table
Annual Long-Term All Other
Compensation Compensation Compensation(1)
Name and ------------ ------------ --------------
Principal Position Year Salary Bonus Options
------------------ ---- ------ ----- -------
W. Philip Woodward 1996 $143,333 $25,000 15,000 shs. $3,600
President and 1995 $121,700 $18,000 10,000 shs. $2,400
Chief Executive Officer 1994 $105,000 -- 10,000 shs. --
William L. Hamilton 1996 $106,833 $15,800 10,000 shs. --
Executive Vice-President 1995 $105,300 $10,300 2,500 shs. --
and Chief Financial Officer 1994 $101,750 -- 10,000 shs. --
Larry M. Brooks 1996 $100,250 $15,000 10,000 shs. $4,552
Vice President, Production, and 1995 $ 88,333 $ 5,000 10,000 shs. $4,620
Managing Director, Acacia Winery 1994 $ 78,958 $ -- 10,000 shs. --
Robert B. Farver 1996 $ 94,583 $65,776 10,000 shs. $4,750
Vice President, Sales 1995 $ 85,000 $36,056 -- $4,620
1994 $ 65,000 $28,675 -- --
<FN>
- ----------------------------------
1. Company contributions under the The Chalone Wine Group Ltd. Profit Sharing
401(k) Plan.
</FN>
6
Option Grants In 1996
The following table sets forth certain information regarding options
granted during the year ended December 31, 1996 to the Company's Named Executive
Officers.
Percentage of Potential Realizable Value
Total Options Exercise at Assumed Annual Rates of
Options Granted to or Expiration Stock Price Appreciation
Name Granted(1) Employees Base Price Date for Option Term(2)
---- ---------- --------- ---------- ---- ------------------
5% 10%
-- ---
W. Philip Woodward 15,000 shs. 33.4% $9.50/sh. 2/4/06 $ 90,000 $ 227,250
William L. Hamilton 10,000 shs. 22.2% $9.50/sh. 2/4/06 $ 60,000 $ 151,500
Larry M. Brooks 10,000 shs. 22.2% $9.50/sh. 2/4/06 $ 60,000 $ 151,500
Robert B. Farver 10,000 shs. 22.2% $9.50/sh. 2/4/06 $ 60,000 $ 151,500
<FN>
- -----------------
1. Options are incentive stock options, granted pursuant to the Company's 1987
Stock Option Plan. They became exercisable on February 5, 1997.
2. Potential realizable value is calculated based on an assumption that the
price of the Company's common stock appreciates at the annual rate shown
(5% and 10%), compounded annually, from the date of grant of the option
until the end of the option term (10 years). The value is net of the
exercise price but is not adjusted for the taxes that would be due upon
exercise. The 5% and 10% assumed rates of appreciation are mandated by the
rules of the Securities and Exchange Commission and do not represent the
Company's estimate or projection of future stock prices. Actual gains, if
any, upon future exercise of any of these options will depend on the actual
performance of the Company's common stock and the continued employment of
the executive officer holding the option through its vesting period. At 5%
annual appreciation from $9.50 over a ten-year term, the stock price would
be $15.50. At 10% annual appreciation from $9.50 over a ten-year term, the
stock price would be $24.65.
</FN>
Aggregated Option Exercises in 1996 and Year-End Option Values
The following table shows the number of shares represented by
outstanding stock options held by each of the Named Executive Officers at
December 31, 1996. The closing price of the Company's common stock at year end
was $12.00.
Number of Value of Unexercised
Unexercised Options In-The-Money Options
at Year End at Year End
Name Shares Acquired Value Exercisable/ Exercisable/
---- on Exercise Realized Unexercisable Unexercisable
----------- -------- ------------- -------------
W. Philip Woodward --- --- 109,500/ $ 444,250/
15,000 $ 37,500
William L. Hamilton --- --- 93,000/ $ 382,125/
10,000 $ 25,000
Larry M. Brooks --- --- 33,388/ $ 136,283/
10,000 $ 25,000
Robert B. Farver --- --- 6,500/ $ 32,500/
10,000 $ 25,000
7
Profit Sharing 401(k) Plan
The Company's Profit Sharing 401(k) Plan is intended to be a qualified
retirement plan under Section 401(k) of the Internal Revenue Code. Under this
plan, participating employees (including the Named Executive Officers) may
contribute up to 15% of their compensation, but not exceeding the maximum amount
allowed under applicable tax laws ($9,500 in 1996), and the Company in its
discretion contributes from profits up to 50% of the employee contribution, not
to exceed 5% of their compensation. All employees of the Company with one year
of service, unless covered by a collective bargaining agreement, are eligible to
participate in the 401(k) plan. The Company's contribution is fully vested upon
contribution. A portion of the Plan's assets are invested in common stock of the
Company. The Company's Edna Valley Vineyard joint venture has a similar plan.
Employee Stock Purchase Plan
Under the Company's Employee Stock Purchase Plan, pursuant to Section
423 of the Code, all employees with one year of service (including the Named
Executive Officers) may contribute up to 10% of their compensation during each
27-month period of the plan. At the end of the period, the participant`s
contributions are used to purchase common stock of the Company at 85% of the
market price of the stock on the commencement or ending date of the offering
period, whichever is lower.
Performance Graph
The line graph below compares the cumulative total return to holders of
the Company's common stock in the five-year period from December 31, 1991, to
December 31, 1996, with the cumulative total return in the same period on (i)
the NASDAQ Stock Market Index (U.S.) and (ii) a peer group index comprised of
the following companies whose returns have been weighted based on market
capitalization as of the beginning of each period for which a return is
indicated: Robert Mondavi Corp., Canandaigua Wine Inc., Adolph Coors Co.,
Anheuser-Busch Cos., Inc., Brown Forman Corp., Genesee Corp., and R H Phillips
Inc. R H Phillips Inc. was added to the peer group for 1996, the first full year
that its stock traded publicly. The graph assumes an investment of $100.00 on
December 31, 1991 in the Company and in two comparison indices. "Total return,"
for purposes of the graph, assumes reinvestment of all dividends.
8
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
AMONG THE CHALONE WINE GROUP, LTD.,
THE NASDAQ STOCK MARKET-US INDEX AND A PEER GROUP
[The following descriptive data is supplied in accordance with Rule 304(d) of
Regulation S-T]
12/91 12/92 12/93 12/94 12/95 12/96
----- ----- ----- ----- ----- -----
THE CHALONE WINE GROUP 100 72 67 59 96 123
NASDAQ STOCK MARKET-US 100 116 134 131 185 227
PEER GROUP 100 98 86 92 123 151
* $100 INVESTED ON 12/31/91 IN STOCK OR INDEX -
INCLUDING REINVESTMENT OF DIVIDENDS.
FISCAL YEAR ENDING DECEMBER 31.
The information contained in the performance graph shall not be deemed to be
"soliciting material" or to be "filed" with the SEC, nor shall such information
be incorporated by reference into any future filing under the Securities Act of
1933 or the Securities Exchange Act of 1934 (the "Exchange Act"), except to the
extent that the Company specifically incorporates it by reference into such
filing.
Compensation Committee Interlocks and Insider Participation
Compensation decisions are made by the Executive Committee of the Board
of Directors, whose current members are: Messrs. Kramlich, Plant, Rothschild,
Salin and Myers. Baron de Rothschild and Mr. Salin are, respectively, the
Managing Partner and President of DBR. The Company and DBR engaged in certain
related transactions which are described in more detail below under the caption
"Certain Relationships and Related Transactions."
9
COMPENSATION COMMITTEE REPORT ON COMPENSATION OF
EXECUTIVE OFFICERS
General. The Executive Committee of the Board of Directors (the
"Committee") performs the functions of a compensation committee and administers
the Company's executive compensation program. The Executive Committee is
composed entirely of directors who are not employees of the Company.
The objective of the Company's executive compensation program is to
develop and maintain executive reward programs which (i) contribute to the
enhancement of shareholder value, (ii) are competitive with the pay practices of
other industry-leading companies and (iii) attract, motivate and retain key
executives who are critical to the long-term success of the Company. As
discussed below, the Company's executive compensation program consists of both
fixed (base salary) and variable (incentive) compensation elements. Variable
compensation consists of annual cash incentives and stock option grants under
the Company's Stock Option Plans. These elements are designed to operate on an
integrated basis and together comprise total compensation value.
The Executive Committee reviews executive compensation in light of the
Company's performance during the year. In reviewing the Company's performance
during 1996, the Committee considered a variety of factors. Sales increased by
24% for the year, the highest level achieved in the Company's history. Profits
increased to a record $2,339,000 for the year as compared to $207,000 in 1995.
In reviewing Company performance, the Committee considered these factors as a
whole without assigning specific weights to particular factors.
Base Salary. Base salary levels for the Company's executives are
determined by the Committee based on factors such as individual performance
(e.g., leadership, level of responsibility, management skills and industry
activities), and Company performance (as discussed above). For 1996, base
salaries for the named executive officers, including that of the Chief Executive
Officer, were established as above.
Annual Cash Incentives. The annual cash incentive is designed to
provide a short-term (one-year) incentive. The Company does not adhere to any
firmly established formulas for the award of annual cash incentives. Rather,
incentive awards are based on the achievement of corporate and individual
performance for the year, including subjective factors. The Summary Compensation
Table shows annual cash incentives paid to the Named Executive Officers,
including the CEO, for 1996, 1995 and 1994.
Stock Options. Stock options are designed to provide long-term
incentives and rewards tied to the price of the Company's common stock. Given
the fluctuations of the stock market, stock price performance and financial
performance are not always consistent. The Committee believes that stock
options, which provide value to participants only when the Company's
shareholders benefit from stock price appreciation, are an important component
of the Company's executive compensation program. The number of options or shares
of stock currently held by an executive is not a factor in determining
individual grants, and the Committee has not established any target level of
ownership of Company common stock by the Company's executives. However,
retention of shares of Company stock by executives is encouraged.
The Company does not adhere to any firmly established formulas for the
issuance of options. The Summary Compensation Table shows the options granted to
the Named Executive Officers for the past three years, including the CEO. In
determining the size of the grants to the CEO and the other Named Executive
Officers, the Committee assessed relative levels of responsibility and the
long-term incentive practices of other comparable companies.
The exercise price of all options granted was equal to the market value
of the underlying common stock on the date of grant. Accordingly, the value of
these grants to the officers is dependent solely upon the future growth and
share value of the Company's common stock.
The foregoing report is given by the members of the Executive
Committee, namely:
C. Richard Kramlich
William G. Myers
Phillip M. Plant
Eric de Rothschild
Christophe Salin
10
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Mr. Niven, a director of the Company, is President and shareholder of
Paragon Vineyard Co., Inc. ("Paragon"), the Company's partner in the Edna Valley
Vineyard Joint Venture (the "Joint Venture") which operates a winery in San Luis
Obispo County, California. In December 1996, the Company and Paragon entered
into an agreement (the "Amended Agreement") which amended and restated the terms
of the Joint Venture. Under the terms of the Amended Agreement, the Company is
obligated in the future to make substantial payments in order to maintain its
50% ownership interest in the Joint Venture and to make the term of the Joint
Venture perpetual. The Amended Agreement required the Company to pay to Paragon
$1,590,000 in 1996 and require the Company to make the following additional
payments to maintain the Company's ownership interest: $1,050,000 in each 1997
and 1999 and $850,000 in 2001. In the year 2001, the Company will also have the
option to purchase 50% of the brand name, Edna Valley, for $200,000. During
1996, the Company paid Paragon $175,439 under the terms of the pre-existing
Joint Venture Agreement to extend the term of the Joint Venture. The Company
continued as the managing Joint Venture partner. The Joint Venture's lease with
Paragon for the property on which the winery is located was also amended in
December 1996 to include additional land and necessary for expansion of the
winery facilities. The Joint Venture paid approximately $10,240 to Paragon
during 1996 pursuant to the lease.
Under the terms of a grape purchase agreement, Paragon sells fixed
quantities of Chardonnay grapes to the Joint Venture at prices calculated by
reference to the average prices paid for Chardonnay grapes in Napa County during
the preceding year, with certain adjustments depending on the sugar content of
the grapes supplied. Paragon also supplies white wine grapes to the Company's
Carmenet Vineyard Facility. During 1996, grape purchase payments to Paragon
amounted to approximately $1,948,161 from the Joint Venture and approximately
$94,044 from the Company for Carmenet Vineyard.
Certain directors and nominees have relationships with DBR and SFI.
Baron de Rothschild and Mr. Salin are, respectively, the Managing Partner and
President of DBR, and Mr. Istel is a director of certain affiliates of DBR. Mr.
Mark A. Hojel's mother, Phyllis S. Hojel, is the president and sole director of
SFI. Mr. Plant has served as a financial advisor to the Hojel family and is
related to the Hojel family by marriage.
As a result of DBR's investment in the Company, the Company receives an
allocation of the wines of DBR, including the wines of Chateau Lafite-Rothschild
and Duhart-Milon, for sale primarily to the Company's shareholders. The Company
paid approximately $1,112,571 to DBR during 1996 for the purchase of such wines.
In July 1996, the Company entered into a series of agreements with
Richard Graff, who is a director of the Company, and Mr. Graff's affiliates in
order to purchase from them approximately 160 acres of land and a single-family
home situated on property adjacent to the Chalone Vineyard. Of the total
purchase price of $1,192,503, the Company paid $250,000 in cash with the balance
of $942,503 being paid by a promissory note secured by the property, bearing
interest at 7.03%. In connection with the purchase, the Company agreed to lease
the single-family home to Mr. Graff during his lifetime for monthly payments of
$833 for five years, $1,000 for the next five years and $1,167 for the remaining
term of the lease. As of December 31, 1996, Mr. Graff owed $70,128 on a note to
the Company which bears interest at 7% annually. Mr. Graff's 1995 debt of
$85,426 was reduced by $15,298 and refinanced as a 7% note. He also owed $27,106
for 1996 transactions.
In February 1997, the Company purchased from Richard H. Graff, a
director of the Company, and from W. Philip Woodward, a director of the Company
and the Company's President and Chief Executive Officer, the rights to a book
manuscript concerning the history of the Chalone Vineyard. Messrs. Graff and
Woodward shared equally in the purchase price of $25,000 cash. In addition, if
the book is published by the Company or by a third party, Messrs. Graff and
Woodward would be entitled to consideration through the tenth anniversary of the
sale in an amount equal to all revenues derived by the Company to the extent
that they exceed the Company's direct costs of editing, producing, marketing and
distributing the book.
On February 28, 1996, Director and Chief Financial Officer William L.
Hamilton paid to the Company all remaining amounts due pursuant to a loan by the
Company to Mr. Hamilton in the principal amount of $96,666.
In the judgment of the Company, all material transactions between the
Company and its directors, officers and principal shareholders, and their
affiliates, have been made on terms no less favorable to the Company than could
have been obtained from unaffiliated third parties.
11
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company's executive officers, directors and
greater-than-ten-percent beneficial owners are required under Section 16(a) of
the Exchange Act to file reports of ownership and changes in ownership with the
SEC. Copies of those reports must also be furnished to the Company.
Based on review of copies of filings received by it and upon written
representations from certain reporting persons, the Company believes that during
1996 all of the Company's officers, directors and greater-than-ten-percent
beneficial owners complied with all filing requirements applicable under Section
16(a) of the Exchange Act.
APPROVAL OF 1997 STOCK OPTION PLAN
(Proxy Item No. 2)
On February 10, 1997, the Board of Directors adopted the 1997 Stock
Option Plan (the "Plan"), subject to shareholder approval. The Plan provides for
the grant of stock options to officers and other key employees of the Company
(including the Edna Valley Vineyard Joint Venture, so long as the Company is the
managing joint venturer of that entity), as well as non-employee directors and
consultants, for an aggregate of up to 1,000,000 shares of common stock, plus
any shares subject to issuance under the Company's expired 1987 Stock Option
Plan or 1988 Non-Discretionary Stock Option Plan that are forfeited to the
Company under the terms of such plans.
The purpose of the Plan is to provide incentives to eligible employees,
directors and consultants by providing them with a proprietary interest in the
Company. A copy of the Plan is attached hereto. The following summary of certain
provisions of the Plan does not purport to be complete and is qualified in its
entirety by reference the attached Plan.
Administration of the Plan
The Plan provides that it shall be administered by the Board of
Directors or by the Compensation Committee (the "Committee") of not less than
two directors appointed by the Board. To the extent that options granted under
the Plan are intended to qualify as "performance-based compensation" within the
meaning of Section 162(m) of the Internal Revenue Code, as amended (the "Code")
the Committee will consist of two or more "outside directors" within the meaning
of Code Section 162(m).
The Committee, or the full Board, is authorized to grant awards to
eligible employees, directors and consultants, to determine the terms and
conditions thereof, to determine which persons meet the requirements with
respect to eligibility, and to adopt rules and regulations relating to the Plan.
The Plan also provides for automatic quarterly grants to non-employee directors.
See "Quarterly Automatic Grants to Outside Directors."
Shares Available Under Plan
The Plan, which expires on February 9, 2007 unless sooner terminated by
the Board, provides for stock options for an aggregate of 1,000,000 shares of
common stock. No options have been granted under the Plan, except for automatic
grants to non-employee directors on March 31, 1997.
In addition to the Plan, there are outstanding options for a total of
623,490 and 64,870 shares, respectively, under the 1987 plan and the 1988 plan.
The 1987 plan expired on February 20, 1997 and the 1988 plan expired on December
31, 1996.
Each award under the Plan contains customary anti-dilution provisions
which are applicable in the event of a stock dividend, stock-split, conversion,
exchange, reclassification or substitution. In the event of any other change in
the corporate structure or outstanding shares, the Committee may make such
equitable adjustments to the number of shares and the class of shares available
under the Plan or to any outstanding award as it shall deem appropriate to
prevent dilution or enlargement of rights. Upon termination of any outstanding
Plan awards, the shares subject to those awards may again be made the subject of
additional Plan awards. Where the exercise price of an option is paid by
delivery of shares already owned by the optionee, only the net number of shares
issued upon the exercise shall be considered utilized under the Plan. The
maximum number of shares which may be the subject of options granted to any one
individual in any calendar year is unlimited.
Description of Stock Options
The Committee will have discretion to grant either "incentive stock
options" (within the meaning of Section 422 of the Internal Revenue Code) or
non-qualified stock options. A further description of these two types of stock
options appears below under the heading "Certain Federal Income Tax
Consequences." All option grants will be evidenced by written agreements in such
form approved by the Committee consistent with the terms of the Plan. The
Committee will, subject to the terms and conditions of the Plan, determine the
terms and conditions of option grants and the number of shares to be issued
pursuant to such options.
12
The Committee may, in its discretion, provide that an option may not be
exercised in whole or in part for a specified period or periods of time.
Generally, options vest one year after the date of grant. Except as so
specified, an option may be exercised in whole or in part from time to time for
a period of up to ten years from the date of grant. In the discretion of the
Committee, an option may become immediately exercisable upon the occurrence of
certain events, including upon the death or permanent disability of an optionee
or upon a change in control (as defined in the Plan) of the Company. In the
event of the optionee's termination of employment with the Company, the option
shall also terminate unless extended by the Committee but not beyond the option
term. In the event of a merger, sale of assets or certain other corporate
transactions, the Plan authorizes the Committee to cancel, or accelerate the
exercisability of, options which were exercisable at any time prior to the
effective date of such transaction.
The exercise price of incentive options may not be less than the fair
market value of the common stock on the date of grant. Payment of the option
price upon exercise of an option shall be in cash or, in the discretion of the
Committee, in shares of common stock already owned by the optionee having a fair
market value equal to the option price, or any combination of cash and common
stock having a combined value equal to the option price. In the discretion of
the Committee, an option agreement may also provide for the extension of an
interest-bearing loan from the Company to the optionee to finance exercise of an
option, provided that the term of the loan does not exceed ten years, the loan
is with full recourse to the optionee, and repayment of the loan is secured by
the shares so acquired by the optionee. The Plan also provides that the
Committee may permit optionees to use cashless exercise methods that are
permitted by law and in connection therewith the Company may establish a
cashless exercise program.
In general, options are transferable only by will or by the laws of
descent and distribution and, during the lifetime of the optionee, the option
shall be exercisable only by the optionee or by his guardian or legal
representative; however, the Committee has the discretion to permit lifetime and
death transfers to the extent permitted by SEC Rule 16b-3 as in effect from time
to time. Rule 16b-3 was amended recently to permit transferable options, and the
Committee is considering allowing the transfer of Plan options.
Automatic Quarterly Grants to Outside Directors
Under the Plan, each member of the Board who is not an employee of the
Company will receive, effective as of the final day of each calendar quarter, an
at-market option for a number of shares equal to ten shares per each 100,000
shares of common stock issued and outstanding on that date, rounded down to the
nearest 100,000. Thus, based on the 7,655,189 shares outstanding on March 31,
1997, each outside director received an option for 770 shares on that date,
subject to shareholder approval of the Plan.
These automatic option grants are considered a portion of the cash
compensation payable to the outside directors. See "Board Meetings and Director
Compensation." The options have a term of five years, and become exercisable as
to one-third of the shares monthly, so that the options become fully vested one
calendar quarter after the grant date. The options do not provide for
termination upon termination of director's service with the Company.
The other material terms governing these automatic option grants are
the same as discussed above under "Description of Stock Options." The outside
directors shall also be eligible to receive discretionary option grants under
the Plan.
The following table sets forth the automatic quarterly option grants
which the outside directors will receive annually under the Plan.
Shares Subject
to Options Granted(1) Exercise Price(2)
--------------------- -----------------
All current directors who are not
executive officers as a group (seven 3,080 $11.00
persons)
<FN>
- ------------------
1. Based on the number of outstanding shares of the common stock on March 31,
1997.
2. Based on the closing market price on March 31, 1997.
</FN>
Certain Federal Income Tax Consequences
The following discussion is based on federal income tax laws and
regulations as in effect on the date of this Proxy Statement and does not
purport to be a complete description of the federal income tax aspects of the
Plan. No information is provided herein with respect to estate, inheritance, or
state or local tax laws, although there may be certain tax consequences upon the
receipt or exercise of an award or the disposition of any of the acquired shares
under those laws. The exact federal income tax treatment of awards will depend
on the specific nature of any such award.
13
Incentive Stock Options. Neither the grant nor the exercise of an
incentive stock option is taxable to the employee receiving the option. If the
employee holds the stock purchased upon exercise of an incentive stock option
for at least one year after the purchase of the stock and until at least two
years after the option was granted, his or her sale of the shares will produce
long-term capital gain or loss, and the Company will not be entitled to any tax
deduction. However, if the employee sells or otherwise transfers the stock
before these holding periods have elapsed, he or she will generally be taxed at
ordinary income rates on the sale in the amount of the excess of the fair market
value of the stock when the option was exercised over the option exercise price,
and the Company will be entitled to a tax deduction in the same amount. Any
remaining gain or loss will be short-term or long-term capital gain or loss as
the case may be.
Non-Qualified Options. Although the grant of non-qualified stock
options under the Plan is not generally taxable to the optionee, upon exercise
the optionee will be taxed at ordinary income rates on the excess of the fair
market value of the stock received over the option exercise price, and the
Company will be entitled to a tax deduction in the same amount. The amount
included in an individual's income as a result of the exercise of a
non-qualified option will be treated as his or her basis in the shares acquired,
and any remaining gain or loss on the subsequent sale of the shares will be
treated as long-term or short-term capital gain or loss as the case may be.
Excess Parachute Payments. Where the terms of the agreements pursuant
to which specific awards made under the Plan provide for accelerated vesting or
payment of an award in connection with a change in ownership or control of the
Company, certain amounts with respect to such awards may constitute "excess
parachute payments" under the golden parachute provisions of the Code. Pursuant
to such provisions, an employee will be subject to a 20% excise tax on any
excess parachute payment and the Company will be denied any deduction with
respect to such excess parachute payment.
Alternative Minimum Tax. The amount by which the fair market value of
the shares received upon exercise of an incentive stock option exceeds the
exercise price of the shares is included in the calculation of "alternative
minimum taxable income" of the optionee. The alternative minimum tax imposed on
individual taxpayers is equal to the amount by which 26% of alternative minimum
taxable income (28% for alternative minimum taxable income in excess of
$175,000) exceeds the regular federal income tax rate for a taxable year. For
minimum tax purposes, the basis of stock acquired through the exercise of an
incentive stock option equals the fair market value taken into account in
determining the amount of the alternative minimum taxable income. A portion of a
taxpayer's minimum tax attributable to certain items (including the spread on
the exercise of an incentive stock option) may be credited against the
taxpayer's regular tax liability in later years to the extent that the regular
tax liability exceeds the alternative tax.
Section 162(m) Compensation Deduction Limitation. Stock options, SARs
and performance-based restricted stock granted under the Plan are intended to be
"performance-based compensation" and therefore not subject to the deduction
limitation of Code Section 162(m).
Accounting
The Company has elected to be governed by Accounting Principles Board
Opinion No. 25, so that there is no earnings charge in connection with the grant
or exercise of at-market stock options granted under the Plan. Effective for
1996, the financial Accounting Standards Board Statement No. 123 requires
companies to show in a footnote to their annual financial statements, the pro
forma effect that option grants would have had on earnings if the "value" of the
stock options granted that year were treated as compensation expense. See "Note
K - Stock Based Compensation", of the "Notes to Financial Statements" in the
Company's 1996 annual report to the shareholders. In addition, the Plan options
for 6,930 shares granted to the directors on March 31, 1997, which are subject
to shareholder approval, will be subject to an earnings charge to the extent the
market price on the date of shareholder approval exceeds the exercise price of
the options.
Amendment of the Plan
The Plan may be terminated or amended by the Board at any time;
however, any modification or amendment requiring shareholder approval under SEC
Rule 16b-3, the Internal Revenue Code or the rules of the Nasdaq National Market
or any stock exchange on which the common stock is traded will be subject to
shareholder approval within one year of the adoption of such amendment.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY ADOPTED THE PLAN AND RECOMMENDS
THAT YOU VOTE "FOR" APPROVING THE PLAN. THE AFFIRMATIVE VOTE OF A MAJORITY OF
THE SHARES OF COMMON STOCK REPRESENTED AT THE ANNUAL MEETING AND VOTED WITH
RESPECT TO THIS PROPOSAL, IF A QUORUM IS PRESENT, IS REQUIRED TO APPROVE THE
PLAN.
14
RATIFICATION OF APPOINTMENT OF THE COMPANY'S
CERTIFIED PUBLIC ACCOUNTANTS
(Proxy Item No. 3)
The Board of Directors has reappointed Deloitte & Touche LLP as the
Company's independent certified public accountants for the year ending December
31, 1997. Deloitte & Touche LLP and its constituent predecessor, Touche Ross &
Co., have been the Company's certified public accountants since 1986.
Although not required by California law, the Company makes a practice
of seeking shareholder ratification of the appointment of the Company's auditors
at each annual meeting. In the event the necessary vote is not obtained, the
matter will be returned to the Board of Directors for consideration of
alternatives.
Representatives of Deloitte & Touche LLP are expected to be in
attendance at the Annual Meeting, with the opportunity to make a statement if
they so desire and to be available to respond to shareholders' questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION AND
APPOINTMENT OF THE COMPANY'S CERTIFIED PUBLIC ACCOUNTANTS.
OTHER MATTERS
The Company does not know of any matter other than those discussed in
the foregoing materials contemplated for action at the Annual Meeting. Should
any other matter be properly brought before the Meeting, the holders of the
proxies herein solicited will vote thereon in their discretion.
FINANCIAL STATEMENTS
Shareholders should refer to the Consolidated Financial Statements and
Supplemental Data, Management's Discussion and Analysis, and Selected Financial
Data set forth in the Company's Annual Report on Form 10-K, concurrently being
provided.
SUBMISSION OF SHAREHOLDER PROPOSALS
FOR 1998 ANNUAL MEETING
Any proposal which a shareholder wishes to have presented at the 1998
Annual Meeting and included in the Company's proxy statement for such meeting
must be received by the Company, at its principal executive office, 621 Airpark
Road, Napa, California 94558-6272, no later than January 15, 1998. Proposals
should be addressed to the attention of Mr. William L. Hamilton, Executive Vice
President and Secretary.
April 11, 1997 By Order of the Board of Directors
/s/William L. Hamilton
----------------------
William L. Hamilton
Secretary
A COPY OF THE COMPANY'S MOST CURRENT ANNUAL REPORT IS CONCURRENTLY BEING
PROVIDED TO EACH SHAREHOLDER.
15
THE CHALONE WINE GROUP, LTD.
1997 STOCK OPTION PLAN
February 10, 1997
ARTICLE I
GENERAL
1.1 Purpose of the Plan. The purpose of this Stock Option Plan (the
"Plan") is to attract and retain officers and other key employees, as well as
non-employee directors and consultants, of the Company, to encourage them to
devote their utmost effort and skill to the advancement and betterment of the
Company, and to afford them the opportunity to acquire a continuing stock
ownership interest in the Company, thereby providing them a proprietary interest
in the success of the Company.
1.2 Definitions. As used in the Plan and the related stock option
agreements, the following terms will have the meanings stated below:
(a) "Board" means the Board of Directors of the Company.
(b) "Company" means The Chalone Wine Group, Ltd., a California
corporation.
(c) "Code" means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" means the Compensation Committee appointed by
the Board to administer the Plan, consisting of not less than two
members of the Board. The Board shall have the power from time to time
to add or remove members of the Committee and to fill vacancies arising
for any reason. If the Board has not established a committee to
administer the Plan, reference herein to the "Committee" shall refer to
the Board.
(e) "Consultant" means any person, including an advisor,
engaged by the Company or an affiliate to render services, but shall
not include employees or Directors who are paid only a director's fee
or who are not compensated by the Company for their services as
Directors.
(f) "Director" means a member of the Board.
(g) "Employee" means any person employed by the Company,
including officers and Directors (but excluding consultants). Neither
service as a Director nor payment of a Director's fee shall be
sufficient to constitute "employment" by the Company.
(h) "Exchange Act" means the Securities Exchange Act of 1934.
(i) The "Fair Market Value" of a Share on any date shall be
determined by the Committee based on the price per Share quoted on the
principal trading market for the Shares.
(j) "Incentive Stock Option" or "ISO" means an Option that
meets the requirements of Section 422 of the Code.
(k) "Non-qualified Stock Option" or "NQSO" means an Option
that is not intended to qualify as an ISO.
(l) "Option" means an option to purchase Shares and shall be
either an ISO or an NQSO.
A-1
(m) "Option Agreement" means the written agreement between the
Company and an Optionee pursuant to which an Option may be granted. The
Committee shall determine the terms of each Option Agreement, subject
to the terms and conditions of the Plan.
(n) "Optionee" means the holder of an Option.
(o) "Option Price" means the price to be paid for Shares upon
exercise of an Option, in accordance with Article II or III, as
applicable.
(p) "Outside Director" means a member of the Board who is not
an Employee or an officer of the Company.
(q) "Shares" means shares of common stock, without par value,
of the Company.
(r) "Subsidiary" means any corporation in which the Company
owns, directly or indirectly, stock possessing more than 50 percent of
the total combined voting power of all classes of stock.
1.3 Administration of Plan.
(a) The Plan shall be administered by the Committee, or the
full Board acting in lieu of the Committee. Subject to the provisions
of the Plan, the Committee's authority shall include determination of:
(i) The persons to whom Options shall be granted;
(ii) The number of Shares to be covered by an Option;
(iii) Whether and to what extent an Optionee may use
already-owned Shares in payment of the Option Price upon
exercise of Options;
(iv) Which Options granted to Employees shall be ISOs
and which shall be NQSOs;
(v) The Option Price;
(vi) The period and conditions, if any, under which
each Option shall vest or be exercisable; and
(vii) The terms and conditions of the Option
Agreement between the Company and each Optionee.
(b) The Committee's decision construing, interpreting and
administering the Plan shall be conclusive and binding on all parties.
No member of the Committee or the Board shall be liable for any action
taken or determination made in good faith with respect to the Plan or
to any Option granted pursuant to the Plan.
1.4 Eligibility. The individuals who shall be eligible to participate
in the Plan shall be those key salaried Employees, Consultants and Outside
Directors of the Company, or of any Subsidiary, as the Committee shall
determine. Eligible individuals may also, in the discretion of the Committee,
include employees of Edna Valley Vineyard Joint Venture, so long as the Company
is the managing joint venturer of such entity. Incentive Stock Options may be
granted only to Employees. Non-Qualified Stock Options may be granted to
Employees, Consultants and Outside Directors. Options may be granted to the same
eligible person on more than one occasion.
1.5 Date of Grants Under Plan. The date of grant of an Option to an
Employee or a Consultant hereunder shall be deemed to be the date of action by
the Committee, notwithstanding that issuance may be conditioned on the execution
of an Option Agreement. The date of grant of an Option to an Outside Director
hereunder shall be deemed to be (i) the date of automatic grant in the case of a
non-discretionary grant of an Option pursuant to Section 3.1 and (ii) the date
of action by the Committee in the case of a discretionary grant of an Option
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pursuant to Section 3.2, notwithstanding that issuance may be conditioned on the
execution of an Option Agreement.
1.6 Transferability. Except as permitted by the Committee in any Option
Agreement in accordance with the rules and regulations promulgated under the
Exchange Act with respect to any exemption from the short-swing profit
provisions of Section 16(b) of that Act, Options under the Plan shall not be
transferable by the holder other than by will or the laws of descent and
distribution and shall be exercisable during the holder's lifetime only by the
holder or the holder's guardian or legal representative. This restriction shall
apply to all Optionees receiving grants under the Plan, whether or not the
Optionee is subject to Section 16(b).
1.7 Shares Subject to Plan. The maximum number of Shares which may be
issued under the Plan shall be 1,000,000, plus any Shares subject to issuance
under the Company's 1987 Stock Option Plan or the Company's 1988
Non-Discretionary Stock Option Plan that are forfeited to the Company under the
terms and conditions of such plans or the option agreements issued thereunder.
The maximum number of Shares which may be issued under the Plan is subject to
adjustment in accordance with Section 4.4. In the event that any outstanding
Option shall expire or terminate for any reason, the Shares allocable to the
unused or forfeited portion of that Option may again be available for additional
grants under the Plan. In the event of an Optionee's delivery of already-owned
Shares in payment of the Option Price, or a portion of it, only the net number
of Shares issued upon exercise of the Option shall be considered issued under
the Plan for the purposes of this Section 1.7.
1.8 Effective Date and Term of Plan. The Plan shall be effective as
determined by the Board, but no Options granted under the Plan shall be
exercised unless and until the Plan has been approved by the shareholders of the
Company. The Board may terminate the Plan at any time. If not sooner terminated
by the Board, the Plan will expire on February 9, 2007. Expiration or
termination of the Plan will not affect the validity or subsequent exercise of
any Options then outstanding.
ARTICLE II
STOCK OPTIONS GRANTED TO EMPLOYEES AND CONSULTANTS
The provisions of this Article II shall govern Options granted to
Employees and Consultants.
2.1 Option Agreements. The grant of an Option shall be evidenced by a
written Option Agreement. Each Option Agreement shall state the number of Shares
subject to the Option, the Option Price, the option period, the method of
exercise, the manner of payment, the restrictions on transfer, whether the
Option is intended to be an ISO or an NQSO (in the case of Employees), and such
other terms and conditions as the Committee shall determine consistent with the
Plan.
2.2 Option Price. The price to be paid for Shares upon the exercise of
an Option shall be fixed by the Committee at the time the Option is granted, but
in the case of an ISO shall not be less than the Fair Market Value of the Shares
on the date of grant.
2.3 Duration of Option. No Option shall be exercisable after the
expiration of ten years from the date of grant.
2.4 Date of Exercise. Any Option may be exercised at any time following
the date of grant, in whole or in part, unless the Committee shall otherwise
provide for vesting or other restrictions under which an Option may be exercised
by the Optionee. In the discretion of the Committee, an Option which is subject
to vesting may become immediately and fully exercisable upon the occurrence of
certain times or events, including, without limitation, (i) in the event of
death or permanent disability of the Optionee or (ii) upon the occurrence of a
change of control of the Company. For purposes of the Plan, a change of control
shall be deemed to occur if any person or group together with its affiliates and
associates (other than the Company or any of its Subsidiaries or employee
benefit plans), after the effective date of the Plan, acquires direct or
indirect beneficial ownership of 33 1/3 percent or more of the then outstanding
Shares or commences a tender or exchange offer for 33 1/3 percent or more of the
then outstanding Shares. The terms "group," "affiliates," "associates" and
"beneficial ownership" shall have the meanings ascribed to them in the rules and
regulations promulgated under the Exchange Act.
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2.5 Method of Exercise. The Committee shall establish procedures
governing the exercise of an Option consistent with the purposes of the Plan.
2.6 Payment of Option Price. Upon exercise of an Option, the Option
Price for the Shares to which the exercise relates shall be paid in full in cash
or, as specified in the Option Agreement or as otherwise permitted by the
Committee at the time of exercise, (i) by delivering to the Company
already-owned Shares having a Fair Market Value equal to the Option Price on the
date of exercise, (ii) by cashless exercise methods which are permitted by law,
including, without limitation, methods whereby a broker sells some or all of the
Shares to which the exercise relates or holds them as collateral for a margin
loan, delivers proceeds equal to the Option Price to the Company, and delivers
the remaining proceeds to the Optionee, or (iii) by any combination of cash,
already-owned Shares or such cashless exercise methods having a combined value
equal to the Option Price. In the discretion of the Committee, already-owned
Shares must have been owned by the Optionee at the time of exercise for at least
the period of time specified by the Committee (which generally shall be not less
than six months). Whenever payment of the Option Price would require delivery of
a fractional Share, the Optionee shall deliver the next lower whole number of
Shares and a cash payment shall be made by the Optionee for the balance of the
Option Price.
2.7 Option Exercise Loans. An Option Agreement may provide for the
extension of a loan from the Company to the Optionee to finance exercise of the
Option, subject to Committee approval at the time of exercise. Any such loan
shall have a term that does not exceed ten years, shall be secured by a pledge
of the Shares acquired pursuant to exercise of the Option, shall be with full
recourse against the Optionee, shall bear interest at rates determined by the
Committee, and shall contain such other terms and conditions as the Committee
shall determine consistent with the Plan.
2.8 Termination of Employment. Options may terminate immediately upon
termination of an Optionee's employment with the Company for any reason, or may
remain exercisable for such additional period and to such extent as is
determined by the Committee, but not beyond the original option term.
ARTICLE III
STOCK OPTIONS GRANTED TO OUTSIDE DIRECTORS
The provisions of this Article III shall govern Options granted to
Outside Directors.
3.1 Automatic Quarterly Grants of Options. Effective on the final day
of each calendar quarter, a grant of an NQSO to purchase Shares equal to (10)
shares per each 100,000 Shares issued and outstanding as of such date rounded
down to the nearest 100,000 Shares shall be made to each person who on that date
is an Outside Director.
3.2 Discretionary Grants of Options. Directors shall also be eligible
to receive discretionary grants of Options, at such times and with respect to
such number of Shares as the Committee shall determine.
3.3 Non-Exclusivity. Options granted to Outside Directors hereunder
shall be in addition to, and not in lieu of, any cash compensation otherwise
payable to the members of the Board.
3.4 Option Agreements. The grant of an Option to an Outside Director
under this Article III shall be evidenced by a written Option Agreement. Each
Option Agreement shall state the number of Shares subject to the Option, the
Option Price, the option period, the method of exercise, the manner of payment,
the restrictions on transfer, and such other terms and conditions as the
Committee shall determine consistent with the Plan.
3.5 Option Price. The price to be paid for Shares upon the exercise of
an Option shall be fixed by the Committee at the time the Option is granted, but
shall not be less than the Fair Market Value of the Shares on the date on which
the Option is granted.
3.6 Duration of Option. No Option shall be exercisable after the
expiration of five years from the date of grant.
3.7 Date of Exercise. Each Option granted pursuant to Section 3.1 shall
vest and become exercisable as to 1/3 of the Shares subject to the Option on the
last day of each month following the grant date of the Option,
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so that such Option shall have become fully vested one calendar quarter after
the grant date. Each Option granted pursuant to Section 3.2 may be exercised at
any time following the date of grant, in whole or in part, unless the Committee
shall otherwise provide for vesting or other restrictions under which the Option
may be exercised. In the discretion of the Committee, Options granted under
Sections 3.1 and 3.2 may become immediately and fully exercisable upon the
occurrence of certain times or events, including, without limitation, (i) in the
event of death or permanent disability of the Optionee or (ii) upon the
occurrence of a change of control of the Company (as such term is defined in
Section 2.4).
3.8 Method of Exercise. The Committee shall establish procedures
governing the exercise of an Option consistent with the purposes of the Plan.
3.9 Payment of Option Price. Upon exercise of an Option, the Option
Price for the Shares to which the exercise relates shall be paid in accordance
with the terms and conditions set forth in Section 2.6.
3.10 Termination of Director Status. Options may terminate immediately
upon termination of an Optionee's service with the Company for any reason, or
may remain exercisable for such additional period and to such extent as is
determined by the Committee, but not beyond the original term.
ARTICLE IV
MISCELLANEOUS
4.1 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be mailed by registered or certified
mail, postage prepaid, or otherwise delivered by hand or messenger or facsimile
transmission, addressed
(a) if to the Company, at
The Chalone Wine Group, Ltd.
621 Airpark Road
Napa, CA 94558
Attn: Secretary
(b) If to an Optionee, at the last address shown on the
Company's personnel records, or
(c) to such address as either party shall later designate
by notice to the other.
4.2 Amendment or Termination. The Board may, at any time and from time
to time, modify, amend, suspend or terminate the Plan in any respect. Amendments
to the Plan shall be subject to shareholder approval to the extent required to
comply with (a) the exemption to the short-swing profit provisions of Section
16(b) of the Exchange Act pursuant to rules and regulations promulgated
thereunder, (b) the exclusion for performance-based compensation under Internal
Revenue Code Section 162 (m), or (c) the rules and regulations of any securities
exchange on which the Shares are listed or traded. The Board may also modify or
amend the terms and conditions of any outstanding Option, subject to the consent
of the holder and consistent with the provisions of the Plan.
4.3 Leave of Absence. The Committee shall be entitled to adopt such
rules, regulations and determinations as it deems appropriate under the Plan in
respect of any leave of absence from the Company taken by the recipient of any
grant under the Plan. Without limiting the generality of the foregoing, the
Committee shall be entitled to determine (a) whether or not any such leave of
absence shall be treated as a termination of employment with the Company within
the meaning of the Plan and (b) the impact, if any, of any such leave of absence
on grants and awards under the Plan.
4.4 Recapitalization. In the event of any change in capitalization
which affects the Shares, whether by stock dividend, stock distribution, stock
split, subdivision or combination of Shares, reclassification, merger or
consolidation or otherwise, such proportionate adjustments, if any, as the
Committee in its discretion deems appropriate to reflect such change shall be
made with respect to the total number of Shares in respect of which Options may
be granted under the Plan, the number of Shares covered by each outstanding
Option and the Option
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Price per Share under each Option; however, any fractional shares resulting from
any such adjustment shall be eliminated.
4.5 Reorganization. If the Company merges or consolidates with another
corporation and is not the surviving corporation, or if the Company is
liquidated or sells or otherwise disposes of substantially all its assets while
unexercised Options remain outstanding under the Plan, (a) subject to the
provisions of clause (c) below, after the effective date of the merger,
consolidation, liquidation, sale or other disposition, as the case may be, each
holder of any outstanding Option shall be entitled, upon exercise of an Option,
to receive, in lieu of Shares, the number and class or classes of shares of
stock or other securities or property to which the holder would have been
entitled if, immediately prior to the merger, consolidation, liquidation, sale
or other disposition, the holder had been the holder of record of a number of
Shares equal to the number of Shares as to which the Option may be exercised;
(b) the Committee may in its discretion waive any limitations set out in or
imposed pursuant to this Plan so that all Options, from and after a date prior
to the effective date of the merger, consolidation, liquidation, sale or other
disposition, as the case may be, specified by the Committee, shall be
exercisable in full; and (c) all outstanding Options which are exercisable at
any time prior to the effective date of any merger, consolidation, liquidation,
sale or other disposition may be canceled by the Committee in its discretion, as
of such effective date.
4.6 General Restriction. Each Option under the Plan shall be subject to
the requirement that, if at any time the Committee shall determine that (a) the
listing, registration or qualification of the related Shares upon any securities
exchange or under any state or federal law, (b) the consent or approval of any
government regulatory body, or (c) an agreement by the recipient of an Option
restricting disposition of Shares, is necessary or desirable as a condition of,
or in connection with, the making of an Option or the issue or purchase of
Shares thereunder, then such grant shall not be effective in whole or in part
unless such listing, registration, qualification, consent, approval or agreement
shall have been effected or obtained free of any conditions not acceptable to
the Committee.
4.7 Withholding Taxes. The Company, with the approval of the Committee
as set forth in the applicable Option Agreement, may, at the request of an
Optionee, retain Shares which would otherwise be delivered to the Optionee upon
exercise of an Option to satisfy any withholding tax liability that may result
from such exercise or vesting. The Shares shall be valued for this purpose at
their Fair Market Value on the date of the exercise or vesting, as the case may
be.
4.8 No Right to Employment. Nothing in the Plan or in any agreement
entered into pursuant to the Plan shall confer upon any Optionee the right to
continue in the employment or service of the Company, nor affect any right which
the Company may have to terminate the employment or service of such person.
4.9 Rights as Shareholder. No Optionee shall have rights as a
shareholder with respect to Shares acquired under the Plan unless and until the
certificates for such Shares are delivered to him or her.
4.10 Special Rules for 10% Holders. No person shall be eligible for the
grant of an ISO if, at the time of grant, such person owns (or is deemed to own
pursuant to Section 424(d) of the Code) stock possessing more than ten percent
(10%) of the total combined voting power of all classes of stock of the Company
or of any of its affiliates, unless the exercise price of such Option is at
least one hundred ten percent (110%) of the Fair Market Value of the Shares at
the date of grant and the Option is not exercisable after the expiration of five
(5) years from the date of grant.
4.11 Exchange Act. With respect to persons subject to Section 16 of the
Exchange Act, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successor under the Exchange Act. To
the extent any provision of the Plan or action by the Plan administrators fails
to so comply, it shall be deemed null and void, to the extent permitted by law
and deemed advisable by the Committee.
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APPENDIX B
THE CHALONE WINE GROUP, LTD.
P
R PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
O
X For Annual Meeting of Shareholders, May 15, 1997
Y
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
WILLIAM HAMILTON, and each of them, proxies, each with full power of
substitution, for and in the name and stead of the undersigned at the Annual
Meeting of Shareholders of THE CHALONE WINE GROUP, LTD., to be held on May 15,
1997, and at any and all postponement or 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.
This proxy, when properly executed, will be voted in the manner
directed by the undersigned shareholder(s). If no direction is made, this proxy
will be voted FOR the election of the nominees for director named in item 1 and
FOR item 2. It will also be voted in the discretion of the proxyholders on any
other matter of business properly coming before the Meeting. In the event that
any nominee for director is unable or declines to serve as a director, this
Proxy will be voted for any nominee who shall be designated by the Board of
Directors.
-----------
SEE REVERSE
SIDE
-----------
(Continued and to be signed on reverse side)
R-E-V-E-R-S-E
[ X ] Please mark
votes as in
this example.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE FOLLOWING:
1. ELECTION OF DIRECTORS: 3. Ratification of appointment FOR AGAINST ABSTAIN
Nominees: Richard H. Graff, W. Philip Woodward, of Deloitte & Touche LLP as [ ] [ ] [ ]
William L. Hamilton, C. Richard Kramlich, James H. the Company's independent
Niven, Eric de Rothschild, Christophe Salin, Yves- certified public accountants.
Andre Istel, Mark A. Hojel, Phillip M. Plant, William
G. Myers PLEASE PROMPTLY MARK, SIGN, MARK HERE FOR [ ]
DATE AND RETURN THIS PROXY ADDRESS CHANGE
[ ] FOR the nominees [ ] WITHHOLD authority IN THE ENVELOPE PROVIDED. AND NOTE AT
listed above (except to vote for all LEFT
as marked to the Nominees listed above.
contrary below). This proxy revokes any and all other proxies hertofore given
by the undersigned.
To withhold authority to vote for any individual Nominee,
write that Nominee's name in the space provided below. 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
2. FOR Approval of the Company's 1997 Stock Option corporation, please sign in full corporate name by President
Plan. or authorized person. If a partnership, please sign in
partnership's name by authorized person.
FOR AGAINST ABSTAIN
[ ] [ ] [ ] Signature:_____________________________ Date: _____________
Signature:_____________________________ Date: _____________
(If held jointly)
R-E-V-E-R-S-E