THE CHALONE WINE GROUP LTD
FILING TYPE: S-3
DESCRIPTION: REGISTRATION STATEMENT
FILING DATE: __________, 2001
PERIOD END: N/A
PRIMARY EXCHANGE: NASDAQ - NATIONAL MARKET SYSTEM
TICKER: CHLN
As filed with the Securities and Exchange Commission on ___________, 2001
Registration No. 333-__________
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SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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Form S-3
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
The Chalone Wine Group, Ltd.
(Exact name of Registrant as Specified in Its Charter)
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California 94-1696731
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
621 Airpark Road
Napa, California 94558-6272
(707) 254-4200
(Address, Including Zip Code, and Telephone Number, Including Area
Code, of Registrant's Principal Executive Offices)
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THOMAS B. SELFRIDGE
President and Chief Executive Officer
621 Airpark Road
Napa, California 94558-6272
(707) 254-4200
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Agent for Service)
Copy to:
DANIEL E. COHN, ESQ.
Farella Braun + Martel LLP
235 Montgomery Street
San Francisco, CA 94104
(415) 954-4400
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Approximate date of commencement of proposed sale to the public: as
soon as practicable after the effective date of this registration statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: [ ]
If any of the securities being registered on this Form are to be
offered on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act of 1933, as amended (the "Securities Act"), other than securities
offered only in connection with dividend or reinvestment plans, check the
Following box: [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434 under the Securities Act, please check the following box. [ ]
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CALCULATION OF REGISTRATION FEE
Proposed
Title of Each Class Proposed Maximum Amount of
of Securities To Be Amount To Be Maximum Offering Aggregate Offering Registration Fee
Registered Registered Price Per Unit Price
Rights to Purchase
Common Stock N/A N/A N/A (1)
Common Stock, no par value 1,500,000 $10.00 $15,000,000 $3,750
(1) Pursuant to Rule 457(g), no separate registration fee is required for rights
registered in the same registration statement as the common stock underlying the
rights.
The registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this Registration Statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act or until the Registration Statement becomes effective on such
date as the Commission, acting pursuant to such Section 8(a), may determine.
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The information in this prospectus is not complete and may be changed. We may
not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This prospectus is not an offer
to sell, and we are not soliciting offers to buy, these securities in any state
where the offer or sale is not permitted.
Subject to Completion, dated __________, 2001
THE CHALONE WINE GROUP, LTD.
1,500,000 Shares of Common Stock
$10.00 per Share
The Chalone Wine Group, Ltd. is distributing non-transferable pro rata
subscription rights in this rights offering to persons who owned shares of our
common stock on _________, 2001. During this rights offering, we will issue
1,500,000 shares of our common stock. Shares of our common stock are currently
traded on The Nasdaq National Market under the symbol "CHLN."
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SUBSCRIPTION PROCEEDS TO THE CHALONE
RIGHTS PRICE WINE GROUP, LTD (1)
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PER SHARE $10.00 $10.00
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TOTAL $15,000,000 $15,000,000
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(1) Before deducting expenses payable by us, estimated to be $134,250.
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THE EXERCISE OF THE SUBSCRIPTION RIGHTS INVOLVES SUBSTANTIAL RISK. YOU SHOULD
REFER TO THE DISCUSSION OF MATERIAL RISK FACTORS, BEGINNING ON PAGE 13 OF THIS
PROSPECTUS.
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You will receive one subscription right for every ______ shares of
common stock that you owned on _________, 2001. You will not receive any
fractional rights; the number of your subscription rights will be rounded down
to the nearest whole number. As a result, our shareholders of record that held
fewer than __ shares as of _________, 2001 are not receiving rights. Each
subscription right entitles you to purchase one share of our common stock at the
purchase price of $10.00 per share. If you exercise all of your subscription
rights, you may also have the opportunity to purchase additional shares at the
same purchase price.
The subscription rights are exercisable beginning on the date of this
prospectus and continuing until 5:00 p.m., Eastern Daylight Time, on ________,
2001.
The subscription rights may not be sold or transferred. The
subscription rights will not be listed for trading on any stock exchange.
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
The rights offering is not being made to, nor will The Chalone Wine Group, Ltd.
accept subscriptions for common stock from any person in any jurisdiction in
which the rights offering or the acceptance of subscriptions would not be in
compliance with the securities or "Blue Sky" laws of the jurisdiction.
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THE DATE OF THIS PROSPECTUS IS _________, 2001
TABLE OF CONTENTS
PROSPECTUS SUMMARY.......................................................................................5
A WARNING ABOUT FORWARD-LOOKING STATEMENTS...............................................................9
RISK FACTORS.............................................................................................9
Risks Relating to Our Business....................................................................10
Our Revenues and Operating Results Fluctuate Significantly from Quarter to Quarter..............10
Reduced Consumer Spending Could Lessen Demand For Our Wines and Harm Our Business...............10
Our Business Is Seasonal, Which Could Cause Our Market Price to Fluctuate.......................10
Our Profits Depend Largely on Sales in Certain States and on Sales of Certain Varietals.........10
Competition May Harm Our Business...............................................................10
Our Business is Subject to a Variety of Agricultural Risks......................................11
We May Not Be Able to Grow or Acquire Enough Quality Grapes for Our Wines.......................11
An Oversupply of Grapes May Also Harm Our Business..............................................11
We Depend on Third Parties to Sell Our Wine.....................................................12
New Regulations or Increased Regulatory Costs Could Harm Our Business...........................12
We Will Need More Working Capital to Grow.......................................................12
Adverse Public Opinion About Alcohol May Harm Our Business......................................12
We Use Pesticides and Other Hazardous Substances in the Operation of Our Business...............12
Contamination of Our Wines Would Harm Our Business..............................................13
The Loss of Key Employees Would Damage Our Reputation and Business..............................13
Shifts in Foreign Exchange Rates or the Imposition of Adverse Trade Regulations Could Harm Our
Business .......................................................................................13
Infringement of Our Trademarks May Damage Our Brand Names or Our Business.......................13
Our Acquisitions and Potential Future Acquisitions Involve a Number of Risks....................13
The Market Price of Our Common Stock Fluctuates.................................................14
Risks Relating to This Offering...................................................................14
This Offering Will Dilute Your Percentage Ownership of Our Company..............................14
If You Exercise Your Subscription Rights You May Become Obligated to Purchase Shares of Our
Common Stock at a Price Higher Than the Market Price of Our Common Stock........................14
Once You Exercise Your Subscription Rights You Cannot Change Your Mind, But We May Cancel the
Rights Offering ................................................................................14
The Subscription Price Determined for this Offering Is Not an Indication of Our Value...........14
Your Ability to Influence the Outcome of Key Transactions Could Be Limited Because We Are
Controlled by Two Major Shareholders............................................................14
You Will Need to Act Promptly and Follow Instructions Carefully if You Want to Exercise Your
Rights .........................................................................................15
THE CHALONE WINE GROUP, LTD.............................................................................15
Vineyard Practices..............................................................................16
Agricultural Risks..............................................................................16
Winemaking Practices............................................................................16
Wine Production and Wines.......................................................................16
Marketing and Distribution......................................................................18
Centralized Administration and Warehousing......................................................19
Employees.......................................................................................19
Regulation; Permits and Licenses................................................................19
Trademarks......................................................................................20
Shareholder Benefits............................................................................20
WHERE YOU CAN FIND MORE INFORMATION.....................................................................20
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THE RIGHTS OFFERING.....................................................................................21
IF YOU HAVE QUESTIONS...................................................................................28
USE OF PROCEEDS.........................................................................................28
PRICE RANGE OF COMMON STOCK.............................................................................28
DETERMINATION OF OFFERING PRICE.........................................................................28
PLAN OF DISTRIBUTION....................................................................................29
FEDERAL INCOME TAX CONSIDERATIONS.......................................................................29
STATE AND FOREIGN SECURITIES LAWS.......................................................................30
INDEMNIFICATION.........................................................................................30
EXPERTS.................................................................................................31
LEGAL MATERS............................................................................................31
PROSPECTUS SUMMARY
This section answers in summary form some questions you may have about
The Chalone Wine Group, Ltd. and this rights offering. The information in this
section is not complete and does not contain all of the information that you
should consider before exercising your subscription rights. You should read the
entire prospectus carefully, including the "Risk Factors" section and the
documents listed under "If You Would Like More Information."
QUESTIONS AND ANSWERS ABOUT CHALONE WINE GROUP, LTD.
WHAT DO WE DO? (SEE PAGE 15)
We produce, market and sell super premium, ultra premium, and
luxury-priced white and red varietal table wines, primarily Chardonnay, Pinot
Noir, Cabernet Sauvignon, Merlot, Syrah and Sauvignon Blanc. We own and operate
wineries in various counties of California and Washington State. Our wines are
made primarily from grapes grown in California at the Carmenet Winery, Edna
Valley Vineyard, Chalone Vineyard, Company-owned vineyards adjacent to the
Acacia(TM) Winery, Hewitt Vineyard and Suscol Creek Vineyard and in Washington
State at the Canoe Ridge Vineyard, as well as from purchased grapes.
The wines are primarily sold under the labels "Chalone Vineyard(R)," "Edna
Valley Vineyard(R)," "Carmenet(R)," "Acacia(TM)," "Canoe Ridge(R) Vineyard,"
"Jade Mountain(R)," "Sagelands Vineyard(R)," and "Echelon(TM)."
In France, we own a minority interest in fourth-growth Bordeaux estate
Chateau Duhart-Milon ("Duhart-Milon") in partnership with Les Domaines Barons de
Rothschild (Lafite) ("DBR"). The vineyards of Duhart-Milon are located adjacent
to the world-renowned Chateau Lafite-Rothschild in the town of Pauillac.
The Chalone Wine Group, Ltd. was incorporated under the laws of the State
of California on June 27, 1969. Unless otherwise indicated, the terms "we", "us"
or "our" as used in this report refer to The Chalone Wine Group, Ltd. and its
consolidated subsidiaries. We became a publicly held reporting company as the
result of an initial public offering of our common stock in 1984.
WHERE ARE WE LOCATED? (SEE PAGE 20)
The mailing address and telephone number of our principal executive
offices are:
The Chalone Wine Group, Ltd.
621 Airpark Road
Napa, California 94558
(707) 254-4200
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QUESTIONS AND ANSWERS ABOUT THE RIGHTS OFFERING
WHAT IS A SUBSCRIPTION RIGHT? (SEE PAGE 21)
We are distributing to you, at no charge, one subscription right for
every ______ shares of common stock that you owned on _________, 2001. You will
not receive fractional rights or shares; the number of your subscription rights
will be rounded down to the nearest whole number. As a result, our shareholders
of record that held fewer than _____ shares as of _______, 2001 are not
receiving rights. Each subscription right entitles you to purchase one share of
our common stock for $10.00 per share. When you "exercise" a subscription right,
that means that you choose to purchase shares of our common stock that the
subscription right entitles you to purchase. You may exercise any number of your
subscription rights, or you may choose not to exercise any subscription rights.
You cannot give or sell your subscription rights to anybody else. Only you can
exercise your subscription rights.
WHAT IS A RIGHTS OFFERING?
A rights offering is an opportunity for you to purchase additional
shares of our common stock at a fixed price and in an amount proportional to
your existing interest, which enables you to maintain your current percentage
ownership.
WHAT IS THE BASIC SUBSCRIPTION PRIVILEGE? (SEE PAGE 21)
The basic subscription privilege of each subscription right entitles
you to purchase one share of our common stock at a subscription price of $10.00.
WHAT IS THE OVERSUBSCRIPTION PRIVILEGE? (SEE PAGE 21)
The oversubscription privilege of each subscription right entitles you,
if you fully exercise your basic subscription privilege, to subscribe for
additional shares of common stock at the same subscription price of $10.00 per
share.
WHAT ARE THE LIMITATIONS ON THE OVERSUBSCRIPTION PRIVILEGE? (SEE PAGE 21)
If sufficient shares are available, we will honor the oversubscription
requests in full. If oversubscription requests exceed the number of shares
available, we will allocate all or a portion of the available shares among
shareholders who oversubscribed in proportion to the number of shares purchased
through the basic subscription privilege. We will not distribute any fractional
subscription rights, but will round the number of oversubscription rights you
receive down to the nearest whole number. See "The Rights Offering -
Oversubscription Privilege." In addition, we have the discretion to issue less
than the total number of shares that may be available for oversubscription
requests.
WHY ARE WE ENGAGING IN A RIGHTS OFFERING?
Our Board of Directors has chosen to give you the opportunity to buy
more shares and provide us with additional working capital, allowing us to
continue to invest in our vineyards and wineries and to build our inventory to
meet our long-term demand, especially in red wines. Instead of selling
additional shares of our common stock to outside parties, our Board of Directors
has chosen to give you the opportunity to buy more shares and provide us with
additional capital. Of course, we still may need to seek additional financing in
the future.
HOW MANY SHARES MAY I PURCHASE? (SEE PAGE 21)
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You will receive one subscription right for each ______ shares of our
common stock that you owned on _________, 2001. Each whole subscription right
entitles you to purchase one share of our common stock for $10.00. You will not
receive any fractional rights or fractional shares; the number of your
subscription rights will be rounded down to the nearest whole right.
If you exercise all of the basic subscription rights that you receive,
you may also request to purchase additional shares through the oversubscription
privilege described above, subject to its limitations. We will honor all
oversubscription requests, subject to the limitations described above.
HOW DID WE ARRIVE AT THE $10.00 PER SHARE PRICE? (SEE PAGE 22)
In determining the subscription price for the rights offering, a
special committee of our Board of Directors (comprised of directors who are not
affiliated with our major shareholders, Les Domaines Barons de Rothschild
(Lafite) ("DBR") and SFI Intermediate Ltd. ("SFI")), considered several factors
including the historic and then current market price of our common stock, our
business prospects, our revenue and operating results, general conditions in the
securities market, our need for capital, alternatives available to us for
raising capital, the amount of proceeds desired, the pricing of similar
transactions, the liquidity of our common stock, the level of risk to our
investors, and the need to offer shares at a price that would be attractive to
our investors relative to the then current trading price of our common stock. We
did not seek or obtain any opinion of financial advisors or investment bankers
in establishing the subscription price.
HOW DO I EXERCISE MY SUBSCRIPTION RIGHTS? (SEE PAGE 23)
You must properly complete the enclosed subscription certificate and
deliver it to our subscription agent before 5 p.m., Eastern Daylight Time, on
_________ ___, 2001. The address of our subscription agent is listed on page
_____. Your subscription certificate must be accompanied by proper payment for
each share that you wish to purchase.
HOW LONG WILL THE RIGHTS OFFERING LAST? (SEE PAGE 22)
You will be able to exercise your subscription rights only during a
limited period. IF YOU DO NOT EXERCISE YOUR SUBSCRIPTION RIGHTS BEFORE 5 P.M.,
EASTERN DAYLIGHT TIME, ON ____________, 2001, YOUR SUBSCRIPTION RIGHTS WILL
EXPIRE. We may, in our discretion, decide to extend the rights offering. In
addition, if the commencement of the rights offering is delayed, the expiration
date may be similarly extended.
AFTER I EXERCISE MY SUBSCRIPTION RIGHTS, CAN I CHANGE MY MIND? (SEE PAGE 25)
No. Once you send in your subscription certificate and payment, you
cannot revoke the exercise of your subscription rights, even if you later learn
information about us that you consider to be unfavorable. You should not
exercise your subscription rights unless you are certain that you wish to
purchase additional shares of common stock at a price of $10.00 per share.
IS EXERCISING MY SUBSCRIPTION RIGHTS RISKY?
The exercise of your subscription rights involves substantial risks.
Exercising your subscription rights means buying additional shares of our common
stock, and you should carefully consider this purchase as you would other equity
investments. Among other things, you should carefully consider the risks
described under the heading "Risk Factors," beginning on page 9.
HAS THE BOARD OF DIRECTORS MADE A RECOMMENDATION REGARDING THIS OFFERING?
Neither our Board of Directors nor the special committee has made any
recommendation to you about whether you should exercise any rights.
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WHAT HAPPENS IF I CHOOSE NOT TO EXERCISE MY SUBSCRIPTION RIGHTS?
You will retain your current number of shares of our common stock even
if you do not exercise your subscription rights. However, if you do not exercise
your subscription rights and other shareholders do, the percentage of The
Chalone Wine Group, Ltd. that you own will diminish, and your voting and other
rights will be diluted. DBR, which currently owns approximately 44% of our
common stock and SFI, which currently owns approximately 18% of our common
stock, have committed to exercise their respective basic subscription rights and
over-subscription privileges in full. Accordingly, if our other shareholders do
not exercise their subscription rights, DBR and SFI may collectively acquire all
1,500,000 shares of our common stock offered pursuant to the rights offering. As
a result, DBR's ownership interest in us would increase to approximately __% and
SFI's ownership interest in us would increase to approximately __%.
CAN I SELL OR GIVE AWAY MY SUBSCRIPTION RIGHTS? (SEE PAGE 22)
No.
DO I HAVE TO EXERCISE MY SUBSCRIPTION RIGHTS?
No.
WHAT FEES OR CHARGES APPLY IF I EXERCISE MY RIGHTS?
We are not charging any fee or sales commission to issue rights to you
or to issue shares to you if you exercise your rights. If you exercise your
rights through a broker or other holder of your shares, you are responsible for
paying any fees that person may charge.
WHAT ARE THE FEDERAL INCOME TAX CONSEQUENCES OF EXERCISING MY SUBSCRIPTION
RIGHTS? (SEE PAGE 28)
The receipt and exercise of your subscription rights are intended to be
nontaxable. However, you should seek specific tax advice from your personal tax
advisor. This prospectus does not summarize tax consequences arising under state
tax laws, non-U.S. tax laws or any tax laws relating to special tax
circumstances or particular types of taxpayers.
WHEN WILL I RECEIVE MY NEW SHARES? (SEE PAGE 23)
If you purchase shares of our common stock through the rights offering,
you will receive certificates representing those shares as soon as practicable
after ___________, 2001. Subject to state securities laws and regulations, we
have the discretion to delay allocation and distribution of any shares you may
have elected to purchase by exercise of your basic or oversubscription privilege
in order to comply with state securities laws.
CAN WE CANCEL THE RIGHTS OFFERING? (SEE PAGE 22)
Yes. Our Board of Directors may cancel the rights offering for any
reason at any time on or before ____________, 2001. If we cancel the rights
offering, any money we may have already received from shareholders will be
refunded promptly without interest or penalty.
HOW MUCH MONEY WILL THE CHALONE WINE GROUP, LTD. RECEIVE FROM THE RIGHTS
OFFERING? (SEE PAGE 3)
If we sell the 1,500,000 shares offered by this prospectus, then we
will receive proceeds of approximately $15,000,000 less approximately $134,250
in expenses.
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HOW WILL WE USE THE PROCEEDS FROM THE RIGHTS OFFERING? (SEE PAGE 27)
We will use any proceeds generated from the exercise of subscription
rights in this rights offering for additional working capital, for investing in
vineyards and wineries and to build our inventory to meet our long-term demand,
especially in red wines and for other capital requirements.
HOW MANY SHARES WILL BE OUTSTANDING AFTER THE RIGHTS OFFERING? (SEE PAGE 25)
If we sell the 1,500,000 shares offered by this prospectus, then we
will have approximately 11,800,000 shares of our common stock outstanding, based
on the number of shares outstanding as of ___________,2001.
WHAT IF I HAVE MORE QUESTIONS? (SEE PAGE 27)
All questions and inquiries related to the offer should be directed to
the Information Agent, Georgeson Shareholder, toll free at 1-888-381-6085.
A WARNING ABOUT FORWARD-LOOKING STATEMENTS
This Prospectus and the documents to which we refer you and incorporate herein
by reference contain statements which are not historical facts, so called
"forward-looking statements" that involve risks and uncertainties.
Forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. When used in this
Prospectus, the terms "anticipates," "expects," "estimates," "intends,"
"believes," and other similar terms as they relate to us or our management are
intended to identify such forward-looking statements. In particular, statements
relating to projections or expectations are forward-looking statements. Although
we believe the projections and expectations reflected in our forward-looking
statements are reasonable, we can give no assurance that such projections and
expectations will prove correct. Factors that may cause such differences
include, but are not limited to (i) reduced consumer spending or a change in
consumer preferences, which could reduce demand for our wines; (ii) competition
from numerous domestic and foreign wine producers which could affect our ability
to sustain volume and revenue growth; (iii) a decline in the market price of our
common stock below the subscription price; (iv) interest rate and other business
and economic conditions which could increase significantly the costs and risks
of borrowings associated with present and projected capital projects; and (v)
the effect of weather , agricultural pests, disease and other natural forces on
growing conditions and, in turn, the quality and quantity of grapes produced by
us. Each of these factors, and other risks pertaining to the rights offering,
our business, the premium wine industry and general business and economic
conditions, are more fully discussed herein under the heading "Risk Factors"and
from time to time in our other filings with the Securities and Exchange
Commission.
RISK FACTORS
YOU SHOULD CAREFULLY CONSIDER THE FOLLOWING RISKS BEFORE MAKING AN
INVESTMENT DECISION IN OUR COMMON STOCK. THE RISKS DESCRIBED BELOW ARE NOT THE
ONLY ONES THAT WE FACE. ADDITIONAL RISKS AND UNCERTAINTIES NOT PRESENTLY KNOWN
TO US OR THAT ARE CURRENTLY DEEMED IMMATERIAL MAY ALSO IMPAIR OUR BUSINESS
OPERATIONS. IF ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS,
OPERATING RESULTS OR FINANCIAL CONDITION COULD BE MATERIALLY ADVERSELY AFFECTED.
THIS COULD CAUSE THE MARKET PRICE OF OUR COMMON STOCK TO DECLINE AND COULD CAUSE
YOU TO LOSE ALL OR PART OF YOUR INVESTMENT. YOU SHOULD REFER TO THE OTHER
INFORMATION INCLUDED IN THIS PROSPECTUS, OUR FINANCIAL STATEMENTS AND THE
RELATED NOTES INCORPORATED BY REFERENCE INTO THIS PROSPECTUS BEFORE YOU DECIDE
TO PURCHASE SHARES OF OUR COMMON STOCK.
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Risks Relating to Our Business
OUR REVENUES AND OPERATING RESULTS FLUCTUATE SIGNIFICANTLY FROM QUARTER TO
QUARTER
We believe period-to-period comparisons of our operating results are not
necessarily meaningful, and cannot be relied upon as indicators of future
performance. In addition, there can be no assurance that our revenues will grow
or be sustained in future periods or that we will maintain our current
profitability in the future. Significant factors in these quarterly
fluctuations, none of which are within our control, are changes in consumer
demand for our wines, the affect of weather and other natural forces on growing
conditions and, in turn, the quality and quantity of grapes produced by us,
interest rates and inventory levels and the timing of releases for certain
wines, among other factors. Consequently, we have experienced, and expect to
continue to experience, seasonal fluctuations in revenues and operating results.
A large portion of our expenses are fixed and difficult to reduce in a
short period of time. In quarters when revenues do not meet our expectations,
our level of fixed expenses tends to exacerbate the adverse effect on net
income. In quarters when our operating results are below the expectations of
public market analysts or investors, the price of our common stock may be
adversely affected.
REDUCED CONSUMER SPENDING COULD LESSEN DEMAND FOR OUR WINES AND HARM OUR
BUSINESS
Consumer spending trends and changes in consumer tastes have a substantial
impact on the wine industry and our business. To the extent that wine purchases
are negatively impacted by economic and other factors, or wine consumers reduce
consumption of wine in favor of other beverages, demand for our wines could
decrease.
OUR BUSINESS IS SEASONAL, WHICH COULD CAUSE OUR MARKET PRICE TO FLUCTUATE
Our business is subject to seasonal as well as quarterly fluctuations in
revenues and operating results. Sales volume tends to increase during summer
months and the holiday season and decrease after the holiday season. As a
result, our sales and earnings are typically highest during the fourth calendar
quarter and lowest in the first calendar quarter. Seasonal factors also affect
our level of borrowing. For example, our borrowing levels typically are highest
during winter when we have to pay growers for grapes harvested and make payments
related to the harvest. These and other factors may cause fluctuations in the
market price of our common stock.
OUR PROFITS DEPEND LARGELY ON SALES IN CERTAIN STATES AND ON SALES OF CERTAIN
VARIETALS
In the three months ended June 30, 2001, approximately 86% of our wine
sales were concentrated in 20 states. Changes in consumer spending in these
states and other regions of the country could affect both the quantity and price
level of wines that customers are willing to purchase which could harm our
business.
Approximately 89% of our net revenues in the three months ended June 30,
2001 were concentrated in our top four selling varietal wines. Specifically,
sales of Chardonnay, Pinot Noir, Cabernet Sauvignon and Merlot accounted for
45%, 12%, 19% and 13% of our net revenues, respectively. Changes in consumer
preferences with respect to these varietal wines could adversely effect our
business.
COMPETITION MAY HARM OUR BUSINESS
The premium table wine industry is intensely competitive and highly
fragmented. Our wines compete in all of the premium wine market segments with
many other premium domestic and foreign wines, with imported wines coming
primarily from the Burgundy and Bordeaux regions of France and, to a lesser
extent, Italy, Chile, Argentina, South Africa and Australia. Our wines also
compete with popular-priced generic wines and with other alcoholic and, to a
lesser degree, non-alcoholic beverages, for shelf space in retail stores and for
marketing focus by our independent distributors, many of which carry extensive
brand portfolios.
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The wine industry has experienced significant consolidation. Many of our
competitors have greater financial, technical, marketing and public relations
resources than we do. Our sales may be harmed to the extent we are not able to
compete successfully against such wine or alternative beverage producers.
OUR BUSINESS IS SUBJECT TO A VARIETY OF AGRICULTURAL RISKS
Winemaking and grape growing are subject to a variety of agricultural
risks. Various diseases, pests, fungi, viruses, drought, frosts and certain
other weather conditions can affect the quality and quantity of grapes available
to us, decreasing the supply of our products and negatively impacting
profitability.
Many California vineyards have been infested in recent years with
phylloxera. Our vineyard properties are primarily planted to rootstocks believed
to be resistant to phylloxera. However, there can be no assurance that our
existing vineyards, or the rootstocks we are now using in our planting programs,
will not become susceptible to current or new strains of phylloxera.
Pierce's Disease is a vine bacterial disease that has been in California
for more than 100 years. It kills grapevines and there is no known cure. Small
insects called sharpshooters spread this disease. A new strain of the
sharpshooter, the glassy winged, was discovered in Southern California and is
believed to be migrating north. We are actively supporting the efforts of the
agricultural industry to control this pest and are making every reasonable
effort to prevent an infestation in our own vineyards. We cannot, however,
guarantee that we will succeed in preventing contamination in our vineyards.
Future government restrictions regarding the use of certain materials used
in grape growing may increase vineyard costs and/or reduce production.
Grape growing requires adequate water supplies. We generally supply our
vineyards' water needs through wells and reservoirs located on our properties.
We believe that we either have, or are currently planning to insure, adequate
water supplies to meet the needs of all of our vineyards. However, a substantial
reduction in water supplies could result in material losses of grape crops and
vines.
The weather phenomenon commonly referred to as "El Nino" produced heavy
rains and cooler weather during the spring of 1999 and 1998, which resulted in
colder and wetter soils than are typical during California's grape growing
season. Consequently, the 1999 and 1998 harvests were postponed by approximately
four to six weeks depending on the geographic location and varietals. The
unusual weather conditions resulting from El Nino impacted the quantity and
quality of our 1998 estate harvest. The size of our most significant crops
ranged from normal-sized yields to 50% of normal yields (depending on the
varietal and particular estate). This is further described on page 16 under the
heading "Wine Production and Wines".
Despite the reduction in the yield, the harvested estate crops in
combination with contracted grape purchases, are expected to permit us to meet
originally anticipated sales-projections for our 1999 and 1998 vintage
Chardonnay, Cabernet, and Merlot varietals. Together, these varietals have
historically comprised between 80% to 85% of our aggregate annual production.
WE MAY NOT BE ABLE TO GROW OR ACQUIRE ENOUGH QUALITY GRAPES FOR OUR WINES
The adequacy of our grape supply is influenced by consumer demand for wine
in relation to industry-wide production levels. While we believe that we can
secure sufficient supplies of grapes from a combination of our own production
and from grape supply contracts with independent growers, we cannot be certain
that grape supply shortages will not occur. A shortage in the supply of wine
grapes could result in an increase in the price of some or all grape varieties
and a corresponding increase in our wine production costs.
AN OVERSUPPLY OF GRAPES MAY ALSO HARM OUR BUSINESS
Current trends in the domestic and foreign wine industry point to rapid
plantings of new vineyards and replanting of old vineyards to greater densities,
with the expected result of significantly increasing the worldwide supply of
premium wine grapes and the amount of wine which will be produced in the future.
This expected increase in grape production could result in an excess of supply
over demand and force us to reduce, or not increase, our prices.
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WE DEPEND ON THIRD PARTIES TO SELL OUR WINE
We sell our products primarily through independent distributors and
brokers for resale to retail outlets, restaurants, hotels and private clubs
across the United States and in some overseas markets. To a lesser degree, we
rely on direct sales from our wineries, our wine library and direct mail. Sales
to our largest distributor and to our nineteen largest distributors combined,
represented approximately 4% and 46%, respectively, of our net revenues during
the three months ended June 30, 2001. Sales to our nineteen largest distributors
are expected to continue to represent a substantial portion of our net revenues
in the future. We use a single broker to sell our wines within California. Such
sales represented 38% of our net revenues during the three-month period ended
June 30, 2001. The laws and regulations of several states prohibit changes of
distributors, except under certain limited circumstances, making it difficult to
terminate a distributor for poor performance, without reasonable cause, as
defined by applicable statutes. The resulting difficulty or inability to replace
distributors, poor performance of our major distributors or our inability to
collect accounts receivable from our major distributors could harm our business.
NEW REGULATIONS OR INCREASED REGULATORY COSTS COULD HARM OUR BUSINESS
The wine industry is subject to extensive regulation by the Federal Bureau
of Alcohol Tobacco and Firearms and various foreign agencies, state liquor
authorities and local authorities. These regulations and laws dictate such
matters as licensing requirements, trade and pricing practices, permitted
distribution channels, permitted and required labeling, advertising and
relations with wholesalers and retailers. Any expansion of our existing
facilities or development of new vineyards or wineries may be limited by present
and future zoning ordinances, environmental restrictions and other legal
requirements. In addition, new regulations or requirements or increases in
excise taxes, income taxes, property and sales taxes or international tariffs,
could reduce our profits. Future legal or regulatory challenges to the industry,
either individually or in the aggregate, could harm our business.
WE WILL NEED MORE WORKING CAPITAL TO GROW
The premium wine industry is a capital-intensive business, which requires
substantial capital expenditures to develop and acquire vineyards to improve or
expand wine production. Further, the farming of vineyards and acquisition of
grapes and bulk wine require substantial amounts of working capital. We project
the need for significant capital spending and increasing working capital
requirements over the next several years, which must be financed by cash from
operations and, by additional borrowings or additional equity including this
rights offering.
ADVERSE PUBLIC OPINION ABOUT ALCOHOL MAY HARM OUR BUSINESS
A number of research studies suggest that various health benefits may
result from the moderate consumption of alcohol, but other studies suggest that
alcohol consumption does not have any health benefits and may in fact increase
the risk of stroke, cancer and other illnesses. If an unfavorable report on
alcohol consumption gains general support, it could harm the wine industry and
our business.
WE USE PESTICIDES AND OTHER HAZARDOUS SUBSTANCES IN THE OPERATION OF OUR
BUSINESS
We use pesticides and other hazardous substances in the operation of our
business. If hazardous substances are discovered on, or emanate from, any of our
properties, and their release presents a threat of harm to public health or the
environment, we may be held strictly liable for the cost of remediation. Payment
of such costs could have a material adverse effect on our business, financial
condition and results of operations. We maintain insurance against these kinds
of risks, and others, under various insurance policies. However, our insurance
may not be adequate or may not continue to be available at a price or on terms
that are satisfactory to us.
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CONTAMINATION OF OUR WINES WOULD HARM OUR BUSINESS
We are subject to certain hazards and product liability risks, such as
potential contamination, through tampering or otherwise, of ingredients or
products. Contamination of any of our wines could result in the need for a
product recall which could significantly damage our reputation for product
quality, which we believe is one of our principle competitive advantages. We
maintain insurance against certain of these kinds of risks, and others, under
various general liability and product liability insurance policies. However, our
insurance may not be adequate or may not continue to be available at a price or
on terms that are satisfactory to us.
THE LOSS OF KEY EMPLOYEES WOULD DAMAGE OUR REPUTATION AND BUSINESS
Our success depends to some degree upon the continued services of a number
of key employees. Although some key employees are under employment contracts
with us for specific terms, the loss of the services of one or more of our key
employees could harm our business and our reputation, particularly if one or
more of our key employees resigns to join a competitor or to form a competing
company. In such an event, despite provisions in our employment contracts, which
are designed to prevent the unauthorized disclosure or use of our trade secrets,
practices or procedures by such personnel under these circumstances, we cannot
be certain that we would be able to enforce these provisions or prevent such
disclosures.
SHIFTS IN FOREIGN EXCHANGE RATES OR THE IMPOSITION OF ADVERSE TRADE REGULATIONS
COULD HARM OUR BUSINESS
We conduct some of our import and export activity for wine and packaging
supplies in foreign currencies. We purchase foreign currency on the spot market
on an as-needed basis and engage in limited financial hedging activities to
offset the risk of exchange rate fluctuations. There is a risk that a shift in
certain foreign exchange rates or the imposition of unforeseen and adverse trade
regulations could adversely impact the costs of these items and have an adverse
impact on our operating results.
In addition, the imposition of unforeseen and adverse trade regulations
could have an adverse effect on our imported wine operations. Export sales
accounted for approximately 4% of total consolidated revenue for the fiscal year
ended March 31, 2001 and we expect the volume of international transactions to
increase, which may increase our exposure to future exchange rate flucuations.
INFRINGEMENT OF OUR TRADEMARKS MAY DAMAGE OUR BRAND NAMES OR OUR BUSINESS
Our wines are branded consumer products, and we distinguish our wines from
our competitors' by enforcement of our trademarks. There can be no assurance
that competitors will refrain from infringing our marks or using trademarks,
tradenames or trade dress which dilute our intellectual property rights, and any
such actions may require us to become involved in litigation to protect these
rights. Litigation of this nature can be very expensive and tends to divert
management's time and attention.
OUR ACQUISITIONS AND POTENTIAL FUTURE ACQUISITIONS INVOLVE A NUMBER OF RISKS
Our acquisition of Staton Hills Winery (renamed Sagelands Winery), the
possible construction of a new winery on the Suscol Ranch property we recently
acquired and potential future acquisitions involve risks associated with
assimilating these operations into our company; integrating, retaining and
motivating key personnel; integrating and managing geographically-dispersed
operations because Staton Hills is in Washington State and we are headquartered
in California; integrating the technology and infrastructures of disparate
entities; producing wine in, and marketing wine from, Washington State; and
replanting existing vineyards from white wine grapes to red wine grapes.
We relied on debt financing to purchase Hewitt Ranch, Suscol Ranch, Staton
Hills Winery, the Jade Mountain brand and other vineyard land and related assets
during the fiscal year ended March 31, 2001. Consequently our debt-to-equity
ratio is high in relation to our historical standards. The interest costs
associated with this debt will increase our operating expenses and the risk of
negative cash flow.
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THE MARKET PRICE OF OUR COMMON STOCK FLUCTUATES
All of the foregoing risks, among others not known or mentioned in
this report, may have a significant effect on the market price of our shares.
The stock markets have experienced extreme price and volume trading volatility
in recent months and years. This volatility has had a substantial effect on the
market prices of securities of many companies for reasons frequently unrelated
or disproportionate to the specific company's operating performance and could
similarly affect our market price.
Risks Relating to This Offering
THIS OFFERING WILL DILUTE YOUR PERCENTAGE OWNERSHIP OF OUR COMPANY
If you do not exercise all of your subscription rights, you will suffer
significant dilution of your percentage ownership relative to shareholders who
exercise their subscription rights. For example, if you owned 500,000 shares of
our common stock before the rights offering, or 4.8% of our outstanding equity,
and exercised none of your subscription rights, your percentage ownership would
be reduced to 4.2%.
IF YOU EXERCISE YOUR SUBSCRIPTION RIGHTS YOU MAY BECOME OBLIGATED TO PURCHASE
SHARES OF OUR COMMON STOCK AT A PRICE HIGHER THAN THE MARKET PRICE OF OUR COMMON
STOCK
The public trading market price of our common stock may decline before
the subscription rights expire. If you exercise your subscription rights and
then the public trading market price of our common stock decreases below $10.00,
then you will have committed to buy shares of our common stock at a price above
the prevailing market price. Following the exercise of your subscription rights
you may not be able to sell your shares of common stock at a price equal to or
greater than the subscription price. In addition, you may not be able to sell
the shares of our common stock that you purchase in this rights offering until
the certificates representing the shares of our common stock you purchased are
delivered, which will be as soon as practicable after expiration of the rights
offering. We will not pay you interest on funds that are delivered to the
subscription agent pursuant to the exercise of rights.
ONCE YOU EXERCISE YOUR SUBSCRIPTION RIGHTS YOU CANNOT CHANGE YOUR MIND, BUT WE
MAY CANCEL THE RIGHTS OFFERING
Once you exercise your subscription rights, you may not revoke the
exercise. If we elect to withdraw or terminate the rights offering, neither the
subscription agent nor we will have any obligation with respect to the
subscription rights except to return, without interest, any subscription
payments.
THE SUBSCRIPTION PRICE DETERMINED FOR THIS OFFERING IS NOT AN INDICATION OF OUR
VALUE
A special committee of our Board of Directors set the subscription
price. The subscription price does not necessarily bear any relationship to the
book value of our assets, past operations, cash flows, income, financial
condition or any other established criteria for value. You should not consider
the subscription price as an indication of the value of our common stock. See
"The Rights Offering - Determination of Subscription Price."
YOUR ABILITY TO INFLUENCE THE OUTCOME OF KEY TRANSACTIONS COULD BE LIMITED
BECAUSE WE ARE CONTROLLED BY TWO MAJOR SHAREHOLDERS
As of _________ __, 2001, DBR and SFI in the aggregate owned
approximately ___% of our common stock. The rights offering could, and because
of DBR's and SFI's commitment to fully exercise their basic subscription rights
and their over-subscription privileges in full, is very likely to result in DBR
and SFI collectively owning an even greater percentage of our common stock. If
no other shareholders exercise their subscription rights, DBR and SFI by
exercising their subscription rights and over-subscription privileges would own
approximately __% of our common stock. Collectively, DBR and SFI have enough
votes to approve or disapprove any matters that are determined by a majority
vote of our shareholders, which severely limits your ability to influence The
Chalone Wine Group, Ltd. through voting your shares.
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14
YOU WILL NEED TO ACT PROMPTLY AND FOLLOW INSTRUCTIONS CAREFULLY IF YOU WANT TO
EXERCISE YOUR RIGHTS
Shareholders who desire to purchase shares in this rights offering must
act promptly to ensure that all required forms and payments are actually
received by our subscription agent, Equiserve, prior to the expiration date. If
you fail to complete and sign the required subscription forms, send an incorrect
payment amount, or otherwise fail to follow the subscription procedures that
apply to your desired transaction, we may, depending on the circumstances,
reject your subscription or accept it to the extent of the payment received.
Neither we nor Equiserve undertake to contact you concerning, or attempt to
correct, an incomplete or incorrect subscription form or payment. We have the
sole discretion to determine whether a subscription exercise properly follows
the subscription procedures. Any personal check used to pay for shares must
clear prior to the expiration date, and the clearing process may require five or
more business days.
THE CHALONE WINE GROUP, LTD.
We produce, market and sell super premium, ultra premium, and luxury-priced
white and red varietal table wines, primarily Chardonnay, Pinot Noir, Cabernet
Sauvignon, Merlot, Syrah and Sauvignon Blanc. We own and operate wineries in
various counties of California and Washington State. Our wines are made
primarily from grapes grown in California at the Carmenet Winery, Edna Valley
Vineyard, Chalone Vineyard, company-owned vineyards adjacent to the Acacia(TM)
Winery, Hewitt Vineyard and Suscol Creek Vineyard and in Washington State at the
Canoe Ridge Vineyard, as well as from purchased grapes.
The wines are primarily sold under the labels "Chalone Vineyard(R)," "Edna
Valley Vineyard(R)," "Carmenet(R)," "Acacia(TM)," "Canoe Ridge(R) Vineyard,"
"Jade Mountain(R)," "Sagelands Vineyard(R)," and "Echelon(TM)."
In France, we own a minority interest in fourth-growth Bordeaux estate
Chateau Duhart-Milon ("Duhart-Milon") in partnership with Les Domaines Barons de
Rothschild (Lafite) ("DBR"). The vineyards of Duhart-Milon are located adjacent
to the world-renowned Chateau Lafite-Rothschild in the town of Pauillac.
The Chalone Wine Group, Ltd. was incorporated under the laws of the State
of California on June 27, 1969. We became a publicly held reporting company as
the result of an initial public offering of common stock in 1984.
OVERVIEW
We own the following properties in the United States and France, either
wholly or in partnership with others, all of which have related company-owned
vineyards with the exception of Edna Valley Vineyard. The specific ownership
structure is as follows:
PROPERTY OWNERSHIP FORM OF OWNERSHIP LOCATION
-------- --------- ----------------- --------
Chalone Vineyard 100.0% Corporation Soledad, California
Carmenet Vineyard 100.0% Corporation Sonoma, California
Acacia
Acacia Winery 100.0% Corporation Napa, California
Acacia Vineyard 50.0% Partnership Napa, California
Edna Valley Vineyard 50.0% Partnership San Luis Obispo, California
Canoe Ridge Vineyard 100.0% Corporation Walla Walla, Washington
Chateau Duhart-Milon 23.5% Partnership Pauillac, France
Sagelands Vineyard (1) 100.0% Corporation Yakima Valley, Washington
Suscol Creek Vineyard 100.0% Corporation Napa, California
Hewitt Vineyard 100.0% Corporation Napa, California
(1) Formerly known as Staton Hills Vineyard.
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15
With the exception of Duhart-Milon, we manage and operate all of the above
properties and consolidate the results of their operations. We account for our
investment in Duhart-Milon using the equity method of accounting.
Each of our California wineries or estate vineyards is in a different
"American Viticultural Area" ("AVA"). AVA is a designation granted by the
Federal Bureau of Alcohol, Tobacco and Firearms to identify grape-growing areas
distinguishable by their specific and definable geographic and climatic
characteristics. Wines may display an AVA on a bottle label only if 85% or more
of the grapes used to produce the wine were grown in that viticultural area.
VINEYARD PRACTICES
We believe that the soils and micro-climates of each vineyard from which
we obtain our grapes are particularly suitable for the particular varieties of
grapes with which they have been or, are being, planted.
We generally manage our vineyards to produce yields that are lower than
average for similarly situated vineyards in California and Washington State and
below the maximum yield that could be obtained. We believe that relatively low
yields enhance the varietal character of the grapes and improve the quality of
the resulting wines.
AGRICULTURAL RISKS
For a description of our agricultural risks, see "Risk Factors- Risks
Relating to Our Business."
WINEMAKING PRACTICES
Our philosophy is that winemaking is a natural process best managed with
minimum intervention, but requiring the attention and dedication of a winemaker.
While we use a relatively high level of hand labor during the winemaking
processes, we also make extensive use of modern laboratory equipment and
techniques to monitor the progress of each wine through all stages of the
winemaking process. All of our wineries are operated under the overall
supervision of our Chief Executive Officer. However, each winery has its own
General Manager who, in most instances, is also a winemaker.
The principal raw materials we use are grapes, oak barrels, glass, and
cork. About 75% of the oak barrels we use are purchased from the Burgundy and
Bordeaux regions of France and the remainder from the United States. We favor
French oak barrels due to Company tradition and consumer preferences. Cork is
produced and manufactured in Portugal, which is the primary cork-producing
country in the world. Glass is purchased from a variety of different sources
according to each winery's specific needs. Our own vineyards provide a
significant portion of our grape requirements. As needed, we also purchase
grapes from other independent California and Washington State growers.
WINE PRODUCTION AND WINES
This table sets forth our wine production for the 2000, 1999 and 1998
vintages. The wines' vintage is the year during which the grapes are harvested.
As of _________, 2001, the current year's vintage had not yet been harvested and
cannot yet be estimated. The following information is presented in terms of
"equivalent" number of cases. The precise number of cases is not known at this
time because many of these vintages are still being aged in barrels and tanks.
For the purpose of this schedule and the discussion that follows, wines we
purchased for resale purposes are excluded.
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2000 1999 1998
======================== ======================== ============================
Equivalent Equivalent Equivalent
Number of Number of Number of
Cases % of Total Cases % of Total Cases % of Total
=========== =========== =========== =========== =============== ===========
Chardonnay 288,990 40% 187,500 36% 231,300 55%
Sauvignon Blanc 9,425 1% 6,000 1% 8,800 2%
Pinot Blanc 4,420 1% 5,200 1% 2,200 1%
Other white wines 13,130 2% 10,000 2% 1,400 0%
=========== =========== =========== =========== =============== ===========
Total white wines 315,965 44% 208,700 40% 243,700 58%
=========== =========== =========== =========== =============== ===========
Pinot Noir 75,920 11% 44,600 9% 35,100 8%
Cabernet Sauvignon 117,520 17% 114,200 22% 40,900 10%
Merlot 131,820 18% 110,400 21% 85,500 20%
Syrah 64,220 9% 35,200 7% 6,000 2%
Other red wines 5,525 1% 5,500 1% 10,200 2%
=========== =========== =========== =========== =============== ===========
Total red wines 395,005 56% 309,900 60% 177,700 42%
=========== =========== =========== =========== =============== ===========
Total production 710,970 100% 518,600 100% 421,400 100%
=========== =========== =========== =========== =============== ===========
Our wines are aged primarily in new and used oak barrels before they are
bottled. Generally, white wines are aged for between six and nine months, and
red wines for between nine and eighteen months, after harvest. The wine is then
bottled and stored for further aging.
CHALONE VINEYARD: Chalone Vineyard sales represented 10% of our
consolidated revenues and 6% of our consolidated case sales for the fiscal year
ended March 31, 2001.
Chalone Vineyard has been producing Chardonnay, Pinot Blanc and Pinot Noir
(and small quantities of Chenin Blanc) since 1969. It has also begun growing
Syrah and will release its first vintage in 2002. All wines sold under this
label are produced from grapes grown at the Chalone Vineyard and are estate
bottled and bear the "Chalone" appellation.
CARMENET WINERY: Carmenet Winery sales represented 17% of our consolidated
revenues and 15% of our consolidated case sales for the fiscal year ended March
31, 2001.
We produce Bordeaux-style red and white wines under the "Carmenet" label.
The Carmenet Moon Mountain Reserve is made from Cabernet Sauvignon, Merlot and
Cabernet Franc grapes grown at the Carmenet Winery, is estate bottled, and bears
the "Sonoma Valley" AVA designation. The Carmenet white wine is made from
Sauvignon Blanc and Semillon grapes purchased from Paragon Vineyard Co., Inc.
("Paragon") under a grape purchase agreement and bears the "Edna Valley"
appellation.
We also produce wines under the "Dynamite" label, which are made from
Cabernet Sauvignon, Merlot, Sauvignon Blanc and Semillon grapes and bulk wine
purchased from vineyards located in the North Coast AVA of California.
On July 31, 1996, a wildfire damaged approximately 75% of the producing
acreage at Carmenet Winery. Prior to this fire, Carmenet Winery produced
approximately 38,000 cases of wine annually, a significant portion of which was
estate bottled. The fire was caused by the electrical lines of Pacific Gas &
Electric Company ("PG&E") which has publicly acknowledged its liability. We have
replanted the damaged acreage but the newly planted vines are not expected to
return to pre-fire levels of production until 2003. Until the fire-damaged
acreage returns to full production, Carmenet's ability to make estate-bottled
wines will be limited. To supplement Carmenet's limited harvest, we attempt to
purchase suitable grapes on the open market. However, there can be no assurance
that grapes of suitable quality or variety will be available in sufficient
quantity or on terms acceptable to us.
EDNA VALLEY VINEYARD: Edna Valley Vineyard sales represented 23% of our
consolidated revenues and 23% of our consolidated case sales for the fiscal year
ended March 31, 2001.
Edna Valley Vineyard has been producing mostly Chardonnay and Pinot Noir
wines since 1980. The majority of wines sold under the Edna Valley Vineyard(R)
label are produced from grapes grown by Paragon Vineyard Company, our partner in
the Edna Valley Vineyard Joint Venture, and are estate bottled.
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ACACIA WINERY: Acacia Winery sales represented 16% of our consolidated
revenues and 13% of our consolidated case sales for the fiscal year ended March
31, 2001.
The winery produces Chardonnay and Pinot Noir wines under the "Acacia(TM)"
label. The grapes for the production of Pinot Noir and Chardonnay come from the
Carneros region. Approximately 50% of this production comes from Company-owned
vineyards and Company-leased vineyards.
CANOE RIDGE VINEYARD: Canoe Ridge Vineyard sales represented 5% of our
consolidated revenues and 4% of our consolidated case sales for the fiscal year
ended March 31, 2001.
The Canoe Ridge Vineyard commenced operations in 1994 and produces Merlot,
Cabernet Sauvignon and Chardonnay wines under the "Canoe Ridge Vineyard" label.
Most of the grapes for these wines are grown at our estate vineyard and wines
bear the "Columbia Valley" AVA designation.
ECHELON: Echelon sales represented 17% of our consolidated revenues and
27% of our consolidated case sales for the fiscal year ended March 31, 2001.
The 1997 vintage was the first to be released under the Echelon label
which features Chardonnay, Cabernet Sauvignon, Merlot, Viognier, Pinot Noir and
Syrah. Most varietals have a Central Coast appellation.
SAGELANDS VINEYARD: Sagelands Vineyard represented 2% of our consolidated
revenues and 3% of our consolidated case sales for the fiscal year ended March
31, 2001.
On June 15, 1999, we purchased Staton Hills(R) Winery and its adjacent
vineyards in Yakima County, Washington. The Staton Hills facility was renamed
Sagelands Vineyard and the new brand was launched in January 2000, focusing
primarily on Cabernet Sauvignon and Merlot and bearing the Columbia Valley AVA
designation. We retained the Staton Hills Winery brand and continue to produce
wines under this mark.
CUSTOM BRANDS: Custom brands consist primarily of Chardonnay, Cabernet
Sauvignon and Merlot. Quantities of custom brand bottling are highly dependent
upon grape supply and availability. As grapes become more scarce, the focus of
our production shifts away from custom brands, as they are relatively lower
margin products. We use custom brands primarily as a means of marketing and
selling our label wines and do not intend to focus our efforts on this line of
business.
IMPORTS & OTHER: Nine percent of our consolidated revenues and 9% of our
consolidated case sales in the year ended March 31, 2001 were primarily
comprised of import wines and, to a lesser degree, domestic wines we purchase
for resale purposes.
Under the terms of various agreements and investments among us,
Duhart-Milon, and DBR, we receive an allocation of the wines of DBR and
Duhart-Milon including the wines of Chateau Lafite-Rothschild and Chateau
L'Evangile in the Pauillac and Pomerol regions of Bordeaux, respectively, and of
Chateau Rieussec in the Sauternes region of Bordeaux. DBR also produces a
Pauillac wine exclusively for us.
MARKETING AND DISTRIBUTION
Our wines are positioned in the higher end of the premium category. All
our wines are in the super premium to luxury segments of the market, priced at
$7 per bottle and above.
We sell our wines through direct sales, independent distributors, brokers,
our own shareholder list, and in limited quantities, directly from the wineries.
Distributors generally remarket the wines through specialty wine shops and
grocery stores, selected restaurants, hotels and private clubs across the
country, and in certain overseas markets. We rely primarily on word-of-mouth
recommendation, wine tastings, positive reviews in various publications, select
wine competitions and Company-sponsored promotional activities in order to
increase public awareness of our wines.
SALES WITHIN CALIFORNIA
Sales and marketing of all of our wines within California, including
custom brands, is handled through our own sales force and a broker. We use a
single broker for all wholesale California sales.
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SALES OUTSIDE CALIFORNIA
Our wines are marketed by independent distributors outside California in
49 states and the District of Columbia and Puerto Rico and, internationally, in
Bermuda, the British West Indies, the U.S. Virgin Islands, Canada, England,
continental Europe, Hong Kong, China, and Japan. In 1993, we established a sales
division, operating as CHALONE WINE ESTATES, to help supervise and coordinate
sales functions of our business and its custom brands operations. We employ a
number of regional sales managers who work directly with distributors in a
particular region and their customers.
CASE SALES BY METHOD OF DISTRIBUTION
The following table sets forth our case sales by distribution method for
the fiscal years ended March 31:
2001 2000 1999
----------------------------------------------------------------
Number of % of Number of % of Number of % of
Cases Total Cases Total Cases Total
----------------------------------------------------------------
Independent distributors
United States 315,468 60% 238,600 53% 210,600 55%
International 24,317 3% 23,700 5% 16,800 5%
----------------------------------------------------------------
Total distributors 339,785 63% 262,300 58% 227,400 60%
----------------------------------------------------------------
Company direct
California wholesale 149,208 27% 124,700 28% 99,400 26%
Custom brands 23,786 4% 25,000 6% 26,500 7%
Catalog and winery retail 33,811 6% 35,500 8% 26,700 7%
----------------------------------------------------------------
Total Company direct 206,805 37% 185,200 42% 152,600 40%
----------------------------------------------------------------
Total 546,590 100% 447,500 100% 380,000 100%
----------------------------------------------------------------
CENTRALIZED ADMINISTRATION AND WAREHOUSING
A leased 22,000 square foot central office located in Napa County,
California, at the Napa Airport Business Park, supports all of our wineries. In
addition to our central executive office, this facility includes a 64,000 square
foot central distribution center from which all of our wines are stored prior to
shipping. We also rent separate warehouse facilities, as needed in local markets
and occasionally permit storage of third party wines for a fee. The central
facility lease is for a 15-year initial term, expiring in November 2008, with a
five-year extension option.
EMPLOYEES
On September 1, 2001, we had 190 full-time employees, of which 75 were in
grape growing and winemaking, 23 were in sales, and 92 were in administration.
During the spring and summer, we add approximately 15 to 20 part-time employees
for vineyard care and maintenance and 65 to 85 part-time employees for the
spring bottling. In the autumn, up to 80 part-time employees are hired for the
grape harvest and related winery work. Our hiring and employment policies for
both full-time and part-time employees are believed to comply with all relevant
laws, including immigration laws. We believe that our wage rates and benefits
are competitive and that our employee relations are excellent.
REGULATION; PERMITS AND LICENSES
The production and sale of wine are subject to extensive regulation by
various federal and state regulatory agencies, which requires us to maintain
various permits, bonds and licenses. We believe we are in compliance with all
currently applicable federal and state regulations.
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TRADEMARKS
CANOE RIDGE, STATON HILLS, CHALONE VINEYARD, SAGELANDS, JADE MOUNTAIN,
CARMENET, GAVILAN, ACACIA and the Acacia "A" logo are federally registered
trademarks owned by us. EDNA VALLEY VINEYARD is a federally registered trademark
owned by Paragon and licensed exclusively to the Edna Valley Vineyard Joint
Venture. The foregoing marks are also registered in Japan with the Japanese
Patent Office. These marks, and other common-law marks, are of significant
importance to our business as label and brand recognition are important means of
competition within the wine industry.
SHAREHOLDER BENEFITS
Our shareholders are entitled to benefits that are not provided to other
consumers. We offer our reserve wines, older wines and other special wines to
qualified shareholders, who are those with 100 or more shares of our common
stock, directly from our centralized distribution center by telephone or mail
order. Qualified shareholders are entitled to a 20-30% discount from suggested
retail prices on most mail order or other direct purchases from us. We have also
provided annual discounts to shareholders based on their shareholdings in the
form of a "Owners Wine Credit," which allows shareholders to receive a credit
towards the purchase of wines for the duration of the program. The Owners Wine
Credit may be used for up to 50% of the wine value of an order and is generally
offered in the fall of each year. The credit amount was $.25 per share for the
last year. Due to restrictions on direct retail sales of wines under state laws,
we must confine direct wine shipments by mail to purchasers with addresses in
California and 11 other states that have reciprocal agreements with California.
Each May, qualified shareholders are invited to attend our annual
Shareholder Celebration. For a nominal fee, attendees attend an all-day wine
tasting, auction and luncheon, which is typically held on the grounds of the
Chalone Vineyard in Monterey County, California. In 2001, approximately 1,300
shareholders and guests from 40 states and 5 foreign countries attended the
Celebration, which featured tastings of all our wines.
We also offer to shareholders, at the shareholders' expense, travel
programs to various wine-growing regions of the world. In the past, we have
provided travel programs to France, Chile, Australia, Portugal, South Africa,
Italy, and New Zealand. Proceeds from these trips help fund the Chalone Wine
Foundation. In addition, shareholders' interests are given a priority in the
Chalone Wine Foundation's donation program.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith file reports, proxy and information statements and other information
with the Securities and Exchange Commission. Such reports, proxy and information
statements and other information may be inspected and copied at the public
reference facilities maintained by the Commission at 450 Fifth Street, NW,
Washington, D.C. 20549, and at the following Regional Offices of the Commission:
New York Regional Office, World Trade Center, New York, New York 10048, and
Chicago Regional Office, Northwest Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661. You can obtain information on the operation of the
public reference room by calling the Commission at 1-800-SEC-0330. We are also
required to file electronic versions of these documents with the Commission
through the Commission's Electronic Data Gathering, Analysis and Retrieval
System ("EDGAR"). Our common stock is quoted on The Nasdaq National Market.
Reports, proxy and information statements and other information concerning our
company may be inspected at The Nasdaq Stock Market at 1735 K Street, NW,
Washington, D.C. 20006. In addition, the Commission maintains a World-Wide-Web
site (http:// www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. In addition, we maintain our own Web site at
www.chalonewinegroup.com.
The Commission allows us to "incorporate by reference" the information
we file with them, which means that we can disclose important information to you
by referring you to those documents. The
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information incorporated by reference is considered to be part of this
prospectus, and later information that we file with the Commission will
automatically update and supersede this information. We incorporate by reference
the documents listed below and any future filings made with the Commission under
Section 13(a), 13(c), 14, or 15(d) of the Exchange Act until this offering is
completed:
o Annual Report on Form 10-K for the year ended March 31, 2001;
o Annual Report on Form 10-K/A for the year ended March 31, 2001;
o Quarterly Report on Form 10-Q for the quarter ended June 30, 2001;
o Definitive Proxy Statement filed with the Commission on July 3, 2001
with respect to our Annual Meeting of Shareholders on
August 22, 2001;
o Current Report on Form 8-K dated May 17, 2001.
o Current Report on Form 8-K dated August 27, 2001; and
o The description of our common stock contained in our registration
statement on Form 8-A filed with the Commission on April 18, 1995
pursuant to Section 12 (g) of the Exchange Act.
You may request a copy of these filings, at no cost, by writing or
telephoning us at the following address:
The Chalone Wine Group, Ltd.
621 Airpark Road
Napa, CA 94558-6272
Attn: Investor Relations
(707) 254-4200
This prospectus is part of a registration statement we filed with the
Commission. You should rely only on the information incorporated by reference or
provided in this prospectus or any prospectus supplement. We have not authorized
anyone else to provide you with different information. You should not assume
that the information in this prospectus or any prospectus supplement is accurate
as of any date other than the date on the front of those documents.
THE RIGHTS OFFERING
BEFORE EXERCISING OR SELLING ANY SUBSCRIPTION RIGHTS, YOU SHOULD READ
CAREFULLY THE INFORMATION SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 9.
THE SUBSCRIPTION RIGHTS
We are distributing non-transferable pro rata subscription rights to
shareholders who owned shares of our common stock on _________, 2001, at no cost
to the shareholders. We will give you one subscription right for each
_______shares of our common stock that you owned on _________, 2001. You will
not receive any fractional rights or shares; the number of subscription rights
you receive will be rounded down to the nearest whole number. As a result, our
shareholders of record that hold fewer than _____ shares as of _______, 2001 are
not receiving rights. Each full subscription right will entitle you to purchase
one share of our common stock for $10.00. If you wish to exercise your
subscription rights, you must do so before 5 p.m., Eastern Daylight Time, on
_________ __, 2001. After that date, the subscription rights will expire and
will no longer be exercisable.
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BASIC SUBSCRIPTION PRIVILEGE
Each subscription right will entitle you to receive, upon payment of
$10.00, one share of our common stock. You will receive certificates
representing the shares that you purchase pursuant to your basic subscription
privilege as soon as practicable after ____________, 2001, whether you exercise
your subscription rights immediately prior to that date or earlier.
OVERSUBSCRIPTION PRIVILEGE
Subject to the allocation described below, each subscription right also
grants you an oversubscription privilege to purchase additional shares of our
common stock that are not purchased by other shareholders. You are entitled to
exercise your oversubscription privilege only if you exercise your basic
subscription privilege in full. If you wish to exercise your oversubscription
privilege, you should indicate the number of additional shares that you would
like to purchase in the space provided on your subscription certificate. When
you send in your subscription certificate, you must also send the full purchase
price for the number of additional shares that you have requested to purchase
(in addition to the payment due for shares purchased through your basic
subscription privilege). If the number of shares remaining after the exercise of
all basic subscription privileges is not sufficient to satisfy all
oversubscription privileges, you will be allocated shares pro rata (subject to
elimination of fractional shares), and in proportion to the number of shares you
purchased through your basic subscription privilege. However, if your pro rata
allocation exceeds the number of shares you requested on your subscription
certificate, then you will only receive the number of shares that you requested,
and the remaining shares from your pro rata allocation will be divided among
other shareholders exercising their oversubscription privileges. You will not
receive fractional subscription rights during the rights offering, but instead
we will round your number of oversubscription rights down to the nearest whole
number. In addition, we have the discretion to issue less than the total number
of shares that may be available for oversubscription requests.
Two of our shareholders, DBR and SFI, have committed to exercise all
of the rights they will receive as shareholders and to oversubscribe to the
extent those shares are not purchased through the exercise of rights by other
shareholders.
As soon as practicable after ____________, 2001, our subscription
agent, Equiserve, will determine the number of shares of our common stock that
you may purchase pursuant to the oversubscription privilege. You will receive
certificates representing these shares as soon as practicable after the
expiration date of the offering, which is September___, 2001, unless the
offering is extended. Subject to state securities laws and regulations, we have
the discretion to delay allocation and distribution of any and all shares to
shareholders who elect to participate in the rights offering, including shares
that we issue with respect to your basic or over-subscription privilege in order
to comply with state securities laws. If you request and pay for more shares
than are allocated to you, we will refund that overpayment, without interest or
penalty. In connection with the exercise of the oversubscription privilege,
banks, brokers and other nominee holders of subscription rights who act on
behalf of beneficial owners will be required to certify to the subscription
agent and to us as to the aggregate number of subscription rights that have been
exercised, and the number of shares of our common stock that are being requested
through the oversubscription privilege, by each beneficial owner on whose behalf
the nominee holder is acting.
NO RECOMMENDATIONS
We are not making any recommendation as to whether or not you should
exercise your subscription rights. In making any investment decision to exercise
rights, you must consider your own best interests. Neither our Board of
Directors, its members, or the special committee makes any recommendation as to
whether you should exercise your rights.
EXPIRATION DATE
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The rights will expire at 5 p.m., Eastern Daylight Time, on
____________, 2001, unless we decide to extend the rights offering. If the
commencement of the rights offering is delayed, the expiration date will
similarly be extended. If you do not exercise your basic subscription privilege
and oversubscription privilege prior to that time, YOUR SUBSCRIPTION RIGHTS WILL
BE NULL AND VOID. We will not be required to issue shares of our common stock to
you if the subscription agent receives your subscription certificate or your
payment after that time, regardless of when you sent the subscription
certificate and payment, unless you send the documents in compliance with the
guaranteed delivery procedures described later on in this prospectus.
WITHDRAWAL RIGHT
We may withdraw the rights offering at our sole discretion at any time
prior to or on ____________, 2001, for any reason, including a change in the
market price of our common stock. If we withdraw the rights offering, any funds
you paid will be promptly refunded, without interest or penalty.
DETERMINATION OF SUBSCRIPTION PRICE
Because of DBR's and SFI's interest in this transaction, our Board of
Directors named a special committee comprised of Cristina G. Banks, C. Richard
Kramlich and James H. Niven, directors who are not affiliated with DBR or SFI,
to determine the terms of the rights offering, including the subscription price.
The special committee decided to charge the $10.00 per share subscription price
after considering a variety of factors including the historic and then current
market price of the common stock, our business prospects, our history of revenue
and operating results, general conditions in the securities market, our need for
capital, alternatives available to us for raising capital, the amount of
proceeds desired, pricing of similar transactions, the liquidity of our common
stock, the level of risk to our investors, and the need to offer shares at a
price that would be attractive to our investors relative to the then current
trading price of our common stock. The $10.00 per share subscription price
should not be considered an indication of the actual value of our company or our
common stock. We cannot assure you that the market price of our common stock
will not decline during the rights offering. We also cannot assure you that you
will be able to sell shares of our common stock purchased during the rights
offering at a price equal to or greater than $10.00 per share. See
"Determination of Offering Price."
NON-TRANSFERABILITY OF SUBSCRIPTION RIGHTS
Only you may exercise the basic subscription privilege. You may not
sell, give away or otherwise transfer the basic subscription privilege.
FOREIGN AND UNKNOWN ADDRESSES
We are not mailing subscription certificates to shareholders whose
addresses are outside the United States or who have an APO or FPO address.
Equiserve will hold the subscription certificates for those shareholders. To
exercise their rights, these shareholders must notify Equiserve prior to 5:00
p.m., Eastern Daylight Time, on the third business day prior to the expiration
date.
EXERCISE OF SUBSCRIPTION RIGHTS
You may exercise your subscription rights by delivering to the
subscription agent on or prior to __________, 2001:
o A properly completed and duly executed subscription certificate;
o Any required signature guarantees (as described on page __); and
o Payment in full of $10.00 per share of common stock as
defined below to be purchased through the basic subscription
privilege and the over-subscription privilege.
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You should deliver your subscription certificate and payment to the subscription
agent at the address shown under the heading "Subscription Agent." We will not
pay you interest on funds that are delivered to the subscription agent pursuant
to the exercise of rights.
METHOD OF PAYMENT
Payment for the shares must be made by check or bank draft (cashier's
check) drawn upon a United States bank or a postal, telegraphic or express money
order payable to "EQUISERVE, AS SUBSCRIPTION AGENT" or by wire transfer of
immediately available funds. If you are purchasing an aggregate number of shares
of our common stock totaling $500,000 or more, we may agree to an alternative
payment method. If you use an alternative payment method, the subscription agent
must receive the full amount of your payment in currently available funds within
one over-the-counter ("OTC") trading day prior to _________, 2001. Payment will
be deemed to have been received by the subscription agent only upon:
(A) clearance of any uncertified check;
(B) receipt by the subscription agent of any certified check or bank
draft drawn upon a U.S. bank, any postal, telegraphic or express money order, or
any funds transferred by wire transfer; or
(C) receipt of funds by the subscription agent through an alternative
payment method.
Please note that funds paid by uncertified personal check may take at
least five business days to clear. Accordingly, if you wish to pay by means of
an uncertified personal check, we urge you to make payment sufficiently in
advance of _________, 2001, to ensure that the payment is received and clears
before that date. We also urge you to consider payment by means of a certified
or cashier's check or money order.
GUARANTEED DELIVERY PROCEDURES
If you want to exercise your subscription rights, but time will not
permit your subscription certificate to reach the subscription agent on or prior
to __________, 2001, you may exercise your subscription rights if you satisfy
the following guaranteed delivery procedures:
(1) You send, and the subscription agent receives, payment in full for
each share of our common stock being subscribed for through the basic
subscription privilege and the oversubscription privilege, on or prior to
_______, 2001;
(2) You send, and the subscription agent receives, on or prior to
_________, 2001, a notice of guaranteed delivery, substantially in the form
provided with the attached instructions, from a member firm of a registered
national securities exchange or a member of the National Association of
Securities Dealers, Inc., or a commercial bank or trust company having an office
or correspondent in the United States. The notice of guaranteed delivery must
state your name, the number of subscription rights that you hold, the number of
shares of our common stock that you wish to purchase pursuant to the basic
subscription privilege and the number of shares, if any, you wish to purchase
pursuant to the oversubscription privilege. The notice of guaranteed delivery
must guarantee the delivery of your subscription certificate to the subscription
agent within three OTC trading days following the date of the notice of
guaranteed delivery; and
(3) You send, and the subscription agent receives, your properly
completed and duly executed subscription certificate, including any required
signature guarantees, within three OTC trading days following the date of your
notice of guaranteed delivery. The notice of guaranteed delivery may be
delivered to the subscription agent in the same manner as your subscription
certificate at the addresses set forth under the heading "Subscription Agent,"
or may be transmitted to the subscription agent by facsimile transmission, to
facsimile number (781) 575-4816. You can obtain additional copies of the
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form of notice of guaranteed delivery by requesting them from the subscription
agent at the address set forth under the heading "Subscription Agent."
SIGNATURE GUARANTEES
Signatures on the subscription certificate must be guaranteed by an
Eligible Guarantor Institution, as defined in Rule 17Ad-15 of the Securities
Exchange Act of 1934, as amended, subject to the standards and procedures
adopted by the subscription agent. Eligible Guarantor Institutions include
banks, brokers, dealers, credit unions, national securities exchanges and
savings associations. Signatures on the subscription certificate do not need to
be guaranteed if either the subscription certificate provides that the shares of
our common stock to be purchased are to be delivered directly to the record
owner of these subscription rights, or the subscription certificate is submitted
for the account of a member firm of a registered national securities exchange or
a member of the National Association of Securities Dealers, Inc., or a
commercial bank or trust company having an office or correspondent in the United
States.
SHARES HELD FOR OTHERS
If you are a broker, a trustee or a depository for securities, or you
otherwise hold shares of our common stock for the account of a beneficial owner
of our common stock, you should notify the beneficial owner of these shares as
soon as possible to obtain instructions with respect to their subscription
rights. If you are a beneficial owner of our common stock held by a holder of
record, such as a broker, trustee or a depository for securities, you should
contact the holder and ask him or her to effect transactions in accordance with
your instructions.
AMBIGUITIES IN EXERCISE OF SUBSCRIPTION RIGHTS
If you do not specify the number of subscription rights being exercised
on your subscription certificate, or if your payment is not sufficient to pay
the total purchase price for all of the shares that you indicated you wished to
purchase, you will be deemed to have exercised the maximum number of
subscription rights that could be exercised for the amount of the payment that
the subscription agent receives from you. If your payment exceeds the total
purchase price for all of the subscription rights shown on your subscription
certificate, your payment will be applied, until depleted, to subscribe for
shares of our common stock in the following order:
(1) to subscribe for the number of shares, if any, that you indicated
on the subscription certificate that you wished to purchase through your basic
subscription privilege;
(2) to subscribe for shares of our common stock until your basic
subscription privilege has been fully exercised;
(3) to subscribe for additional shares of our common stock pursuant to
the oversubscription privilege, subject to any applicable proration. Any excess
payment remaining after the foregoing allocation will be returned to you as soon
as practicable by mail, without interest or deduction.
REGULATORY LIMITATION
We are not offering or selling, or soliciting any purchase of, rights
or underlying shares in any state or other jurisdiction in which the rights
offering is not permitted. We reserve the right to delay the commencement of the
rights offering in states or other jurisdictions if necessary to comply with
local laws. However, we may elect not to offer rights to residents of any state
or other jurisdiction whose laws would require a change in the rights offering
in order to carry out the rights offering in that state or jurisdiction. We will
not be required to issue you shares of our common stock pursuant to the rights
offering if, in our opinion, you would be required to obtain prior clearance or
approval from any state or
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25
federal regulatory authorities to own or control these shares if, at the time
the subscription rights expire, you have not obtained this clearance or
approval.
OUR DECISIONS ARE BINDING
All questions concerning the timeliness, validity, form and eligibility
of any exercise of subscription rights will be determined by us, and our
determinations will be final and binding. In our sole discretion, we may waive
any defect or irregularity, or permit a defect or irregularity to be corrected
within any time as we may determine, or reject the purported exercise of any
subscription right by reason of any defect or irregularity in this exercise.
Subscriptions will not be deemed to have been received or accepted until all
irregularities have been waived or cured within any time as we determine in our
sole discretion. Neither The Chalone Wine Group, Ltd. nor the subscription agent
will be under any duty to notify you of any defect or irregularity in connection
with the submission of a subscription certificate or incur any liability for
failure to give this notification.
NO REVOCATION
After you have exercised your basic subscription privilege or
oversubscription privilege, YOU MAY NOT REVOKE THAT EXERCISE. You should not
exercise your subscription rights unless you are certain that you wish to
purchase additional shares of our common stock.
NO ADJUSTMENTS UNDER EMPLOYEE BENEFIT PLANS
No adjustments will be made in connection with the rights offering to
any options issued by us under our stock incentive plans or to the number of
shares reserved for issuance under any of our stock incentive plans.
SHARES OF COMMON STOCK OUTSTANDING AFTER THE RIGHTS OFFERING
The issuance of 1,500,000 additional shares of our common stock in
connection with the rights offering would represent a ___ % increase in the
number of outstanding shares of our common stock, based on the number of shares
outstanding as of __________, 2001. IF YOU DO NOT EXERCISE YOUR BASIC
SUBSCRIPTION PRIVILEGE, THE PERCENTAGE OF OUR COMMON STOCK THAT YOU HOLD WILL
DECREASE.
FEES AND EXPENSES
We will pay all fees charged by the subscription agent. You are
responsible for paying any other commissions, fees, taxes or other expenses
incurred in connection with the exercise of the subscription rights. Neither The
Chalone Wine Group, Ltd. nor the subscription agent will pay these expenses.
SUBSCRIPTION AGENT
We have appointed Equiserve, as subscription agent for the rights
offering. The appropriate address for delivery of your subscription materials to
the subscription agent differs depending on the delivery method you choose:
BY FIRST CLASS MAIL OR REGISTERED MAIL:
Equiserve Trust
Attention: Corporate Actions
Post Office Box 43025
Providence, Rhode Island 02940-3025
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BY HAND:
Securities Transfer & Reporting
c/o Equiserve Trust
100 William Street, Galleria
New York, New York 10038
BY OVERNIGHT DELIVERY:
Equiserve Trust
Attention: Corporate Actions
40 Campanelli Drive
Braintree, MA 02184
The subscription agent's telephone number is (781) 575-4816 and its
facsimile number is (781) 575-4826. You should deliver your subscription
certificate, payment of the subscription price and notice of guaranteed delivery
(if any) to the subscription agent. We will pay the fees and specified expenses
of the subscription agent, which we estimate, will total $30,000. We have also
agreed, in some cases, to indemnify the subscription agent from any liability
that it may incur in connection with the rights offering.
RISK OF LOSS ON DELIVERY OF SUBSCRIPTION CERTIFICATES AND PAYMENTS
Each holder of rights bears all risk of the method of delivery to
Equiserve of subscription certificates and payments of the subscription price.
If subscription certificates and payments are sent by mail, you are urged to
send these by registered mail, properly insured, with return receipt requested,
and to allow a sufficient number of days to ensure delivery to Equiserve and
clearance of payment prior to the expiration date. Because uncertified personal
checks may take at least five business days to clear, you are strongly urged to
pay, or arrange for payment, by means of certified or cashier's check, money
order or wire transfer of funds.
IMPORTANT
PLEASE CAREFULLY READ THE INSTRUCTIONS ACCOMPANYING THE SUBSCRIPTION
CERTIFICATE AND FOLLOW THOSE INSTRUCTIONS IN DETAIL. DO NOT SEND SUBSCRIPTION
CERTIFICATES DIRECTLY TO US. YOU ARE RESPONSIBLE FOR CHOOSING THE PAYMENT AND
DELIVERY METHOD FOR YOUR SUBSCRIPTION CERTIFICATE AND YOU BEAR THE RISKS
ASSOCIATED WITH THIS DELIVERY. IF YOU CHOOSE TO DELIVER YOUR SUBSCRIPTION
CERTIFICATE AND PAYMENT BY MAIL, WE RECOMMEND THAT YOU USE REGISTERED MAIL,
PROPERLY INSURED, WITH RETURN RECEIPT REQUESTED. WE ALSO RECOMMEND THAT YOU
ALLOW A SUFFICIENT NUMBER OF DAYS TO ENSURE DELIVERY TO THE SUBSCRIPTION AGENT
AND CLEARANCE OF PAYMENT PRIOR TO _______ ___, 2001. BECAUSE UNCERTIFIED
PERSONAL CHECKS MAY TAKE AT LEAST FIVE BUSINESS DAYS TO CLEAR, WE STRONGLY URGE
YOU TO PAY, OR ARRANGE FOR PAYMENT, BY MEANS OF CERTIFIED OR CASHIER'S CHECK OR
MONEY ORDER.
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IF YOU HAVE QUESTIONS
All questions and inquiries related to the offer should be directed to
the Information Agent, Georgeson Shareholder, toll free at 1-888-381-6085, or by
mail at:
Georgeson Shareholder
111 Commerce Road
Carlstadt, New Jersey 07072
USE OF PROCEEDS
If we sell the 1,500,000 shares offered by this prospectus, then we
will receive gross proceeds from the rights offering of $15,000,000. We expect
to receive net proceeds of approximately $________. We will apply the net
proceeds from the rights offering for additional working capital, for investing
in vineyards and wineries and to build our inventory to meet our long-term
demand, especially in red wines, and for other capital requirements.
PRICE RANGE OF COMMON STOCK
Our common stock is listed on The Nasdaq National Market under the
symbol "CHLN." The following table sets forth the range of high and low closing
sales prices per share of our common stock for each quarterly period during the
current year ending December 31, 2001 and the two fiscal years ended March 31,
2001 and March 31, 2000 as reported by The Nasdaq National Market. For current
price information you are urged to consult publicly available sources.
PERIOD HIGH LOW
------ ---- ---
NINE MONTH TRANSITION PERIOD ENDING DECEMBER 31, 2001
Quarter ended June 30, 2001 $ 13.30 $ 8.25
Quarter ending September 30, 2001 (through ______, 2001) $ X.XX $ X.XX
FISCAL YEAR ENDED MARCH 31, 2001
Quarter ended March 30, 2001 $ 9.38 $ 7.72
Quarter ended December 31, 2000 $ 9.50 $ 7.75
Quarter ended September 30, 2000 $10.63 $ 7.63
Quarter ended June 30, 2000 $ 8.63 $ 7.81
FISCAL YEAR ENDED MARCH 31, 2000
Quarter ended March 31, 2000 $ 9.13 $ 8.13
Quarter ended December 31, 1999 $ 9.50 $ 8.25
Quarter ended September 30,1999 $10.00 $ 9.00
Quarter ended June 30, 1999 $ 9.94 $ 8.13
As of __________, 2001, there were approximately ________ holders of
our common stock. It is not our current policy to pay cash dividends on our
common stock.
DETERMINATION OF OFFERING PRICE
A special committee of our Board of Directors decided to charge a
$10.00 per share subscription price after considering a variety of factors,
including the historic and current market price of the
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common stock, our business prospects, our history of revenue and operating
results, general conditions in the securities market, our need for capital,
alternatives available to us for raising capital, the amount of proceeds
desired, pricing of similar transactions, the liquidity of our common stock, the
level of risk to our investors, and the need to offer shares at a price that
would be attractive to our investors relative to the current trading price of
our common stock. The $10.00 per share price should not be considered an
indication of the actual value of our company or our common stock. We cannot
assure you that the market price of our common stock will not decline during the
rights offering. We also cannot assure you that you will be able to sell shares
of our common stock purchased during the rights offering at a price equal to or
greater than $10.00 per share.
PLAN OF DISTRIBUTION
We are offering shares of our common stock directly to you. We have not
employed any brokers, dealers or underwriters in connection with the
solicitation or exercise of subscription privileges in this offer and no
commissions, fees or discounts will be paid in connection with this offering.
None of our officers and other employees will receive any commissions or
compensation for these services other than their normal employment compensation.
On or about ________, 2001, we will distribute the subscription rights
and copies of this prospectus to individuals who owned shares of our common
stock on _________ __, 2001. If you wish to exercise your subscription rights
and purchase shares of our common stock, you should complete the subscription
certificate and return it, with payment for the shares, to the subscription
agent, Equiserve, at the appropriate address listed on page ________. See "The
Rights Offering - Exercise of Subscription Rights." All questions and inquiries
related to the offer should be directed to the Information Agent, Georgeson
Shareholder, toll free at 1-888-381-6085.
We will pay the fees and specified expenses of the subscription agent,
which we estimate, will total $30,000. We have also agreed, in some cases, to
indemnify the subscription agent from any liability that it may incur in
connection with the rights offering. We estimate that our total expenses in
connection with the rights offering will be $134,250.
FEDERAL INCOME TAX CONSIDERATIONS
The following summarizes the material federal income tax considerations
of the rights offering to you and us. This summary is based on current law,
which is subject to change at any time, possibly with retroactive effect. This
summary is not a complete discussion of all federal income tax consequences of
the rights offering, and, in particular may not address federal income tax
consequences applicable to shareholders subject to special treatment under
federal income tax law, for example, dealers in securities, life insurance
companies, and tax-exempt organizations. In addition, this summary does not
address the tax consequences of the rights offering under applicable state,
local or foreign tax laws. This discussion assumes that your shares of common
stock and the subscription rights and shares issued to you during the rights
offering constitute capital assets.
THIS DISCUSSION IS INCLUDED FOR YOUR GENERAL INFORMATION ONLY. WE URGE
YOU TO CONSULT YOUR TAX ADVISOR TO DETERMINE THE TAX CONSEQUENCES TO YOU OF THE
RIGHTS OFFERING IN LIGHT OF YOUR PARTICULAR CIRCUMSTANCES, INCLUDING ANY STATE,
LOCAL AND FOREIGN TAX CONSEQUENCES.
TAXATION OF SHAREHOLDERS
RECEIPT OF A SUBSCRIPTION RIGHT. You will not recognize any gain or
other taxable income upon receipt of a subscription right.
TAX BASIS AND HOLDING PERIOD OF SUBSCRIPTION RIGHTS. Your tax basis in
each subscription right will effectively depend on whether you exercise the
subscription right or allow the subscription right to expire.
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If you exercise a subscription right, your tax basis in the
subscription right will be determined by allocating the tax basis of your common
stock on which the subscription right is distributed between the common stock
and the subscription right, in proportion to their relative fair market values
on the date of distribution of the subscription right. However, if the fair
market value of your subscription rights is less than 15% of the fair market
value of your existing shares of our common stock, then the tax basis of each
subscription right will be deemed to be zero and the tax basis of your common
stock will not change, unless you elect, by attaching an irrevocable election
statement to your federal income tax return for 2001, to allocate tax basis from
your common stock to your subscription rights.
If you allow a subscription right to expire, it will be treated as
having no tax basis and the tax basis of your common stock will not change.
EXPIRATION OF SUBSCRIPTION RIGHTS. You will not recognize any gain or
loss upon the expiration of a subscription right.
EXERCISE OF SUBSCRIPTION RIGHTS. You generally will not recognize a
taxable gain or loss on the exercise of a subscription right. The tax basis of
any share of our common stock that you purchase through the rights offering will
be equal to the sum of your tax basis, if any, in the subscription right
exercised and the price paid for the share. The holding period of the shares of
our common stock purchased through the rights offering will begin on the date
that you exercise your subscription rights.
TAXATION OF THE CHALONE WINE GROUP, LTD.
We will not recognize any taxable gain, other income or loss upon the
issuance of the subscription rights, the lapse of the subscription rights, or
the receipt of payment for shares of our common stock upon exercise of the
subscription rights.
STATE AND FOREIGN SECURITIES LAWS
The rights offering is not being made in any state or other
jurisdiction in which it is unlawful to do so, nor are we selling or accepting
any offers to purchase any shares of our common stock to you if you are a
resident of any state or other jurisdiction in which it is unlawful to make this
rights offering. We may delay the commencement of the rights offering in some
states or other jurisdictions in order to comply with the securities law
requirements of these states or other jurisdictions. It is not anticipated that
there will be any changes in the terms of the rights offering. In our sole
discretion, we may decline to make modifications to the terms of the rights
offering requested by some states or other jurisdictions, in which case
shareholders who live in those states or jurisdictions will not be eligible to
participate in the rights offering.
INDEMNIFICATION
Section 317(b) of the California Corporations Code empowers a
California corporation to indemnify its officers and directors and specified
other persons in particular instances.
Our Articles of Incorporation and by-laws provide for advancement of
expenses and indemnification of our officers and directors and other persons
against liabilities and expenses incurred by any of them in specified
proceedings and under particular conditions to the fullest extent allowed under
California law.
Insofar as indemnification for liabilities arising under the Securities
Act of 1933 (the "Act"), may be permitted to our directors, officers and
controlling persons pursuant to the foregoing provisions, or otherwise, we have
been advised that in the opinion of the Securities and Exchange Commission this
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable.
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EXPERTS
The consolidated financial statements of The Chalone Wine Group, Ltd.
incorporated in this prospectus by reference from our Annual Reports on Forms
10-K and 10-K/A for the fiscal year ended March 31, 2001 have been audited by
Deloitte & Touche LLP, independent auditors, as stated in their report, which is
incorporated by reference herein, and have been so incorporated in reliance upon
the report of such firm given upon their authority as experts in accounting and
auditing.
LEGAL MATERS
Farella Braun + Martel LLP will deliver an opinion to us about the
validity of the issuance of the shares of our common stock upon exercise of the
subscription rights.
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31
-----------------------------------------------------
NO ONE (INCLUDING ANY SALESPERSON OR BROKER) IS AUTHORIZED TO PROVIDE ORAL OR
WRITTEN INFORMATION ABOUT THIS OFFERING THAT IS NOT INCLUDED IN THIS PROSPECTUS.
THIS PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES, AND WE ARE NOT
SOLICITING OFFERS TO BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE
OF THESE SECURITIES IS NOT PERMITTED. THE INFORMATION IN THIS PROSPECTUS IS
ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS, EVEN IF THIS PROSPECTUS IS
DELIVERED TO YOU AFTER THE PROSPECTUS DATE, OR YOU BUY THE CHALONE WINE GROUP,
LTD. COMMON STOCK AFTER THE PROSPECTUS DATE.
-----------------------------------------------------
TABLE OF CONTENTS
PROSPECTUS SUMMARY.............................................................5
A WARNING ABOUT FORWARD-LOOKING STATEMENTS.....................................9
RISK FACTORS...................................................................9
THE CHALONE WINE GROUP, LTD...................................................15
WHERE YOU CAN FIND MORE INFORMATION...........................................20
THE RIGHTS OFFERING...........................................................21
IF YOU HAVE QUESTIONS.........................................................28
USE OF PROCEEDS...............................................................28
PRICE RANGE OF COMMON STOCK...................................................28
DETERMINATION OF OFFERING PRICE...............................................28
PLAN OF DISTRIBUTION..........................................................29
FEDERAL INCOME TAX CONSIDERATIONS.............................................29
STATE AND FOREIGN SECURITIES LAWS.............................................30
INDEMNIFICATION...............................................................30
EXPERTS.......................................................................31
LEGAL MATERS..................................................................31
The Chalone Wine Group, Ltd.
RIGHTS OFFERING OF
1,500,000 SHARES OF
COMMON STOCK
(no par value)
----------
PROSPECTUS
----------
_________, 2001
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INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses in connection
with the sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration fee and The Nasdaq
National Market filing fee.
To be Paid
by the
Registrant
----------
SEC Registration Fee............................................ $ 3,750
Subscription agent fees and expenses $ 30,000
Information agent fees and expenses $ 7,500
Blue Sky fees and expenses $ 5,000
Accounting fees and expenses.................................... $ 8,000
Legal fees and expenses......................................... $ 50,000
Printing and engraving expenses $ 7,500
The Nasdaq National Market filing fee $ 15,000
Miscellaneous expenses.......................................... $ 7,500
Total........................................................... $134,250
All expenses in connection with the issuance and distribution of the securities
being offered shall be borne by the Registrant.
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article V of our Articles of Incorporation, as amended, provides for the
indemnification of our officers and directors to the fullest extent permissible
under California law. In addition, Section 5.8 of our Bylaws requires that we
indemnify, and, in certain instances, advance expenses to, its agents, with
respect to certain costs, expenses, judgments, fines, settlements and other
amounts incurred in connection with any proceeding, to the fullest extent
permitted by applicable law. Persons covered by this indemnification provision
include our current and former directors, officers, employees and other agents,
as well as persons who serve at our request as directors, officers, employees or
agents of another enterprise.
Section 317(b) of the California Corporations Code (the "Corporations
Code") provides that a corporation may indemnify any person who was or is a
party or is threatened to be made a party to any "proceeding" (as defined in
Section 317(a) of the Corporations Code), other than an action by or in the
right of the corporation to procure a judgment in its favor, by reason of the
fact that such person is or was a director, officer, employee or other agent of
the corporation (collectively, an "Agent"), against expenses, judgments, fines,
settlements and other amounts actually and reasonably incurred in connection
with such proceeding if the Agent acted in good faith and in a manner the Agent
reasonably believed to be in the best interests of the corporation and, in the
case of a criminal proceeding, had no reasonable cause to believe the conduct
was unlawful.
Section 317(c) of the Corporations Code provides that a corporation shall
have power to indemnify any Agent who was or is a party or is threatened to be
made a party to any threatened, pending or completed action by or in the right
of the corporation to procure a judgment in its favor by reason of the
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33
fact that such person is or was an Agent, against expenses actually and
reasonably incurred by the Agent in connection with the defense or settlement of
such action if the Agent acted in good faith and in a manner such Agent believed
to be in the best interest of the corporation and its shareholders.
Section 317(c) further provides that no indemnification may be made
thereunder for any of the following: (i) in respect of any claim, issue or
matter as to which the Agent shall have been adjudged to be liable to the
corporation, unless and only to the extent that the court in which such
proceeding is or was pending shall determine that such Agent is fairly and
reasonably entitled to indemnification for expenses, (ii) of amounts paid in
settling or otherwise disposing of a pending action without court approval and
(iii) of expenses incurred in defending a pending action which is settled or
otherwise disposed of without court approval. Section 317(d) of the Corporations
Code requires that an Agent be indemnified against expenses actually and
reasonably incurred to the extent the Agent has been successful on the merits in
the defense of proceedings referred to in subdivisions (b) or (c) of Section
317.
Except as provided in Section 317(d), and pursuant to Section 317(e),
indemnification under Section 317 shall be made by the corporation only if
specifically authorized and upon a determination that indemnification is proper
in the circumstances because the Agent has met the applicable standard of
conduct set forth in Section 317(b) or (c), by any of the following: (i) a
majority vote of a quorum consisting of directors who are not parties to the
proceeding, (ii) if such a quorum of directors is not obtainable, by independent
legal counsel in a written opinion, (iii) approval of the shareholders, provided
that any shares owned by the Agent may not vote thereon, or (iv) the court in
which such proceeding is or was pending. Pursuant to Section 317(f) of the
Corporations Code, the corporation may advance expenses incurred in defending
any proceeding upon receipt of an undertaking by the Agent to repay such amount
if it is ultimately determined that the Agent is not entitled to be indemnified.
Section 317(h) provides, with certain exceptions, that no indemnification
shall be made under Section 317 where it appears that it would be inconsistent
with a provision of the corporation's articles, bylaws, a shareholder resolution
or an agreement which prohibits or otherwise limits indemnification, or where it
would be inconsistent with any condition expressly imposed by a court in
approving a settlement.
Section 317(i) authorizes a corporation to purchase and maintain
insurance on behalf of an Agent for liabilities arising by reason of the Agent's
status, whether or not the corporation would have the power to indemnify the
Agent against such liability under the provisions of Section 317. In addition,
Section 5.8 of our Bylaws authorizes us to purchase and maintain insurance on
behalf of any person indemnified by us. We currently maintain a directors and
officers liability policy in the amount of $5,000,000.
ITEM 16. EXHIBITS.
See the exhibit index filed as part of this Registration Statement.
ITEM 17. UNDERTAKINGS.
(a) The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by section
10(a)(3)of the Securities Act;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration statement (or the most
recent post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in the
registration statement. Notwithstanding the foregoing, any increase or decrease
in volume of securities offered (if the total dollar value of securities offered
would not exceed that which was registered) and any deviation from the low or
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34
high end of the estimated maximum offering range may be reflected in the form of
prospectus filed with the Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more than a 20 percent
change in the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement, unless
the information required by paragraphs (a)(1)(i) and (a)(1)(ii) is contained in
periodic reports filed by us pursuant to Section 13 or Section 15(d) of the
Exchange Act that are incorporated by reference in the registration statement;
PROVIDED, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the information required to be included in a post-effective amendment
by those paragraphs is contained in periodic reports filed by us pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), that are incorporated by reference in this Registration
Statement.
(2) That, for the purpose of determining any liability under
the Securities Act, each such post-effective amendment shall be deemed to be a
new registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain unsold at the
termination of the offering.
(4) If we are a foreign private issuer, to file a
post-effective amendment to the registration statement to include any financial
statements required by Rule 3-19 of this chapter at the start of any delayed
offering or throughout a continuous offering. Financial statements and
information otherwise required by Section 10(a)(3) of the Securities Act need
not be furnished, provided, that we include in the prospectus, by means of a
post-effective amendment, financial statements required pursuant to this
paragraph (a)(4) and other information necessary to ensure that all other
information in the prospectus is a least as current as the date of those
financial statements. Notwithstanding the foregoing, with respect to financial
statements on Form F-3, a post-effective amendment need not be filed to include
financial statements and other information required by Section 10(a)(3) of the
Act of Rule 3-19 of this chapter if such financial statements and information
are contained in periodic reports filed with or furnished to the Commission by
us pursuant to Section 13 or 15(d) of the Exchange Act that are incorporated by
reference in Form F-3.
(b) The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to Section 13(a) or 15(d) of the Securities
Exchange Act of 1934 (and where applicable , each filing of an employee benefit
plan's annual report pursuant to Section 15(d) of the Securities Exchange Act of
1934) that is incorporated by reference in the registration statement shall be
deemed to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to be
the initial bona fide offering thereof.
(c) The undersigned registrant hereby undertakes to deliver or cause to
be delivered with the prospectus, to each person to whom the prospectus is sent
or given, the latest annual report, to security holders that is incorporated by
reference in the prospectus and furnished pursuant to and meeting the
requirements of Rule 14a-3 or Rule 14c-3 under the Securities Exchange Act of
1934; and, where interim financial information required to be presented by
Article 3 of Regulation S-X are not set forth in the prospectus, to deliver, or
cause to be delivered to each person to whom the prospectus is sent or given,
the latest quarterly report that is specifically incorporated by reference in
the prospectus to provide such interim financial information.
(d) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers, and controlling
persons of the registrant pursuant to the foregoing
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35
provisions, or otherwise, the registrant has been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the registrant of expenses incurred or paid by a director,
officer, or controlling person of the registrant in the successful defense of
any action, suit, or proceeding) is asserted by such director, officer, or
controlling person in connection with the securities being registered, we will,
unless in the opinion of our counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
(e) The undersigned company hereby undertakes that:
(1) For the purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part
of the registration statement as of the time it was declared effective.
(2) For the purposes of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
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36
SIGNATURES
Pursuant to the requirements of the Securities Act, we certify that we
have reasonable grounds to believe that we meet all of the requirements for
filing on Form S-3 and have duly caused this registration statement to be signed
on our behalf by the undersigned, thereunto duly authorized, in the City of
Napa, State of California on the _____ day of ______, 2001.
The Chalone Wine Group, Ltd.
By: /s/ Thomas B. Selfridge
------------------------
Thomas B. Selfridge
President and Chief
Executive Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature apears
below does hereby make, constitute and appoint Thomas B. Selfridge, his or her
true and lawful attorney-in-fact and agent with full power of substitution, in
his or her name, place and stead to execute on his or her behalf, in his or her
capacity as a Director and/or officer of The Chalone Wine Group, Ltd., a
registration statement on Form S-3 or other appropriate form and any and all
amendments thereto (including post-effective amendments), registering shares of
our common stock, to be filed with the Securities and Exchange Commission
pursuant to the Securities Act of 1933, as amended (the "Securities Act"), and
any and all instruments which said attorney-in-fact and agent deems necessary or
advisable to enable us to comply with the Securities Act and the rules,
regulations and requirements of the commission in respect thereof, giving and
granting to said attorney-in-fact and agent full power and authority to do and
perform each and every act and thing whatsoever necessary or appropriate to be
done in and about the premises as fully to all intents as he or she might or
would do if personally present at the doing thereof, with full power of
substitution and revocation, hereby ratifying and confirming all that his or her
said attorney-in-fact or substitutes may or shall lawfully do or cause to be
done by virtue hereof.
Pursuant to the requirements of the Securities Act, this Registration Statement
has been signed by the following persons in the capacities and on the dates
indicated:
/s/ Thomas B. Selfridge Director , _________, 2001
------------------------------------ President, Chief Executive
Thomas B. Selfridge Officer
(Principal Executive Officer)
/s/ Shawn Conroy Blom Vice President of Finance and _________, 2001
------------------------------------ Chief Financial Officer
Shawn Conroy Blom (Principal Financial and
Accounting Officer)
/s/ Christophe Salin Chairman _________, 2001
------------------------------------
Christophe Salin
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37
/s/ W. Philip Woodward Director _________, 2001
------------------------------------
W. Philip Woodward
/s/ Cristina G. Banks Director _________, 2001
------------------------------------
Cristina G. Banks.
/s/ William G. Myers Director _________, 2001
------------------------------------
William G. Myers..
/s/ James H. Niven Director _________, 2001
------------------------------------
James H. Niven
/s/ Eric De Rothschild Director _________, 2001
------------------------------------
Eric de Rothschild
/s/ Mark Hojel Director _________, 2001
------------------------------------
Mark Hojel
/s/ Yves-Andre Istel Director _________, 2001
------------------------------------
Yves-Andre Istel
/s/ Phillip M. Plant Director ________, 2001
------------------------------------
Phillip M. Plant..
/s/ C. Richard Kramlich Director _________, 2001
------------------------------------
C. Richard Kramlich
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38
INDEX TO EXHIBITS
Exhibit
Number Exhibit Title
------ -------------
5.1 Opinion of Farella Braun + Martel LLP *
23.1 Consent of Deloitte & Touche LLP, independent auditors
23.2 Consent of Farella Braun + Martel LLP (included in Exhibit
5.1)*
24.1 Power of Attorney (included in the Signature Page contained
in Part II of the Registration Statement).*
99.1 Agreement among the Company, Les Domaines Barons de Rothschild (Lafite)
and SFI Intermediate, Ltd. dated September 7, 2001.
99.2 Form of Letter to Shareholders. *
99.3 Form of Subscription Certificate. *
99.4 Form of Notice of Guaranteed Delivery. *
99.5 Form of Letter to Brokers. *
99.6 Subscription Agent Agreement. *
-------------------------
* To be filed by amendment.
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