EXHIBIT 99.2
THE CHALONE WINE GROUP, LTD.
621 Airpark Road
Napa, California 94558
July 8, 2004
Domaines Barons de Rothschild (Lafite) SCA
33, rue de la Baume
75008 Paris, France
Dear Ladies/Gentlemen:
In connection with the consideration of a possible negotiated
transaction between The Chalone Wine Group, Ltd. (the "Company"), and Domaines
Barons de Rothschild (Lafite) SCA (the "Counterparty"), each such party (as
such, the "disclosing party") is prepared to make available to the other party
(as such, the "receiving party") certain information, including information
concerning the disclosing party. As a condition to, and in consideration of,
such information being furnished to each party and its directors, officers,
employees, subsidiaries, affiliates, agents or advisors (including, without
limitation, attorneys, accountants, consultants and financial advisors) or
financing or insurance sources (collectively, "Representatives"), each party
agrees to treat such information (whether prepared by the disclosing party, its
Representatives or otherwise and irrespective of the form of communication)
which is furnished to such party or its Representatives before or after the date
hereof by or on behalf of the disclosing party (herein collectively referred to
as the "Evaluation Material") in accordance with the provisions of this letter
agreement, and to take or abstain from taking certain other actions as
hereinafter set forth.
The term "Evaluation Material" also shall be deemed to include
all notes, analyses, compilations, studies, interpretations or other documents
prepared by the receiving party or its Representatives which contain, reflect or
are based upon, in whole or in part, the information furnished to the receiving
party or its Representatives pursuant hereto. The term Evaluation Material" does
not include information which (i) is or becomes generally available to the
public other than as a result of a disclosure by the receiving party or its
Representatives, (ii) was within the receiving party's possession prior to its
being furnished to the receiving party by or on behalf of the disclosing party
pursuant hereto, provided that the source of such information was not known by
the receiving party to be bound by a confidentiality agreement with or other
contractual, legal or fiduciary obligation of confidentiality to the disclosing
party or any other party with respect to such information or (iii) becomes
July 8, 2004
Page 2
available to the receiving party on a non-confidential basis from a source other
than the disclosing party or any of its Representatives, provided that to the
knowledge of the receiving party such source is not bound by a confidentiality
agreement with or other contractual, legal or fiduciary obligation of
confidentiality to the disclosing party or any other party with respect to such
information.
Each party hereby agrees that it and its Representatives shall
(i) use the Evaluation Material of the disclosing party solely for the purpose
of evaluating a possible negotiated transaction between the parties involving
either (a) a sale, lease, exchange or joint venture of all or a majority in
value of the assets of the Company, (b) the shareholders of the Company becoming
or being entitled to become, by virtue of the transaction, the holders of less
than a majority in value of the equity economic interests in the acquiring or
continuing company or entity or companies or entities and/or (c) any
going-private transaction pursuant to which the Counterparty, by itself or in
conjunction with Constellation Brands, Inc. and/or Huneeus Vintners, LLC, or
their respective affiliates, would cash out existing shareholders other then the
Counterparty (any of (a), (b) or (c), a "Transaction"), (ii) keep the Evaluation
Material of the disclosing party confidential and (iii) not disclose any of the
Evaluation Material of the disclosing party in any manner whatsoever, except as
may be required by law or court order subject to the provisions set forth below;
provided, however, that (x) the receiving party may make any disclosure of such
information to which the disclosing party gives its prior written consent, (y)
the receiving party may disclose any of such information to its Representatives
who need to know such information for the sole purpose of evaluating a
Transaction, provided such Representatives agree to comply with the terms of
this letter agreement applicable to such Representatives and provided, further,
that such information shall not be provided to the receiving party's financing
or insurance sources (if any) without the prior approval of the disclosing party
(which approval shall not be unreasonably withheld or delayed) and (z) the
Counterparty may disclose any of such information to Constellation Brands, Inc.,
Huneeus Vintners LLC and their respective affiliates and Representatives in
connection with the evaluation of a Transaction. The receiving party shall be
responsible for the breach of this letter agreement by its Representatives
(including those who subsequent to the first date of disclosure of Evaluation
Material cease to be a Representative), and each party agrees, at its sole
expense, to take all reasonable measures (including, but not limited to, court
proceedings) to restrain its Representatives from prohibited or unauthorized
disclosure or use of the Evaluation Material.
The Counterparty and the Company each hereby acknowledge that
it is aware, and that it will advise such Representatives who are informed as to
the matters which are the subject of this letter agreement, that the United
States securities laws prohibit any person who has received from an issuer
material, non-public information concerning the matters which are the subject of
this letter agreement from purchasing or selling securities of such issuer or
from communicating such information to any other person under circumstances in
which it is reasonably foreseeable that such person is likely to purchase or
sell such securities.
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July 8, 2004
Page 3
In addition, each party agrees that, except as required by law
(including without limitation the requirements of Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "1934 Act")), stock exchange rules or governmental
entity, without the prior written consent of the other party, it and its
Representatives will not disclose to any other person (other than Constellation
Brands, Inc., Huneeus Vintners LLC and their respective affiliates and
Representatives in connection with the evaluation of a Transaction) the content
of the Evaluation Material of the other party, the results or contents of any
discussions or negotiations that are taking place concerning a possible
negotiated Transaction between the parties or any of the terms or conditions
with respect thereto. Without limiting the generality of the foregoing, the
Counterparty agrees that, without the prior written consent of the Company, or
as otherwise specifically provided in this letter agreement, it will not,
directly or indirectly, enter into any agreement, arrangement or understanding,
or any discussions which might lead to such an agreement, arrangement or
understanding, with any person other than its Representatives or Constellation
Brands, Inc., Huneeus Vintners LLC and their respective affiliates and
Representatives regarding a possible Transaction. The term "person" as used in
this letter agreement shall be broadly interpreted to include the media and any
corporation, partnership, group, individual or other entity.
In the event that the receiving party or any of its
Representatives are requested or required (by oral questions, interrogatories,
requests for information or documents in legal proceedings, subpoena, civil
investigative demand or other similar process or by applicable state, rule or
regulation or by governmental regulatory authorities) to disclose any of the
Evaluation Material of the disclosing party, the receiving party shall provide
the disclosing party with prompt written notice of any such request or
requirement and, if such request is made in writing, a copy of such request so
that the disclosing party may seek a protective order or other appropriate
remedy and/or waive compliance with the provisions of this letter agreement. If,
in the absence of a protective order or other remedy or the receipt of a waiver
by the disclosing party, the receiving party or any of its Representatives
nonetheless conclude based on the advice of counsel that they are legally
compelled to disclose Evaluation Material, such party or its Representatives
may, without liability hereunder, disclose only that portion of the Evaluation
Material which the receiving party so concludes based upon advice of counsel is
legally required to be disclosed. The receiving party further agrees to
cooperate with the disclosing party by joining in any motion for protective
order the disclosing party may file and/or by designating any documents
containing Evaluation Material as subject to an existing protective order if
requested to do so by the disclosing party. The Company and/or certain of its
Representatives and the Counterparty each acknowledge that it has received
Plaintiffs' First Set of Document Requests, Interrogatories and Requests for
Admission dated May 25, 2004, and Plaintiffs' First Set of Document Requests and
Form Interrogatories dated May 26, 2004, in the action styled Weidamann v. The
Chalone Wine Group, Ltd. et al., Lead Case No. 26-25479 (Consolidated with Case
Nos. 26-25484, 26-25495, 26-25519 and 26-25531) (Napa County Super. Ct. compl.
filed May 18, 2004), and that this paragraph constitutes prompt written notice
of these requests as required by this letter agreement.
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July 8, 2004
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At any time upon the request of the disclosing party for any
reason or upon the receiving party's decision not to proceed with a Transaction,
the receiving party (i) will promptly deliver to the disclosing party or destroy
all Evaluation Material (and all copies thereof) furnished to it or its
Representatives by or on behalf of the disclosing party pursuant hereto and (ii)
will promptly destroy all other Evaluation Material prepared by the receiving
party or its Representatives and retain no copy thereof, unless in each case
(and then only to the extent that) the receiving party has determined based upon
the advice of counsel that such delivery or destruction is prohibited by law, in
which case the receiving party will notify the disclosing party of that
determination. Any destruction of Evaluation Material pursuant to this paragraph
shall be certified in writing to the disclosing party by an authorized officer
supervising such destruction. Notwithstanding the return or destruction of the
Evaluation Material, the receiving party and its Representatives will continue
to be bound by their respective obligations of confidentiality and other
obligations hereunder.
Each party understands and acknowledges that neither the other
party nor any of its Representatives (including without limitation any of its
directors, officers, employees, agents or shareholders) makes any representation
or warranty, express or implied, as to the accuracy or completeness of the
Evaluation Material. Each party agrees that neither the other party nor any of
its Representatives (including without limitation any of its directors,
officers, employees, agents or shareholders) shall have any liability to such
party or to any of its Representatives relating to or resulting from the use of
the Evaluation Material or any errors therein or omissions therefrom. Only those
representations or warranties which are made in a final definitive agreement
regarding any Transaction, when, as and if executed, and subject to such
limitations and restrictions as may be specified therein, will have any legal
effect.
The Counterparty agrees that, for the period beginning on the
date of this letter agreement and ending at the close of business on July 8,
2005, unless the Counterparty shall have been specifically invited in writing by
the board of directors (or an independent committee thereof) of the Company,
neither the Counterparty nor any of its affiliates (as such term is defined
under the 1934 Act) or Representatives on behalf of the Counterparty will in any
manner, directly or indirectly, (a) effect or seek, offer or propose (whether
publicly or otherwise) to effect, or cause or participate in or in any way
assist any other person to effect, offer or propose (whether publicly or
otherwise) to effect or participate in (i) any acquisition of any securities (or
beneficial ownership thereof) or assets (other than non-material assets or any
other asset of the Company generally offered for sale to the public) of the
Company; (ii) any tender or exchange offer, merger, consolidation or other
business combination involving the Company; (iii) any recapitalization,
restructuring, liquidation, dissolution or other extraordinary transaction with
respect to the Company or any material portion of the Company's business; or
(iv) any "solicitation" of "proxies" (as such terms are used in the proxy rules
of the Securities and Exchange Commission) or consents to vote any voting
securities of the Company; (b) form, join or in any way participate in a "group"
(as defined under the 1934 Act) with respect to the securities of the Company
(except for the group disclosed in Amendment No. 21 to Schedule 13D filed by the
Counterparty with the Securities and Exchange Commission on May 17, 2004 (the
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"Schedule 13D")); (c) take any action which to the knowledge of the Counterparty
requires the Company to make a public announcement regarding any of the types of
matters set forth in (a) above that directly involve the Counterparty; (d)
nominate, or seek to have nominated, any individual for election to the
Company's board of directors, except as set forth in the following paragraph; or
(e) enter into any discussions or arrangements with any third party with respect
to any of the foregoing or advise, assist, encourage, finance or seek to
persuade others to take any action with respect to the foregoing, except as
disclosed in the Schedule 13D or otherwise in connection with Constellation
Brands, Inc., Huneeus Vintners, LLC and/or its or their respective
Representatives. The Counterparty also agrees during such period not to request
the Company (or its directors, officers, employees or agents), directly or
indirectly, to amend or waive any provision of this paragraph (including this
sentence) if such action would cause the Counterparty to violate the provisions
of this paragraph.
Notwithstanding anything to the contrary in the foregoing
paragraph, during the period from the date of this letter agreement through July
8, 2005, the Counterparty may continue to have up to three representatives on
the Company's board of directors, and the Company agrees that its board of
directors, or any applicable committee thereof, will nominate three of the
Counterparty's representatives as nominees for the Company's board of directors
or, if the number of directors on the Company's board of directors exceeds 11,
the number of representatives which represents at least 27% of the total number
of directors on the Company's board of directors, in each case so long as the
Counterparty owns at least 27% of the outstanding shares of the Company's common
stock. Additionally, nothing in the foregoing paragraph shall prohibit the
following: (a) The Counterparty's representatives on the Company's board of
directors continuing to take actions solely in their capacity as directors in
order to fulfill their fiduciary duties as directors and consulting with the
Counterparty in connection with actions they may consider taking in their
capacity as directors consistent with their fiduciary duties to the Company; (b)
the Counterparty voting its shares of the Company's capital stock as it
determines in its sole discretion; (c) the Counterparty selling its shares of
the Company's capital stock, provided that it otherwise complies with the
confidentiality provisions of this letter agreement; and (d) the Counterparty
acquiring shares of the Company's capital stock in connection with any
conversion of the Convertible Subordinated Promissory Note in accordance with
its terms issued by the Company to the Counterparty on August 21, 2002 in the
principal amount of $8,250,000.
For the period beginning on the date of this letter agreement and
ending at the close of business on July 8, 2005, the Company will not disclose
any non-public information relating to its business to any person who is known
by the Company to be considering making, or has made, an Acquisition Proposal
(such person being a "Third Party"), unless such Third Party has executed an
agreement (a "Third Party Agreement") with the Company containing standstill
provisions which are no less favorable to the Company than the standstill
provisions contained in this letter agreement (the "Standstill"); PROVIDED that
the Company may enter into a Third Party Agreement containing standstill
provisions that are less favorable to the Company in the aggregate than the
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July 8, 2004
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Standstill if the Company notifies the Counterparty of the terms of such
standstill provisions as soon as reasonably practicable after the execution of
such Third Party Agreement, in which case the Standstill as it applies to the
Counterparty shall be automatically amended to be substantially similar to the
standstill provisions contained in such Third Party Agreement (provided that the
length of the Standstill in this letter agreement shall commence from the date
of this letter agreement, not the date of the Third Party Agreement). For
purposes of this letter agreement, "Acquisition Proposal" means any offer,
proposal or inquiry relating to, or any Third Party indication of interest in,
(A) any acquisition or purchase, direct or indirect, of 50% or more of the
consolidated assets of the Company and its subsidiaries or over 50% of any class
of equity or voting securities of the Company or any of its subsidiaries whose
assets, individually or in the aggregate, constitute more than 50% of the
consolidated assets of the Company, (B) any tender offer (including a
self-tender offer) or exchange offer that, if consummated, would result in such
Third Party's beneficially owning 50% or more of any class of equity or voting
securities of the Company or any of its subsidiaries whose assets, individually
or in the aggregate, constitute more than 50% of the consolidated assets of the
Company or (C) a merger, consolidation, share exchange, business combination,
sale of substantially all the assets, reorganization, recapitalization,
liquidation, dissolution or other similar transaction involving the Company or
any of its subsidiaries whose assets, individually or in the aggregate,
constitute more than 50% of the consolidated assets of the Company.
In consideration of the Evaluation Material being furnished
hereunder, each party agrees that, for the period beginning on the date of this
letter agreement and ending at the close of business on July 8, 2005, neither
such party nor any of such party's affiliates (as such term in defined under the
1934 Act) will, directly or indirectly, solicit to employ any of the officers or
key employees of the other party so long as they are employed by the other
party, without obtaining the prior written consent of the other party (it being
understood that any newspaper or other public solicitation not directed
specifically to such person shall not be deemed to be a solicitation for
purposes of this provision).
Each party understands and agrees that no contract or
agreement providing for any Transaction shall be deemed to exist between the
parties unless and until a final definitive agreement has been executed and
delivered. Each party also agrees that unless and until a final definitive
agreement regarding a Transaction has been executed and delivered, neither party
will be under any legal obligation of any kind whatsoever to enter into or
consummate a Transaction by virtue of this letter agreement except for the
matters specifically agreed to herein. The parties further acknowledge and agree
that until such definitive documents are entered into the Company reserves the
right, in its sole discretion to reject any and all proposals made by the
Counterparty or any of the Counterparty's Representatives on behalf of the
Counterparty with regard to a Transaction, and to terminate discussions and
negotiations with the Counterparty at any time. The Counterparty further
understands that the Company and its Representatives shall be free to conduct
any process for any transaction involving the Company, if and as they in their
sole discretion shall determine (including, without limitation, negotiating with
any other interested parties and entering into a definitive agreement without
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July 8, 2004
Page 7
prior notice to the Counterparty or any other person) and that any procedures
relating to such process or transaction may be changed at any time without
notice to the Counterparty or any other person.
The provisions of this letter agreement cannot be amended or
waived except with the written consent of each of the parties hereto. It is
understood and agreed that no failure or delay by a party in exercising any
right, power or privilege hereunder shall operate as a waiver thereof, nor shall
any single or partial exercise thereof preclude any other or future exercise
thereof or the exercise of any other right, power or privilege hereunder.
It is further understood and agreed that money damages would
not be a sufficient remedy for any breach of this letter agreement by a party or
any of its Representatives and that a party shall be entitled to equitable
relief, including injunctive relief, to prevent breaches of the provisions of
this letter agreement by the other party, without the necessity of proving
actual damages or of posting any bond, and specific performance, as a remedy for
any such breach. Such remedies shall not be deemed to be the exclusive remedies
for a breach of this letter agreement but shall be in addition to all other
remedies available by law or equity. In the event of litigation relating to this
letter agreement, if a court of competent jurisdiction determines that a party
or any of its Representatives have breached this letter agreement, then such
party shall be liable and pay to the other party the reasonable legal fees and
costs incurred by the other party in connection with such litigation, including
any appeal therefrom.
If any term, provision, covenant or restriction of this letter
agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions of this letter shall remain in full force and effect and shall in
no way be affected, impaired or invalidated.
Except as specified elsewhere herein, the terms of this letter
agreement will remain in force until the date that is three years from the date
hereof.
This letter agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but all of which
shall constitute the same agreement and shall become a binding agreement when a
counterpart has been signed by each party and delivered to the other party,
thereby constituting the entire agreement among the parties pertaining to the
subject matter hereof. This letter agreement supersedes all prior and
contemporaneous agreements, understandings and representations, whether oral or
written, of the parties in connection herewith. No covenant or condition or
representation not expressed in this letter agreement shall affect or be
effective to interpret, change or restrict this letter agreement. No prior
drafts of this letter agreement and no words or phrases from any such prior
drafts shall be admissible into evidence in any action, suit or other proceeding
involving this letter agreement. This letter agreement may not be changed or
terminated orally, nor shall any change, termination or attempted waiver of any
of the provisions of this letter agreement be binding on any party unless in
writing signed by the parties hereto. No modification, waiver, termination,
rescission, discharge or cancellation of this letter agreement and no waiver of
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July 8, 2004
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any provision of or default under this letter agreement shall affect the right
of any party thereafter to enforce any other provision or to exercise any right
or remedy in the event of any other default, whether or not similar.
This letter agreement shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assigns.
This letter agreement shall be governed by, and construed in
accordance with, the laws of the State of California applicable to contracts
entered into and to be performed wholly within the State of California by
California residents (without giving effect to any choice or conflict of law
provision). The parties agree that any suit for the enforcement of this letter
agreement may be brought in the courts of the state of California or any federal
court sitting therein, and each party consents to the exclusive jurisdiction of
such courts and service of process in any such suit being made upon Latham &
Watkins, 135 Commonwealth Drive, Menlo Park, California 94025, attention:
Christopher L. Kaufman, in the case of the Company, or upon Davis Polk &
Wardwell, 1600 El Camino Real, Menlo Park, California 94025, attention: Francis
S. Currie, in the case of the Counterparty. Each party hereby waives any
objection that it may now or hereafter have to the venue of any such suit or any
such court or that such suit is brought in an inconvenient venue, court or
jurisdiction.
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Please confirm your agreement with the foregoing by signing
and returning one copy of this letter to the undersigned, whereupon this letter
agreement shall become a binding agreement between you and the Company.
Very truly yours,
The Chalone Wine Group, Ltd.,
a California corporation
By: /s/ C. RICHARD KRAMLICH
__________________________
Name: C. Richard Kramlich
Title: Director
Accepted and agreed as of
the date first written above:
Domaines Barons de Rothschild (Lafite) SCA
a French corporation
By: /s/ ERIC DE ROTHSCHILD
_________________________
Name: Eric de Rothschild
Title: Managing Director