EXHIBIT 10.56
SECOND AMENDMENT TO
JOINT VENTURE AGREEMENT
OF
EDNA VALLEY VINEYARD
THIS SECOND AMENDMENT (the "Amendment") is made and entered into as of
this ___ day of June, 2002, by and between Paragon Vineyard Co., Inc., a Nevada
corporation ("Paragon"), and The 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 was amended by the parties pursuant to an amendment
dated December 27, 1996 (hereinafter, the "1996 Amendment"). The 1991 Joint
Venture Agreement, as amended by the 1996 Amendment, and 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 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:
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1. AMENDMENTS TO ARTICLE V OF THE JOINT VENTURE AGREEMENT
(SUPPLY OF GRAPES BY PARAGON TO THE JOINT VENTURE)
Article V of the Joint Venture Agreement is hereby amended in the
following respects and in the following respects only.
Section 5.1(a) is hereby amended in its entirety to read as follows:
"(a) Paragon and the Joint Venture shall, concurrently with the execution of
this Amendment, enter into the Second Amended and Restated Grape Purchase
Agreement (the "Amended Grape Purchase Agreement"), substantially in the form
attached hereto as EXHIBIT A. 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."
2. AMENDMENTS TO ARTICLE VII OF THE JOINT VENTURE AGREEMENT
(DISTRIBUTIONS; ALLOCATION OF INCOME AND LOSS)
Article VII of the Joint Venture Agreement is hereby amended in the
following respects and in the following respects only.
Section 7.3 is hereby added to Article VII to read in its entirety as
follows:
"7.3 DISTRIBUTIONS
For purposes of covering the estimated taxes of each of the Joint
Venture Partners in connection with the Joint Venture, by December 15 of each
year, the Joint Venture shall distribute to the Joint Venture Partners cash in
the aggregate amount of fifty percent (50%) of the projected earnings of the
Joint Venture for that year as reasonably determined by the Managing Joint
Venture Partner. In addition, by April 15 of the following year, the Joint
Venture shall distribute to the Joint Venture Partners an additional amount of
cash sufficient to bring the aggregate amount of distributions made to
sixty-seven percent (67%) of the actual earnings of the Joint Venture for the
previous year; PROVIDED, HOWEVER, that if by April 15 the Joint Venture has not
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yet determined actual earnings for the previous year, a good faith estimate
shall be paid and the Joint Venture shall adjust the foregoing cash
distributions totaling sixty-seven percent (67%) to reflect actual earnings once
determined.
If the adjustment requires additional distributions to the Joint
Venture Partners, the Joint Venture shall make such additional distributions as
soon as practically possible. If the aggregate distributions made exceed 67% of
actual earnings, the Joint Venture may subtract the overpayment from subsequent
distributions to be made to the Joint Venture Partners. In certain years, the
Joint Venture Partners may agree to reduce or increase the 67% provided for
above.
The Joint Venture computation of profits shall be made according to
generally accepted accounting principles and shall be audited by the Company's
accountants.
3. AMENDMENTS TO ARTICLE VIII OF THE JOINT VENTURE AGREEMENT
(MANAGEMENT OF THE JOINT VENTURE)
Article VIII of the Joint Venture Agreement is herby amended in the
following respects and in the following respects only.
Section 8.3(d) is hereby amended in its entirety to read as follows:
"(d) The Managing Director of the Committee shall be Thomas B.
Selfridge, so long as Mr. Selfridge serves as a director of Chalone and so long
as Chalone remains the Managing Joint Venture Partner of the Joint Venture. In
the event that Mr. Selfridge is no longer qualified or is unable to serve, at a
point in time when Chalone is the Managing Joint Venture Partner of 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,
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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 election 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 8.5(e)(i) is hereby amended in its entirety to read as follows:
"(i) The Joint Venture shall bear all costs of promotion and marketing
of the wines sold by the Joint Venture except asprovided by paragraph (ii)
below. In consideration thereof and its services rendered in promoting and
marketing the wines of the Joint Venture, the Managing Joint Venture Partner
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shall receive a commission, PROVIDED, HOWEVER, that the Managing Joint Venture
Partner shall not receive any commission for wines sold at the Winery, through
the Edna Valley VineyardWine Club, or over the internet, PROVIDED, HOWEVER, any
costs incurred by the Managing General Partner for internet sales shall be
reimbursed on a monthly basis. The Managing Joint Venture Partner's commission
shall be payable at such time as the Joint Venture receives payment for the
merchandise sold. The commission shall be in the following percentages, by
category sale:
(A) Private label wines: five percent (5%).
(B) Branded wines sold in California: ten percent (10%).
(C) Branded wines sold other than in California: twelve
percent (12%).
The out-of-state transfer price will be FOB net of all discounts
(including special purchase allowances (SPAs), depletion allowances and any
other similar accommodations offered to the trade).
The commissions paid to Chalone as provided above will be reduced on a
monthly basis by the reduction amount listed on the chart below:
Monthly
Reduction
Year Amount
________________________________
2002 $41,667/month
2003 $41,667/month
2004 $41,667/month
2005 $41,667/month
2006 - 2021 $ 8,333/month
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Section 8.5(e)(ii) is hereby amended in its entirety to read as
follows:
"(ii) Chalone shall act as distributor of the Winery's wine for the
State of California. Its continuation as distributor is subject to review from
time to time by the Review Committee, with affirmative approval required of the
Review Committee for Chalone's continuation as a distributor from year to year.
Subject to the foregoing, as distributor of the wines of the Winery in
California, Chalone shall be entitled to purchase the wines for distribution at
the wholesale price thereof net of all discounts (including special purchase
allowances (SPAs), depletion allowances and any other similar accommodations
offered to the trade), less 25%. In addition, the Joint Venture shall bear
one-half of Chalone's wine sample costs and wine list charges. If at any time
Chalone both ceases to be the distributor for the state of California and no
longer receives a margin commission from a broker or distributor in California,
Chalone's commission for branded wines sold in California shall be eleven and
one-quarter percent (11.25%) computed pursuant to Section 8.5(e)(i).
4. REDUCTION IN REVENUE TO PARAGON
The annual payments to Paragon for grapes or distributions shall be
reduced according to the following formula:
YEAR REDUCTION AMOUNT
____ ________________
2003 $125,000
2004 $250,000
2005 $250,000
2006 through and including 2021 $300,000
This reduction in revenue constitutes a revision to the Joint Venture
Agreement and not a modification to the price of grapes. The reduction shall be
paid between December 15 and December 31 of each year commencing with the year
2003 and ending in the year 2021.
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5. RETROACTIVITY OF MODIFICATIONS
The foregoing amendments to the Joint Venture Agreement will be
retroactive to January 1, 2002, and govern the distribution of operating profits
to have been paid in 2002 for the year 2001.
6. FINANCIAL AND MARKETING REPORTING
Chalone on behalf of the Joint Venture shall produce and forward to the
members of the Review Committee financial and marketing reports which include
that information historically included in the financial statements plus a review
of manufacturing costs versus budget and against last year's manufacturing
costs, and capital expenditures versus budget.
The financial and marketing reports will also include (1) an analysis
which explains any significant variance in any expense, sales item, or capital
expense from budget or from last year, (2) marketing commentary, (3) quarterly
case sales versus budget and against last year by product and by market, (4) a
monthly "snapshot" of case sales with an explanation of significant variances,
and (5) quarterly tracking and explanation of marketing support discounts and
programming by product and by market. The reports will be due on the following
dates:
a. Quarterly full financials the 30th day of the month following the
quarter.
b. Annual trial balance, March 31st, and annual K-1, March 20th.
c. All other reports described above on the 15th day following the
month or quarter they are due unless otherwise agreed.
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6. 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.
7. CONTINUED VALIDITY OF THE 1991 JOINT VENTURE AGREEMENT AND 1996
AMENDMENT
Other than as expressly amended hereby, the terms and provisions of the
1991 Joint Venture Agreement, as amended by the 1996 Amendment, shall remain in
full force and effect, binding upon Chalone and Paragon and their respective
successors and assigns.
________________________________
IN WITNESS WHEREOF, the parties have executed this Amendment of the
Joint Venture Agreement as of the day and year first above written.
PARAGON VINEYARD CO., INC.
By
________________________________
James H. Niven, President
THE CHALONE WINE GROUP, LTD.
By
________________________________
Thomas B. Selfridge,
Chief Executive Officer
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EXHIBIT A
SECOND AMENDED AND RESTATED GRAPE PURCHASE AGREEMENT
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