As filed with the Securities and Exchange Commission on October 10, 2001
Registration No. 333-69470
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===========================
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
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Amendment No. 1 to
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 1,764,705 $8.50 $14,999,993 $3,750 (2)
(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.
(2) Previously paid.
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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PROSPECTUS
THE CHALONE WINE GROUP, LTD.
1,764,705 Shares of Common Stock
$8.50 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 October 22, 2001. During this rights offering, we will issue
1,764,705 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 $8.50 $8.50
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TOTAL $14,999,993 $14,999,993
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(1) Before deducting expenses payable by us, estimated to be $234,250.
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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 10 OF THIS
PROSPECTUS.
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You will receive one subscription right for every 5.8375077 shares of
common stock that you owned on October 22, 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 six shares as of October 22, 2001 are not receiving rights. Each
subscription right entitles you to purchase one share of our common stock at the
purchase price of $8.50 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 until 5:00 p.m., New York City
time, on November 20, 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.
THE DATE OF THIS PROSPECTUS IS OCTOBER 12, 2001
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TABLE OF CONTENTS
PROSPECTUS SUMMARY......................................................................................5
A WARNING ABOUT FORWARD-LOOKING STATEMENTS..............................................................9
RISK FACTORS...........................................................................................10
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.................................................................11
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................................................12
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.................13
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......................14
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..............................................................15
You Will Need to Act Promptly and Follow Instructions Carefully if You Want to Exercise Your
Rights............................................................................................15
THE CHALONE WINE GROUP, LTD............................................................................16
Vineyard Practices................................................................................16
Agricultural Risks................................................................................17
Winemaking Practices..............................................................................17
Wine Production and Wines.........................................................................17
Marketing and Distribution........................................................................19
Centralized Administration and Warehousing........................................................20
Employees.........................................................................................20
Regulation; Permits and Licenses..................................................................20
Trademarks........................................................................................20
Shareholder Benefits..............................................................................20
WHERE YOU CAN FIND MORE INFORMATION....................................................................21
SHORT-TERM LOANS FROM DBR AND SFI......................................................................22
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THE RIGHTS OFFERING....................................................................................22
IF YOU HAVE QUESTIONS..................................................................................29
USE OF PROCEEDS........................................................................................29
PRICE RANGE OF COMMON STOCK............................................................................30
PLAN OF DISTRIBUTION...................................................................................30
FEDERAL INCOME TAX CONSIDERATIONS......................................................................31
STATE AND FOREIGN SECURITIES LAWS......................................................................32
INDEMNIFICATION........................................................................................32
EXPERTS................................................................................................32
LEGAL MATTERS..........................................................................................32
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 THE CHALONE WINE GROUP, LTD.
WHAT DO WE DO? (SEE PAGE 16)
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 prospectus 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 21)
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 22)
We are distributing to you, at no charge, one subscription right for every
5.8375077 shares of common stock that you owned on October 22, 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 six shares as of October 22, 2001 are not
receiving rights. Each subscription right entitles you to purchase one share of
our common stock for $8.50 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 22)
The basic subscription privilege of each subscription right entitles you to
purchase one share of our common stock at a subscription price of $8.50.
WHAT IS THE OVERSUBSCRIPTION PRIVILEGE? (SEE PAGE 22)
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 $8.50 per
share if other shareholders do not fully excercise their subscription rights.
WHAT ARE THE LIMITATIONS ON THE OVERSUBSCRIPTION PRIVILEGE? (SEE PAGE 22)
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 of the available shares among shareholders who
oversubscribed in proportion to the number of shares purchased through the basic
subscription privilege. We will not, however, allocate oversubscription shares
to any shareholder in excess of the number of oversubscription shares that the
shareholder actually subscribed and paid for. 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?
Instead of selling additional shares of our common stock to outside
parties, we have chosen to give you the opportunity to buy more shares. The
proceeds from the rights offering will be used to retire short-term loans from
our two major shareholders (see "What are the Short-Term Loans?" on page 9) the
proceeds of which are being used for working capital, and for additional working
capital. This working capital will allow 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. Of course, we still may need to seek additional
financing in the future.
HOW MANY SHARES MAY I PURCHASE? (SEE PAGE 22)
You will receive one subscription right for each 5.8375077 shares of our
common stock that you owned on October 22, 2001. Each whole subscription right
entitles you to purchase one share of our common stock for $8.50. 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.
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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 $8.50 PER SHARE PRICE? (SEE PAGE 30)
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, 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.
Based on those considerations, the special committee originally established a
subscription price of $10.00 per share. Due to the events that took place on
September 11, 2001, the effect of those events on the securities markets and the
offer by DBR and SFI to extend short-term loans to us on terms that were more
favorable than those offered by our regular lenders (see "What are the
Short-Term Loans?" on page 27), the special committee reconsidered the factors
described above and established a new subscription price of $8.50 per share. 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 25)
You must properly complete the enclosed subscription certificate and
deliver it to our subscription agent before 5 p.m., New York City time, on
November 20, 2001. The addresses of our subscription agent are listed on page
27. 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 23)
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., NEW YORK
CITY TIME, ON NOVEMBER 20, 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 24)
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 $8.50 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 10.
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, as of September 30, 2001, owned
approximately 44.5% of our common stock and SFI, which, as of September 30,
2001, owned approximately 17.8% of our common stock, have committed to exercise
their respective basic subscription privileges and oversubscription privileges
in full. Accordingly, if our other shareholders do not exercise their
subscription rights, DBR and SFI may collectively acquire all 1,764,705 shares
of our common stock offered pursuant to the rights offering. As a result, DBR's
ownership interest in us would increase to approximately 48.4% and SFI's
ownership interest in us would increase to approximately 19.4%.
CAN I SELL OR GIVE AWAY MY SUBSCRIPTION RIGHTS? (SEE PAGE 28)
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 31)
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?
If you purchase shares of our common stock through the rights offering, you
will receive certificates representing those shares as soon as practicable after
November 20, 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 24)
Yes. Our Board of Directors may cancel the rights offering for any reason
at any time on or before November 20, 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 29)
If we sell the 1,764,705 shares offered by this prospectus, then we will
receive proceeds of approximately $14,999,993 less approximately $234,250 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 to retire short-term loans extended by our two major
shareholders (see "What are the Short-Term Loans?" below), the proceeds of which
are being used for working capital, and to provide us with additional working
capital. This working capital will allow us to invest in our vineyards and
wineries and to build our inventory to meet our long-term demand, especially in
red wines.
WHAT ARE THE SHORT-TERM LOANS? (SEE PAGE 27)
On October 9, 2001, our two major shareholders, DBR and SFI extended
short-term loans to us on terms that were more favorable than those offered by
our regular lender. The aggregate amount of the loans is up to $8.5 million. The
loans are unsecured and bear interest at the rate of 5.0% per year. Proceeds
from the loans are being used for working capital. The loans are due and payable
on the earlier of two business days after (a) the closing of this rights
offering or (b) the withdrawal and termination of this rights offering prior to
its closing. In connection with these loans, DBR and SFI also agreed that if
this rights offering does not close by November 30, 2001 and we have not
withdrawn the registration statement of which this prospectus is a part, then
they shall provide us with an additional $6 million of financing on commercially
reasonable terms that the parties shall negotiate in good faith.
HOW MANY SHARES WILL BE OUTSTANDING AFTER THE RIGHTS OFFERING?
If we sell the 1,764,705 shares offered by this prospectus, then we will
have approximately 12,066,184 shares of our common stock outstanding, based on
the number of shares outstanding as of September 30, 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 1-877-977-6198.
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.
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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.
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
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10
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.
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 17 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
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11
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.
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.
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12
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.
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.
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13
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.
THE MARKET PRICE OF OUR COMMON STOCK FLUCTUATES
All of the foregoing risks, among others not known or mentioned in this
prospectus, 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 MAY 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 4.9% of our outstanding equity,
and exercised none of your subscription rights, your percentage ownership would
be reduced to 4.1%.
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 $8.50, 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,
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14
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 September 30, 2001, DBR and SFI in the aggregate owned approximately
62.3% 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
67.8% 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.
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.
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15
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 Duhart-Milon in partnership with
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.
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
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16
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 September 30, 2001, this year's grape crop was in process of being
harvested, but total tonnage 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.
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.
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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.
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.
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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.
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 Number % of Number % of
of Cases Total of Cases Total of 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%
----------------------------------------------------------------
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19
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 30, 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.
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,
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20
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 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 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;
o Current Report on Form 8-K dated August 31, 2001;
o Current Report of Form 8-K dated September 14, 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
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21
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.
SHORT-TERM LOANS FROM DBR AND SFI
On October 9, 2001, DBR and SFI, our two major shareholders, extended
short-term loans to us on terms that were more favorable than those being
offered by our regular lender. The aggregate amount of the loans is up to $8.5
million. The loans are unsecured and accrue interest at a rate of 5.0% per year.
Proceeds from the loans are being used for working capital.
The loans are due and payable by the earlier of two business days after (a)
the closing of this rights offering or (b) the withdrawal and termination of
this rights offering prior to its closing. In connection with the loans, DBR and
SFI also agreed that if this rights offering does not close by November 30, 2001
and we have not withdrawn the registration statement of which this prospectus is
a part, then they shall provide us with an additional $6 million of financing on
commercially reasonable terms that the parties shall negotiate in good faith.
THE RIGHTS OFFERING
BEFORE EXERCISING ANY SUBSCRIPTION RIGHTS, YOU SHOULD READ CAREFULLY THE
INFORMATION SET FORTH UNDER "RISK FACTORS" BEGINNING ON PAGE 10.
THE RIGHTS
As soon as practicable after the date of this prospectus, we are
distributing, at no charge, to holders of our common stock at 5:00 p.m., New
York City time on the record date of October 22, 2001, one subscription right
for every 5.8375077 shares of common stock owned at that time to purchase
additional shares of common stock. Each whole right entitles you to purchase one
share of our common stock for the subscription price.
We will not issue fractional rights. If the number of shares of common
stock you held on the record date would have resulted in your receipt of
fractional rights, the number of rights issued to you will be rounded down to
the nearest whole right. If you held fewer than six shares, you will not receive
any rights.
SUBSCRIPTION PRICE
The subscription price is $8.50 per share, payable in cash. All payments
must be cleared on or before the expiration date.
BASIC SUBSCRIPTION PRIVILEGE AND OVERSUBSCRIPTION PRIVILEGE
BASIC SUBSCRIPTION PRIVILEGE You are entitled to purchase one share of
common stock at the subscription price for every one right exercised.
OVERSUBSCRIPTION PRIVILEGE. If you exercise your basic subscription
privilege in full, you may also subscribe for additional shares that other
shareholders have not purchased under their basic subscription privilege. If
there are not enough shares available to fill all subscriptions for additional
shares, all of the available shares will be allocated pro rata based on the
number of shares
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22
each subscriber for additional shares has purchased under the basic subscription
privilege. We will not allocate to you more than the number of shares you have
actually subscribed and paid for.
You are not entitled to exercise the oversubscription privilege unless you
have fully exercised your basic subscription privilege. For this purpose, you
would only count the shares you own in your own name, and not other shares that
might, for example, be jointly held with a spouse, held as a custodian for
someone else, or held in an individual retirement account.
You can elect to exercise the oversubscription privilege only at the same
time you exercise your basic subscription privilege in full.
In exercising the oversubscription privilege, you must pay the full
subscription price for all the shares you are electing to purchase. If we do not
allocate to you all shares you have subscribed for under the oversubscription
privilege, we will refund by mail to you any payment you have made for shares
which are not available to issue to you, as soon as practicable after completion
of the rights offering. Interest will not be payable on amounts refunded.
Banks, brokers and other nominees who exercise the oversubscription
privilege on behalf of beneficial owners of shares must report certain
information to Equiserve Trust Company, N.A. and Chalone and record certain
other information received from each beneficial owner exercising rights.
Generally, banks, brokers and other nominees must report (1) the number of
shares held on the record date on behalf of each beneficial owner, (2) the
number of rights as to which the basic subscription privilege has been exercised
on behalf of each beneficial owner, (3) that each beneficial owner's basic
subscription privilege held in the same capacity has been exercised in full, and
(4) the number of shares subscribed for under the oversubscription privilege by
each beneficial owner.
If you complete the portion of the subscription certificate to exercise the
oversubscription privilege, you will be representing and certifying that you
have fully exercised your basic subscription privilege as described above. You
must exercise your oversubscription privilege at the same time you exercise your
basic subscription privilege.
NO BOARD OR SPECIAL COMMITTEE INVESTMENT RECOMMENDATION TO SHAREHOLDERS
Neither our Board of Directors nor the special committee is making any
recommendation to you about whether you should exercise any rights. In making
the decision to exercise or not exercise your rights, you must consider your own
best interests.
If you choose not to exercise your subscription rights in full, your
relative ownership interest will be diluted. If you exercise rights, you risk
investment loss on new money invested. The trading price of our common stock may
decline below the subscription price. We cannot assure you that the subscription
price will remain below any trading price for our common stock or that its
trading price will not decline to below the subscription price during or after
the rights offering. For a summary of some of the risks a new investment would
entail, see "Risk Factors" beginning on page 10.
EXPIRATION TIME AND DATE
The rights expire on November 20, 2001, at 5:00 p.m., New York City time.
Rights not exercised by the expiration date will be null and void.
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In order to exercise rights in a timely manner, you must assure that
Equiserve Trust Company, N.A. actually receives, prior to expiration of the
rights, the properly executed and completed subscription certificate (or form of
"Notice of Guaranteed Delivery"), together with full payment for all shares you
wish to purchase.
NO REVOCATION
YOU ARE NOT ALLOWED TO REVOKE OR CHANGE YOUR EXERCISE OF
RIGHTS AFTER YOU SEND IN YOUR SUBSCRIPTION FORMS AND PAYMENT.
EXTENSION, WITHDRAWAL AND AMENDMENT
We have the option of extending the rights offering and the period for
exercising your rights, although we presently do not intend to do so.
We also reserve the right to withdraw or terminate the rights offering at
any time prior to November 20, 2001 for any reason. In the event that the
offering is withdrawn or terminated, all funds received from such subscriptions
will be returned. Interest will not be payable on any returned funds.
COMMITMENT OF DBR AND SFI TO PARTICIPATE IN THE RIGHTS OFFERING
DBR and SFI have agreed to purchase all shares of our common stock that are
offered in this rights offering but not purchased by our other shareholders. If
no other shareholders exercise their rights under this offering, DBR's and SFI's
percentage equity ownership of Chalone will increase to approximately 48.4% and
19.4%, respectively.
MAILING OF CERTIFICATES AND RECORD HOLDERS
We are sending a subscription certificate to each record holder along with
this prospectus and related instructions to evidence the rights. In order to
exercise rights, you must fill out and sign the subscription certificate and
timely deliver it with full payment for the shares to be purchased. Only holders
of record of common stock at the close of business on the record date may
exercise rights. You are a record holder for this purpose only if your name is
registered as a shareholder with our transfer agent, Equiserve Trust Company,
N.A., as of the record date.
A depository bank, trust company or securities broker or dealer which is a
record holder for more than one beneficial owner of shares may divide or
consolidate subscription certificates to represent shares held on the record
date by their beneficial owners, upon proper showing to Equiserve Trust Company,
N.A.
If you own shares held in a brokerage, bank or other custodial or nominee
account, you should promptly send the proper instruction form to the person
holding your shares in order to exercise rights. Your broker, dealer, depository
or custodian bank or other person holding your shares is the record holder of
your shares and will have to act on your behalf in order for you to exercise
rights. We have asked your broker, dealer or other nominee holders of our stock
to contact the beneficial owners to obtain instructions concerning rights the
beneficial owners are entitled to exercise.
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. In
those cases, the subscription certificates
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24
will be held by Equiserve Trust Company, N.A. for those shareholders. To
exercise their rights, these shareholders must notify Equiserve Trust Company,
N.A. prior to 11:00 a.m., New York City time, on the third business day prior to
the expiration date.
RIGHT TO BLOCK EXERCISE DUE TO REGULATORY ISSUES
We reserve the right to refuse the exercise of rights by any holder of
rights who would, in our opinion, be required to obtain prior clearance or
approval from any state, federal or foreign regulatory authorities for the
exercise of rights or ownership of additional shares if, at the expiration date,
this clearance or approval has not been obtained. We are not undertaking to pay
any expenses incurred in seeking that clearance or approval.
We are not offering or selling, or soliciting any purchase of, rights or
underlying shares in any state or other jurisdiction in which this rights
offering is not permitted. We reserve the right to delay the commencement of the
rights offering in certain 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 law would require a change in the rights
offering in order to carry out the rights offering in that state or
jurisdiction.
PROCEDURES TO EXERCISE RIGHTS
Please do not send subscription certificates or related forms to us. Please
send the properly completed and executed form of subscription certificate with
full payment to Equiserve Trust Company, N.A.
You should read carefully the forms of subscription certificate and related
instructions and forms which accompany this prospectus. You should call
Georgeson Shareholder, our information agent, at (877) 977-6198 promptly with
any questions you may have.
You may exercise your rights by delivering to Equiserve Trust Company, N.A., at
the address specified in the instructions accompanying this prospectus, at or
prior to the expiration date:
o Properly completed and executed subscription certificate(s) which
evidence your rights. See "-- Delivery of Subscription Certificate" on
page 27 for instructions on where to send certificate(s).
o Payment in full of the subscription price for each share you wish to
purchase under the basic subscription privilege and the
oversubscription privilege. See "-- Required Forms of Payment of
Subscription Price" below for payment instructions.
REQUIRED FORMS OF PAYMENT OF SUBSCRIPTION PRICE
The subscription price is $8.50 per share subscribed for, payable in cash.
All payments must be cleared on or before the expiration date.
If you exercise any rights, you must deliver full payment in the form of a
check or bank draft drawn upon a U.S. bank, or U.S. postal money order, payable
to Equiserve Trust Company, N.A., subscription agent.
FUNDS PAID BY UNCERTIFIED PERSONAL CHECK MAY TAKE AT LEAST FIVE BUSINESS DAYS TO
CLEAR. ACCORDINGLY, IF YOU PAY THE SUBSCRIPTION PRICE BY MEANS OF AN UNCERTIFIED
PERSONAL CHECK, YOU SHOULD MAKE PAYMENT SUFFICIENTLY IN ADVANCE OF THE
EXPIRATION TIME TO ENSURE THAT YOUR CHECK ACTUALLY CLEARS AND THE PAYMENT IS
RECEIVED BEFORE THAT TIME. WE ARE NOT RESPONSIBLE FOR ANY DELAY
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25
IN PAYMENT BY YOU AND SUGGEST THAT YOU CONSIDER PAYMENT BY
MEANS OF CERTIFIED OR CASHIER'S CHECK, OR MONEY ORDER.
SPECIAL PROCEDURE UNDER "NOTICE OF GUARANTEED DELIVERY" FORM
If you wish to exercise rights but cannot ensure that Equiserve Trust
Company, N.A. will actually receive the executed subscription certificate before
the expiration date, you may alternatively exercise rights by causing all of the
following to occur within the time prescribed:
o Full payment must be received by Equiserve Trust Company, N.A. prior
to the expiration date for all shares you desire to purchase pursuant
to the basic subscription privilege and the oversubscription
privilege.
o A properly executed "Notice of Guaranteed Delivery" substantially in
the form distributed by us with your subscription certificate must be
received by Equiserve Trust Company, N.A. at or prior to the
expiration date.
o The "Notice of Guaranteed Delivery" must be executed by both you and
one of the following: (1) a member firm of a registered national
securities exchange, (2) a member of the National Association of
Securities Dealers, Inc. (NASD), (3) a commercial bank or trust
company having an office or correspondent in the United States, or (4)
an eligible guarantor institution qualified under a guarantee program
acceptable to Equiserve Trust Company, N.A. The co-signing institution
must guarantee in the Notice of Guaranteed Delivery that the
subscription certificate will be delivered to Equiserve Trust Company,
N.A. within three business days after the expiration date. You must
also provide in that form other relevant details concerning the
intended exercise of rights.
o The properly completed subscription certificate(s) must be received by
Equiserve Trust Company, N.A. within three business days following the
expiration date.
o If you are a nominee holder of rights, a "Nominee Holder
Certification" must also accompany the Notice of Guaranteed Delivery.
A Notice of Guaranteed Delivery may be delivered to Equiserve Trust
Company, N.A. in the same manner as subscription certificates at the address set
forth below under "The Rights Offering-Delivery of Subscription Certificate" or
may be delivered by facsimile. Equiserve Trust Company, N.A.'s facsimile number
is (781) 380-3388. You should confirm receipt of all facsimiles by calling (781)
575-4816.
Additional copies of the form of Notice of Guaranteed Delivery are
available upon request from Equiserve Trust Company, N.A., whose address and
telephone numbers are set forth on page 27 or by calling Georgeson Shareholder
at 1-877-977-6198.
SPECIAL PROVISIONS RELATING TO THE DELIVERY OF SUBSCRIPTION RIGHTS THROUGH
DEPOSITORY FACILITY PARTICIPANTS
In the case of holders of rights that are held of record through The
Depository Trust Company ("DTC"), exercises of the basic subscription privilege
and the oversubscription privilege may be effected by instructing DTC to
transfer rights from the DTC account of such holder to the DTC account of the
Subscription Agent, together with payment of the Subscription Price for each
share of common stock subscribed for pursuant to the basic subscription
privilege and the oversubscription privilege.
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DELIVERY OF SUBSCRIPTION CERTIFICATE
All subscription certificates, payments of the subscription price, nominee
holder certifications and notices of guaranteed delivery, to the extent
applicable to your exercise of rights, must be delivered to Equiserve Trust
Company, N.A. as follows:
BY HAND: BY FIRST CLASS OR REGISTERED BY OVERNIGHT CARRIER:
MAIL:
Securities Transfer & Reporting Services, Inc. Equiserve Equiserve
C/O Equiserve Attn: Corporate Actions Attn: Corporate Actions
100 William Street, Galleria PO Box 43025 40 Campanelli Drive
New York, NY 10038 Providence, RI 02940-3025 Braintree, MA 02184
Eligible institutions may also deliver documents by facsimile transaction.
Equiserve Trust Company, N.A.'s facsimile number is (781) 380-3388. You should
confirm receipt of all facsimiles by calling (781) 575-4816.
INCOMPLETE FORMS; INSUFFICIENT PAYMENT
If you do not indicate the number of rights being exercised, or do not
forward sufficient payment for the number of rights that you indicate are being
exercised, then we will accept the subscription forms and payment only for the
maximum number of rights that may be exercised based on the actual payment
delivered. We will make this determination as follows: (1) you will be deemed to
have exercised the basic subscription privilege to the full extent of the
payment received, and (2) if any funds remain, you will be deemed to have
exercised the oversubscription privilege to the extent of the remaining funds.
We will return any payment not applied to the purchase of shares under the
rights offering procedures to those who made these payments as soon as
practicable by mail. Interest will not be payable on amounts refunded.
PROHIBITION ON FRACTIONAL SHARES
Each whole right entitles you to purchase one share of common stock at the
subscription price per share. We will accept any inadvertent subscription
indicating a purchase of fractional shares by rounding down to the nearest whole
share and refunding without interest any payment received for a fractional share
as soon as practicable.
INSTRUCTIONS TO NOMINEE HOLDERS
If you are a broker, trustee or depository for securities or other nominee
holder of common stock for beneficial owners of the stock, we are requesting you
to contact the beneficial owners as soon as possible to obtain instructions and
related certifications concerning their rights. To the extent so instructed,
nominee holders should complete appropriate subscription certificates on behalf
of beneficial owners and, in the case of any exercise of the oversubscription
privilege, a form of "Nominee Holder Certification," and submit them on a timely
basis to DTC with the proper payment.
RISK OF LOSS ON DELIVERY OF SUBSCRIPTION CERTIFICATE FORMS AND PAYMENTS
Each holder of rights bears all risk of the method of delivery to Equiserve
Trust Company, N.A. of subscription certificates and payments of the
subscription price.
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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 TRUST
COMPANY, N.A. AND CLEARANCE OF PAYMENT PRIOR TO THE EXPIRATION TIME.
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, OR MONEY ORDER.
TRANSFERABILITY OF RIGHTS
The rights are not transferable and may be exercised only by the persons to
whom they are issued.
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.
HOW PROCEDURAL AND OTHER QUESTIONS ARE RESOLVED
We are entitled to resolve all questions concerning the timeliness,
validity, form and eligibility of any exercise of rights. Our determination of
such questions will be final and binding. We, in our sole discretion, may waive
any defect or irregularity, or permit a defect or irregularity to be corrected
within such time as we may determine, or reject the purported exercise of any
right because of any defect or irregularity.
Subscription certificates will not be considered received or accepted until
all irregularities have been waived or cured within such time as we determine,
in our sole discretion. Neither we nor Equiserve Trust Company, N.A. have any
duty to give notification of any defect or irregularity in connection with the
submission of subscription certificates or any other required document. Neither
we nor Equiserve will incur any liability for failure to give such notification.
We reserve the right to reject any exercise of rights if the exercise does
not comply with the terms of this rights offering or is not in proper form or if
the exercise of rights would be unlawful or materially burdensome.
ISSUANCE OF STOCK CERTIFICATES
Stock certificates for shares purchased in the rights offering will be
issued as soon as practicable after the expiration date. Equiserve Trust
Company, N.A. will deliver subscription payments to us only after consummation
of the rights offering and the issuance of stock certificates to those
exercising rights. Unless otherwise instructed in your subscription certificate
form, shares purchased by the exercise of rights will be registered in the name
of the person exercising the rights.
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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 1-877-977-6198, or by
mail at:
Georgeson Shareholder
111 Commerce Road
Carlstadt, New Jersey 07072
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 NOVEMBER 20, 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.
USE OF PROCEEDS
If we sell the 1,764,705 shares offered by this prospectus, then we will
receive gross proceeds from the rights offering of $14,999,993. We expect to
receive net proceeds of approximately $14,765,743. We will use the net proceeds
from the rights offering to retire short-term loans from our two major
shareholders, the proceeds of which are being used for working capital, and for
additional working capital. This working capital will allow us to invest in our
vineyards and wineries and to build our inventory to meet our long-term demand,
especially in red wines.
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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 September 30, 2001 $ 12.92 $ 8.97
Quarter ended June 30, 2001 $ 13.30 $ 8.25
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 September 30, 2001, there were approximately 5,041 registered holders
of our common stock. It is not our current policy to pay cash dividends on our
common stock.
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 initially decided to charge a subscription price of $10.00
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. Due to the events that took place on
September 11, 2001, the effect of those events on the securities markets and the
offer by DBR and SFI to extend short-term loans to us on terms that were more
favorable than those offered by our regular lender, the special committee
reconsidered the factors above and established a new subscription price of $8.50
per share. The $8.50 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 $8.50 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
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30
officers and other employees will receive any commissions or compensation for
these services other than their normal employment compensation.
On or about October 25, 2001, we will distribute the subscription rights
and copies of this prospectus to individuals who owned shares of our common
stock on October 22, 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 one of the addresses listed on page 27. See "The Rights
Offering - Procedures to Exercise Rights" on page 25. All questions and
inquiries related to the offer should be directed to the Information Agent,
Georgeson Shareholder, toll free at 1-877-977-6198.
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 certain liabilities that it may incur in
connection with the rights offering. We estimate that our total expenses in
connection with the rights offering will be $234,250.
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.
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.
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31
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.
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 MATTERS
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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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.
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TABLE OF CONTENTS
PROSPECTUS SUMMARY............................................................5
A WARNING ABOUT FORWARD-LOOKING STATEMENTS....................................9
RISK FACTORS.................................................................10
THE CHALONE WINE GROUP, LTD..................................................16
WHERE YOU CAN FIND MORE INFORMATION..........................................21
SHORT-TERM LOANS FROM DBR AND SFI............................................22
THE RIGHTS OFFERING..........................................................22
IF YOU HAVE QUESTIONS........................................................29
USE OF PROCEEDS..............................................................29
PRICE RANGE OF COMMON STOCK..................................................30
PLAN OF DISTRIBUTION.........................................................30
FEDERAL INCOME TAX CONSIDERATIONS............................................31
STATE AND FOREIGN SECURITIES LAWS............................................32
INDEMNIFICATION..............................................................32
EXPERTS......................................................................32
LEGAL MATTERS................................................................32
The Chalone Wine Group, Ltd.
RIGHTS OFFERING OF
1,764,705 SHARES OF
COMMON STOCK
$8.50 per Share
--------------
PROSPECTUS
--------------
October 12, 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................................ $ 150,000
Printing and engraving expenses........................ $ 7,500
The Nasdaq National Market filing fee.................. $ 17,500
Miscellaneous expenses................................. $ 5,000
Total.................................................. $ 234,250
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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34
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
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
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35
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 provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission
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36
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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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 Amendment No. 1 to the registration statement
to be signed on our behalf by the undersigned, thereunto duly authorized, in the
City of Napa, State of California on the 10th day of October, 2001.
The Chalone Wine Group, Ltd.
By: /s/ Thomas B. Selfridge
-----------------------
Thomas B. Selfridge
President and Chief
Executive Officer
Pursuant to the requirements of the Securities Act, this Amendment No. 1 to the
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
* Director, October 10, 2001
----------------------------- President, Chief Executive
Thomas B. Selfridge Officer
(Principal Executive Officer)
* Vice President of Finance and October 10, 2001
----------------------------- Chief Financial Officer
Shawn Conroy Blom (Principal Financial and
Accounting Officer)
* Chairman October 10, 2001
-----------------------------
Christophe Salin
* Director October 10, 2001
-----------------------------
W. Philip Woodward
* Director October 10, 2001
-----------------------------
Cristina G. Banks
* Director October 10, 2001
-----------------------------
William G. Myers
* Director October 10, 2001
-----------------------------
James H. Niven
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* Director October 10, 2001
-----------------------------
Eric de Rothschild
* Director October 10, 2001
-----------------------------
Mark Hojel
* Director October 10, 2001
-----------------------------
Yves-Andre Istel
* Director October 10, 2001
-----------------------------
Phillip M. Plant
* Director October 10, 2001
-----------------------------
C. Richard Kramlich
* By: /s/ Thomas B. Selfridge
-----------------------
Thomas B. Selfridge
as attorney-in-fact pursuant
to a power of attorney
previously filed with the
registration statement
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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 Securities Dealers.
99.6 Subscription Agent Agreement.
99.7 Promissory Note from the Company to SFI Intermediate Ltd. or its
Affiliates dated October 9, 2001.
99.8 Promissory Note from the Company to Les Domaines Barons de Rothschild
(Lafite) dated October 9, 2001.
99.9 Amended Agreement among the Company, Les Domaines Barons de Rothschild
(Lafite) and SFI Intermediate, Ltd. dated October 9, 2001.
99.10 Side Letter among the Company and Les Domaines Barons de Rothschild
(Lafite) and SFI Intermediate, Ltd. dated October 9, 2001.
-------------------------
* previously filed.
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