Chalone Wine Group Ltd.
Filed 3/31/03
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 2002
OR
[ ]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number 0-13406
THE CHALONE WINE GROUP, LTD.
______________________________________________________
(Exact Name of Registrant as Specified in Its Charter)
California 94-1696731
_________________________________ _______________________________________
(State or Other Jurisdiction (I.R.S. Employer Identification Number)
of Incorporation or Organization)
621 Airpark Road, Napa, CA 94558
________________________________________ __________
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code (707) 254-4200
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered to Section 12(g) of the Act:
Common Stock
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is an accelarated filer (as
defined in Rule 12b-2 of the Act). Yes [ ] No [X]
As of March 10, 2003 there were 3,551,620 shares of the Company's voting no par
value common stock, with an aggregate market value of $36.2 million held by
non-affiliates. For purposes of this disclosure, shares of common stock held by
persons who hold more than 5% of the outstanding shares of the Registrant's
common stock and shares held by officers and directors of the Registrant have
been excluded because such persons may be deemed to be affiliates. This
determination is not intended to be conclusive. As of March 13, 2003, there were
12,068,944 shares outstanding of the Company's voting no par value common stock.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement for the 2003 Annual Meeting of
Shareholders of the Chalone Wine Group, Ltd. (the "Proxy Statement"), to be
filed with the Securities and Exchange Commission within 120 days after December
31, 2003, are incorporated by reference into Part III of this report.
PART I
ITEM 1. BUSINESS.
A. GENERAL.
The Company produces, markets and sells super premium, ultra premium, and
luxury-priced white and red varietal table wines, primarily Pinot Noir, Cabernet
Sauvignon, Merlot, Syrah, Chardonnay and Sauvignon Blanc. The Company owns and
operates wineries in various counties of California and Washington State. The
Company's wines are made primarily from grapes grown at Moon Mountain Vineyard,
Edna Valley Vineyard, Chalone Vineyard, Acacia Vineyard, Hewitt Vineyard, and
Suscol Creek Vineyard in California and the Canoe Ridge Vineyard in Washington
State, as well as from purchased grapes.
The wines are primarily sold under the labels "Provenance Vineyards(R),"
"Chalone Vineyard(R)," "Edna Valley Vineyard(R)," "Dynamite(R) Vineyards,
"Acacia(R)," "Canoe Ridge(R) Vineyard," "Jade Mountain(R)," "Sagelands
Vineyard(R)," and "Echelon Vineyards."
In France, the Company owns 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" and
"Company" used in this report refer to The Chalone Wine Group, Ltd. and its
consolidated subsidiaries. The Company became a publicly held reporting company
as the result of an initial public offering of common stock in 1984.
SIGNIFICANT EVENTS
THE CHALONE WINE GROUP PURCHASED A WINERY IN RUTHERFORD AS HOME FOR PROVENANCE
VINEYARDS
The Company announced in August 2002 that it had purchased a winery in the
heart of the Rutherford District for the home of Provenance Vineyards, its new
Napa Valley Cabernet Sauvignon winery. Formerly known as Chateau Beaucanon
Winery, the winery and 45 acres of estate vineyard are located on Highway 29 in
Rutherford. Provenance focuses on Rutherford Cabernet Sauvignon and makes a
smaller amount of Merlot from the Carneros region and Cabernet Sauvignon from
the Oakville District.
THE COMPANY SOLD THE CARMENET BRAND TO FOCUS ON MOON MOUNTAIN VINEYARD AND
DYNAMITE VINEYARDS
In September 2002 the Company signed an agreement with Beringer Blass Wine
Estates to sell the Carmenet brand name and inventory. Beringer Blass purchased
all inventory of the Carmenet brand, which includes Carmenet Reserve Sauvignon
Blanc, Old Vines Zinfandel, Cabernet Franc, Copa de Morado Zinfandel Port, Copa
de Oro Late Harvest Semillon and Sonoma Merlot and Cabernet Sauvignon. The
company retains ownership of the estate winery and vineyard in Sonoma County
where Carmenet began, now called Moon Mountain Vineyard. The company also
retains ownership of Dynamite Vineyards.
VINTAGE LANE WINERY SOLD AS PART OF DYNAMITE VINEYARDS' MOVE TO LAKE COUNTY
Because of the growing demand for Dynamite Vineyards wines, the Company
projected it would soon reach the production capacity limit at Vintage Lane, in
Glen Ellen, California, where Dynamite wines were made. In December 2002 the
Company sold the Vintage Lane winery to Justi Creek LLC. The sale included only
the winery and none of the inventory or grape contracts of Dynamite Vineyards.
The sale will allow Dynamite to expand and to move to Lake County, which is
quickly becoming a major source of its grapes.
B. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS.
The Company produces and sells super premium to luxury quality table wines
and believes that its various products and brands all share similar long-term
financial performance, production processes, customer types, distribution
methods and other economic characteristics. Accordingly, these operating
segments have been aggregated as a single operating segment in the consolidated
financial statements.
C. NARRATIVE DESCRIPTION OF BUSINESS.
OVERVIEW
The Company owns 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
Moon Mountain Vineyard 100.0% Corporation Sonoma, California
(1)
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 (2) 100.0% Corporation Yakima Valley, Washington
Suscol Creek Vineyard 100.0% Corporation Napa, California
Hewitt Vineyard 100.0% Corporation Rutherford, California
Provenance Vineyards 100.0% Corporation Rutherford, California
(1) Formerly known as Carmenet Vineyard.
(2) Formerly known as Staton Hills Winery.
2
With the exception of Chateau Duhart-Milon, the Company manages and
operates all of the above properties and consolidates the results of their
operations. The Company accounts for its investment in Chateau Duhart-Milon
using the equity method of accounting.
Each of the Company's domestic 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.
For a more detailed description of the Company's properties and its
operations, see "Item 2. Properties."
VINEYARD PRACTICES
The Company believes that the soils and microclimates of each vineyard from
which it obtains its grapes are particularly suitable for the varieties of
grapes with which they have been or, are being, planted.
The Company generally manages its vineyards to produce yields that are
lower than average for similarly situated vineyards in California and Washington
State and below the maximum yield that could be obtained. It believes 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 the Company's agricultural risks, see "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
WINEMAKING PRACTICES
The Company's philosophy is that winemaking is a natural process best
managed with minimum intervention, but requiring the attention and dedication of
a winemaker. While the Company uses a relatively high level of hand labor during
the winemaking processes, the Company also makes extensive use of modern
laboratory equipment and techniques to monitor the progress of each wine through
all stages of the winemaking process. All of the Company's wineries are operated
under the overall supervision of the Company's Chief Executive Officer. However,
each winery has its own General Manager who, in most instances, is also a
winemaker.
The principal raw materials used by the Company are grapes, oak barrels,
glass, and cork. About 75% of the oak barrels are purchased from the Burgundy
and Bordeaux regions of France and the remainder from the United States. The
Company favors 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. The Company's own
vineyards provide a significant portion of the Company's grape requirements. As
needed, the Company also purchases grapes from other independent California and
Washington State growers.
WINE PRODUCTION AND WINES
This table sets forth the wine production of the Company for the 2002, 2001
and 2000 vintages. The wines' vintage is the year during which the grapes are
harvested. 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 purchased by the
Company for resale purposes are excluded.
2002 2001 2000
------------------------ ------------------------ -----------------------
Equivalent Equivalent Equivalent
Number of Number of Number of
Cases % of Total Cases % of Total Cases % of Total
---------- ----------- ---------- ----------- ---------- -----------
Chardonnay 268,190 40% 243,750 37% 288,990 40%
Sauvignon Blanc 4,940 1% 12,350 2% 9,425 1%
Pinot Blanc 1,170 0% 4,290 1% 4,420 1%
Other white wines 3,835 1% 11,115 1% 13,130 2%
---------- ----------- ---------- ----------- ---------- -----------
Total white wines 278,135 42% 271,505 41% 315,965 44%
---------- ----------- ---------- ----------- ---------- -----------
Pinot Noir 96,720 15% 92,365 14% 75,920 11%
Cabernet Sauvignon 149,175 22% 127,725 19% 117,520 17%
Merlot 93,730 14% 126,685 19% 131,820 18%
Syrah 42,250 6% 36,855 6% 64,220 9%
Other red wines 3,705 1% 7,670 1% 5,525 1%
---------- ----------- ---------- ----------- ---------- -----------
Total red wines 385,580 58% 391,300 59% 395,005 56%
---------- ----------- ---------- ----------- ---------- -----------
Total production 663,715 100% 662,805 100% 710,970 100%
========== =========== ========== =========== ========== ===========
3
The Company's wines are aged primarily in new and used oak barrels before
they are bottled. Generally, white wines are aged between six and nine months,
and red wines between nine and eighteen months, after harvest. The wine is then
bottled and stored for further aging.
CHALONE VINEYARD: Chalone Vineyard sales represented 10.12% of the
Company's consolidated revenues and 5.5% of its consolidated case sales for the
year ended December 31, 2002.
Chalone Vineyard has been producing Chardonnay, Pinot Blanc, Pinot Noir,
and small quantities of Chenin Blanc since 1969. It has also begun growing Syrah
and released 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 2.2% of the Company's
consolidated revenues and 5.4% of its consolidated case sales for the year ended
December 31, 2002.
On September 26, 2002, the Company sold the Carmenet brand name and
inventory to Beringer Blass Wine Estates. Beringer Blass purchased all inventory
of the Carmenet brand, which includes Carmenet Reserve Sauvignon Blanc, Old
Vines Zinfandel, Cabernet Franc, Copa de Morado Zinfandel Port, Copa de Oro Late
Harvest Semillon and Sonoma Merlot and Cabernet Sauvignon.
MOON MOUNTAIN VINEYARD: Moon Mountain sales represented 1.6% of the
Company's consolidated revenues and .5% of consolidated case sales for the year
ended December 31, 2002.
On September 26, 2002, the Company sold the Carmenet brand name and
inventory to Beringer Blass Wine Estates. The Company retained ownership of the
estate winery and vineyard in Sonoma County where Carmenet began and that is now
called Moon Mountain Vineyard. This winery will continue to produce what had
been called Carmenet Moon Mountain Reserve Cabernet Sauvignon and starting with
the 2000 vintage will be called Moon Mountain Vineyard Cabernet Sauvignon.
On July 31, 1996, a wildfire damaged approximately 75% of the producing
acreage at what then was called 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. The Company has 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, Moon Mountain
Vineyard's ability to make estate-bottled wines will be limited. To supplement
Moon Mountain's limited harvest the Company attempts 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 the Company.
DYNAMITE VINEYARDS: Dynamite Vineyard sales represented 13.6% of the
Company's consolidated revenues and 12.2% of consolidated case sales for the
year ended December 31, 2002.
On September 26, 2002, the Company sold the Carmenet brand name and
inventory to Beringer Blass Wine Estates. The Company retained ownership of what
had been known as Carmenet Dynamite and is now called Dynamite Vineyards. It
will continue to produce Cabernet Sauvignon, Merlot and Sauvignon Blanc from
vineyards in the North Coast AVA of California.
EDNA VALLEY VINEYARD: Edna Valley Vineyard sales represented 27.9% of the
Company's consolidated revenues and 26.8% of consolidated case sales for the
year ended December 31, 2002.
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 VINEYARD: Acacia sales represented 13.7% of the Company's
consolidated revenues and 9.9% of its consolidated case sales for the year ended
December 31, 2002.
The winery produces Chardonnay and Pinot Noir wines under the "Acacia"
label. The grapes for the production of Pinot Noir and Chardonnay come from the
Carneros region. Approximately 50% of this production come from Company-owned
vineyards and Company-leased vineyards.
CANOE RIDGE VINEYARD: Canoe Ridge Vineyard sales represented 5.1% of the
Company's consolidated revenues and 3.7% of its consolidated case sales for the
year ended December 31, 2002.
The Canoe Ridge Vineyard commenced operation in 1994 and produces primarily
Merlot and Cabernet Sauvignon under the "Canoe Ridge Vineyard" label. Most of
the grapes for these wines are grown at the Company's estate vineyard and wines
bear the "Columbia Valley" AVA designation.
ECHELON VINEYARDS: Echelon sales represented 15.5% of the Company's
consolidated revenues and 23.5% of its consolidated case sales for the year
ended December 31, 2002.
The 1997 vintage was the first to be released under the Echelon label,
which features Chardonnay, Cabernet Sauvignon, Merlot, Viognier, Pinot Noir,
Syrah and Pinot Grigio (Pinot Gris). Most varieties have a Central Coast
appellation. The 2001 Viognier and 2000 Syrah feature the designation of
Esperanza Vineyard, from the Clarksburg AVA.
SAGELANDS VINEYARD: Sagelands Vineyard represented 3.8% of the Company's
consolidated revenues and 7.1% of the consolidated case sales for the year ended
December 31, 2002.
On June 15, 1999, the Company 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. The Company retained the Staton Hills Winery brand and
continues to produce wines under this mark. Sagelands primarily produces
Cabernet Sauvignon and Merlot from the "Four Corners" area of Columbia Valley,
Washington.
4
JADE MOUNTAIN: Jade Mountain represented 1.3% of the Company's consolidated
revenues and .8% of its consolidated case sales for the year ended December 31,
2002.
The Company purchased the Jade Mountain name and inventory in 2000, after
serving as the brand's sole domestic distributor since 1992. Since 1988 Jade
Mountain has specialized in ultra-premium Syrah.
PROVENANCE VINEYARDS: Provenance sales represented 1.45% of the Company's
consolidated revenues and .8% of its consolidated case sales for the year ended
December 31, 2002.
The winery's inaugural release was its 1999 Rutherford Cabernet Sauvignon,
which became available to consumers in December 2001. In 2002 the winery
released its 2000 Rutherford Cabernet Sauvignon and its first-ever Carneros
Merlot from the 2000 vintage.
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 are primarily directed toward our
core product line, the focus of the Company's production shifts away from custom
brands, as they are relatively lower margin products. The Company uses custom
brands primarily as a means of marketing and selling its label wines and does
not intend to focus its efforts in this line of business.
IMPORTS & OTHER: 3.8% of the Company's consolidated revenues and 2.4% of
its consolidated case sales in the year ended December 31, 2002 were primarily
comprised of import wines and, to a lesser degree, domestic wines purchased by
the Company for resale purposes.
Under the terms of various agreements and investments among the Company,
Duhart-Milon, and DBR, the Company receives 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 the Company.
MARKETING AND DISTRIBUTION
The Company's wines are positioned in the higher end of the premium
category. All the Company's wines are in the super premium to luxury segments of
the market, priced at $7 per bottle and above.
The Company sells its wines through direct sales, independent distributors,
its 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. The Company relies 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 its wines.
SALES
The Company's wines are marketed by independent distributors in all 50
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. The Company's wines are
marketed and distributed in Mexico by Monte Xanic. In 1993, the Company
established a sales division, operating as CHALONE WINE ESTATES, to help
supervise and coordinate sales functions of the Company's business and its
custom brands operations. The Company employs 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 case sales by the Company by distribution
method for the year ended December 31, 2002, the nine-month transition period
ended December 31, 2001; and fiscal years ended March 31, 2001 and 2000:
Year ended December Nine Months ended Year Ended March 31,
31, 2002 December 31, 2001
2001 2000
-------------------- ----------------- ------------------- -------------------
Number % of Number % of Number % of Number % of
of Cases Total of Cases Total of Cases Total of Cases Total
-------------------- ------------------------------------------------------------------
Independent distributors
United States 478,172 72% 218,256 57% 315,486 60% 238,600 53%
International 31,206 5% 12,586 3% 24,317 3% 23,700 5%
-------------------- ------------------------------------------------------------------
Total distributors 509,378 77% 230,842 60% 339,803 63% 262,300 58%
-------------------- ------------------------------------------------------------------
Company direct
California wholesale 97,169 15% 111,196 29% 149,208 27% 124,700 28%
Custom brands 18,226 3% 13,905 4% 23,786 4% 25,000 6%
Catalog and winery retail 36,041 5% 28,843 7% 33,811 6% 35,500 8%
-------------------- ------------------------------------------------------------------
Total Company direct 151,436 23% 153,944 40% 206,805 37% 185,200 42%
-------------------- ------------------------------------------------------------------
Total 660,814 100% 384,786 100% 546,608 100% 447,500 100%
-------------------- ------------------------------------------------------------------
5
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 the Company's
wineries. Attached to the Company's central executive office is a
64,000-square-foot central distribution center in which all of the Company's
wines are stored prior to shipping. The Company also rents separate warehouse
facilities, as needed in local markets and occasionally permits 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 December 31, 2002, the Company had 169 full-time employees, of which 92
were in grape growing and winemaking, 37 in sales and 40 in administration.
During the spring and summer, the Company adds approximately 25 to 30 part-time
employees for vineyard care and maintenance and 70 to 80 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. The Company's hiring and employment
policies for both full-time and part-time employees are believed to comply with
all relevant laws, including immigration laws. The Company believes that its
wage rates and benefits are competitive and that its 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 require the Company to
maintain various permits, bonds and licenses. The Company believes it is in
compliance with all currently applicable federal and state regulations.
TRADEMARKS
CANOE RIDGE, STATON HILLS, CHALONE VINEYARD, SAGELANDS, JADE MOUNTAIN,
ACACIA and the Acacia "A" logo, MOON MOUNTAIN, DYNAMITE, and ARCHSTONE are
federally registered trademarks owned by the Company. EDNA VALLEY VINEYARD is a
federally registered trademark owned 50% by Chalone Wine Group, Ltd. and 50% 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.
GAVILAN is registered with the State of California. These marks, and other
common-law marks, are of significant importance to the Company's business as
label and brand recognition are important means of competition within the wine
industry.
SHAREHOLDER BENEFITS
Shareholders of the Company are entitled to benefits that are not provided
to other consumers. The Company offers its reserve wines, older wines and other
special wines to qualified shareholders, who are those with 100 or more shares
of the Company's common stock, directly from its 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 the Company. The Company has also provided annual discounts to
shareholders based on their shareholdings in the form of an "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, the Company 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 traditionally held on the grounds of the
Chalone Vineyard in Monterey County, California. In 2002, approximately 1,200
shareholders and guests from 40 states and 5 foreign countries attended the
Celebration, which featured tastings of all of the Company's wines.
The Company also offers to shareholders, at the shareholders' expense,
travel programs to various wine-growing regions of the world. In the past, the
Company has provided travel programs to France, Chile, Australia, Portugal,
South Africa, Italy, and New Zealand. Proceeds from these trips help fund the
Woodward/Graff Foundation (the "Foundation") formerly known as the Chalone Wine
Foundation. In addition, shareholders' interests are given a priority in the
Foundation's donation program.
SEASONALITY
See "Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations" for a discussion of the seasonal nature of the
Company's business.
6
ITEM 2. PROPERTIES.
The Company's principal winemaking activities presently are conducted at
ten locations; seven in California, two in eastern Washington and one in France.
CHALONE VINEYARD
Chalone Vineyard is located on approximately 950 acres in Monterey,
California (of which 307 acres are planted to grapes), approximately 1,500 feet
above the floor of the Salinas Valley, in the Chalone AVA. The winery produces
primarily Chardonnay and Pinot Noir and markets these wines exclusively under
the "Chalone Vineyard" label.
The soil is volcanic rock over a bed of limestone, similar to the soil
found in the Burgundy region of France. The elevation of the vineyard provides
natural protection against frost and creates radical swings between daytime and
nighttime temperatures. The region is arid and has average annual rainfall of
only 14 inches. The water needs for Chalone's vineyard are supplemented by two
reservoirs and several wells, which the Company believes will supply sufficient
water for the vineyard's current and future needs.
Chalone Vineyard was first established in 1919 and today is the oldest
producing vineyard in Monterey County. The Company has produced premium wines
from the vineyard since 1969, when it acquired the vineyard from a former
director of the Company, the late Richard H. Graff.
The property includes a tasting room, dining facilities for private parties
and approximately 8,500 square feet of caves for barrel storage. All operations,
from the grape growing to the final bottling, are carried out on site by the
Chalone staff. The winery's current production capacity is 48,000 cases.
MOON MOUNTAIN VINEYARD
On September 26, 2002, the Company sold the Carmenet brand name and inventory to
Beringer Blass Wine Estates. The Company retained ownership of the estate winery
and vineyard in Sonoma County where Carmenet began and that is now called Moon
Mountain Vineyard. The vineyard is located on approximately 300 acres in Sonoma
County, California (of which 130 acres are plantable), located in the Sonoma
Valley AVA. This winery produces what had been called Carmenet Moon Mountain
Reserve Cabernet Sauvignon and starting with the 2000 vintage will be called
Moon Mountain Vineyard Cabernet Sauvignon.
On July 31, 1996, a fire at the vineyard damaged approximately 75% of its
producing acres, which were planted to Cabernet Sauvignon, Merlot, and Cabernet
Franc. The Company has replanted these acres with essentially the same
varieties. See "Item 1. Business, Wine Production and Wines."
The vineyard is situated in the Mayacamas Mountains just north of the town
of Sonoma, at an elevation of 1,200 feet. The vines are on steep hillsides in
rocky, well-drained soil. The average rainfall is 30 inches. The Company's water
needs are supplemented by two wells using a drip irrigation system, which the
Company believes will supply sufficient water for the vineyard's current and
future needs. The elevation of Moon Mountain Vineyard provides natural
protection against frost. The vineyard was certified organic by the California
Certified Organic Farmers in 2002.
In addition to the production area, the property includes a reception area,
and 15,000 square feet of barrel caves. The barrel caves are bored into a solid
rock hillside adjacent to the fermentation building and provide an ideal
environment for aging wine in barrels without artificial temperature control.
EDNA VALLEY VINEYARD
Edna Valley Vineyard leases land from Paragon Vineyard. Paragon Vineyard is
located on approximately 1,100 acres in San Luis Obispo County, California, in
the Edna Valley AVA. The Edna Valley Vineyard principally produces Chardonnay
and Pinot Noir. It also produces limited quantities of Viognier, Muscat, Pinot
Gris, Syrah, Edna Red and sparkling wines, all of which are marketed under the
"Edna Valley Vineyard" label.
The property is operated by Paragon Vineyard Company, which leases the land
on which the winery is located to Edna Valley Vineyard (a "Joint Venture"). The
Joint Venture is 50% owned by the Company and 50% owned by Paragon. The Company
is the managing joint venture partner and it manages and supervises the winery
operations and sells and distributes its wine.
The winery features a tasting room, dining facilities for private parties
and underground cellars for wine fermentation and barrel aging. Annual
production capacity is 165,000 cases.
ACACIA VINEYARD
Acacia Vineyard produces primarily ultra-premium Chardonnay and Pinot Noir
wine with a small amount of sparkling wine and brandy marketed under the
"Acacia" brand.
The winery is located on one of four contiguous parcels that together total
approximately 156 acres in the Carneros district of Napa County, California. The
Company owns the winery building and the winemaking equipment associated with
the winery. The parcel on which the winery is located consists of two portions;
the winery complex ("Winery Parcel") and a 41-acre producing vineyard
surrounding the winery complex called the "Marina Vineyard". The parcel is owned
pursuant to a tenancy-in-common agreement between the Company and Mr. and Mrs.
Henry Wright (the "Wrights"), each holding a 50% interest. The Company leases
the Wright's portion of both the Winery Parcel and the Marina Vineyard pursuant
to two long-term leases, which commenced retroactively as of January 1, 1988,
and expire on December 31, 2017, subject to certain exceptions. The annual rent
for the Marina Vineyard was $116,361 in the year ended March 31, 2001, subject
to an annual increase determined according to a formula based on premium quality
Carneros district Chardonnay prices. The annual rent on the Winery Parcel is
$74,250.
Pursuant to the terms of the tenancy-in-common agreement, the Wrights have
the ability at any time to offer their interest in the Winery Parcel and the
Marina Vineyard to the Company, and, if the Company declines the offer, to list
the entire property for sale to a third party. The Marina Vineyard, currently
planted to Chardonnay, is in the process of being replanted to Pinot Noir.
7
The Company's two vineyards adjacent to the Marina Vineyard to the east are
comprised of approximately 60 acres planted to Pinot Noir, of which 15 producing
acres are approximately 20 years old, and 45 newly developed acres that are in
their third year of production.
In January 1999, the Company entered into a lease-purchase agreement for
approximately 50 acres of additional vineyard property bordering the Marina
Vineyards to the west. The new lease expires on December 31, 2023 and provides
for annual rent payments of $74,000 in its first year and increases in various
increments to $121,000 per year by 2023. The terms of the lease also provide for
the Company to purchase this property for $1.1 million in consideration of
certain biannual option payments. The Company has planted approximately 41 acres
of this property to Pinot Noir.
These vineyards are on low rolling clay-loam hills with good water-holding
capacity. Average rainfall is 22 inches. Two small reservoirs currently exist on
these properties and a third reservoir will be created in the summer of 2003 to
meet the vineyard's current and future irrigation needs.
None of this property is frost protected but, due to elevation and
location, no significant losses have occurred to date from frost. There are
currently no plans to install frost protection.
Grapes from the equivalent of approximately 175 additional acres, all in
the Carneros district and owned by independent growers under long-standing
contracts to Acacia, have accounted for the majority of the 60,000 case annual
production.
With the increased Company-owned planting, the Company anticipates Acacia's
annual production to increase to approximately 95,000 cases over the next four
years.
HEWITT VINEYARD
In January 2000, the Company purchased two adjacent parcels of land in
Rutherford, California comprising 69 acres containing two private homes and an
historic Cabernet Sauvignon vineyard. The Company announced in July 2000 that it
had sold the 10,000-square foot Hewitt House and four surrounding landscaped
acres for $7.3 million. The vineyard consists of 68 acres, 58 that are planted,
and is believed to be among the finest vineyard land in Napa Valley's notable
Rutherford Bench. The Company is using the property to produce a luxury-priced
single vineyard Cabernet Sauvignon wine that will be released under a new label,
Hewitt Vineyard. This wine is expected to debut in 2004 with a limited annual
release. Ultimately, the Company anticipates the vineyard to produce up to
15,000 cases of this luxury quality wine.
SUSCOL CREEK VINEYARD
In March 2000 the Company purchased 164 acres of land at the southern
gateway to Napa County. The property consists of a 50-acre vineyard and 40
unplanted but plantable acres of vineyard land that is called Suscol Creek.
CANOE RIDGE VINEYARD
The Canoe Ridge Vineyard is located in eastern Washington State, at an
altitude of approximately 800 feet on the eastern slope of the Canoe Ridge,
overlooking the Columbia River. The vineyard is in the Columbia Valley AVA. The
Canoe Ridge winery has an annual production capacity of approximately 32,000
cases, and produces primarily Merlot, Cabernet Sauvignon and small amounts of
Chardonnay.
Of the vineyard's approximately 275 acres, of which 169 acres are
plantable, 161 acres are now planted to Merlot, Cabernet Sauvignon and
Chardonnay grapes. Although temperatures during the winter months can fall below
freezing, the vineyard's altitude, easterly exposure, and closeness to the
Columbia River, along with the Company's viticultural practices, are believed to
reduce the potential for freeze damage. The grapevines are grown in
well-drained, sandy-loam soil. The vineyard has an average annual rainfall of 6
inches and is irrigated with water from the Columbia River under an agreement
with an adjoining farm.
SAGELANDS VINEYARD
On June 15, 1999 the Company purchased Staton Hills(R) Winery, and its
adjacent vineyards in Yakima County, Washington. The purchase price included
contracts covering approximately 90 acres in Washington State's Yakima Valley
and Horse Heaven Hills. The vineyard is located in the Columbia Valley AVA. The
winery is located on a 121-acre parcel, none of which are currently planted to
grapes. In addition to the vineyard area, the property includes a 20,000-square
foot production and tasting facility with an annual production capacity of
40,000 cases.
At the time of purchase, the Company also entered into long-term grape
contracts for a total of 350 acres. The Staton Hills facility was renamed
Sagelands Vineyard and the new brand was launched in January 2000.
Sagelands Vineyard focuses on Cabernet Sauvignon and Merlot from the "Four
Corners" of Columbia Valley AVA. These four areas are Rattlesnake Hills, Wahluke
Slope, Horse Heaven Hills, and Walla Walla Valley. The winery is believed to
eventually be able to produce approximately 140,000 cases. The Company retained
the Staton Hills Winery brand and continues to produce wine under this mark.
PROVENANCE VINEYARDS
In August 2002 the Company announced it had purchased a winery in the heart
of the Rutherford District for the home of Provenance Vineyards, its new Napa
Valley Cabernet Sauvignon winery. Formerly known as Chateau Beaucanon Winery,
the winery and 45 acres of estate vineyard are located on Highway 29 in
Rutherford. Provenance purchases most of its grapes through long term agreements
with growers in Rutherford and Oakville districts for Cabernet Sauvignon and
buys a small amount of Merlot from a grower in the Carneros District. The winery
is permitted to produce 36,000 cases a year.
DUHART-MILON
Duhart-Milon is located in the Medoc region of Bordeaux, France, in the
town of Pauillac. The Company holds a 23.5% interest in Societe Civile Chateau
Duhart-Milon ("Duhart-Milon"). The remaining 76.5% interest is owned by DBR. The
property consists of approximately 166
8
acres of producing vineyards adjacent to the vineyards of the world renowned
Chateau Lafite-Rothschild and its related winemaking facilities. In 1855, the
French Government classified the top 62 wine-producing estates in the Medoc
region, choosing from over 400 such estates. These top 62 estates were further
classified into five "growths," based on their perceived quality. "First growth"
was considered the best. Under this classification system, Duhart-Milon is rated
a "fourth growth" estate. The average annual production in recent years has been
approximately 35,000 cases. Duhart-Milon wines are sold under the "Chateau
Duhart-Milon" and "Moulin de Duhart" labels.
ITEM 3. LEGAL PROCEEDINGS.
The Company had previously disclosed an alleged violation of Section
25502(a)(2) of the California Business and Professions Code based on a notice
received in 1998 from the California Department of Alcoholic Beverage Control.
The ultimate disposition of this alleged violation remains pending. The Company
believes that the ultimate outcome will not have a material adverse effect on
the Company's consolidated financial condition or the results of its operations
or its cash flows.
The Company is subject to litigation in the ordinary course of its
business. In the opinion of management, the ultimate outcome of existing
litigation will not have a material adverse effect on the Company's consolidated
financial condition or the results of its operations or its cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matter was submitted to a vote of security holders of the Company during
the fourth quarter of the fiscal year covered by this Report.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS.
The Company's common stock has been traded in the over-the-counter market
since the Company's initial public offering on May 18, 1984, and is listed in
the Nasdaq National Market System, under the symbol "CHLN." The following table
sets forth the high and low quotations for the stock for each quarter during the
past two years, as reported by Nasdaq. The prices reflect inter-dealer
quotations without retail markups, markdowns or commissions, and do not
necessarily represent actual transactions.
Quarter Ended High Low
------------------------------ -------------------- -------------------
December 31, 2002 $ 9.55 $ 7.61
September 30, 2002 9.80 7.50
June 30, 2002 11.15 8.25
March 31, 2002 11.52 9.16
December 31, 2001 9.15 8.85
September 30, 2001 9.65 8.88
June 30, 2001 8.60 8.25
March 31, 2001 9.38 7.72
December 31, 2000 9.50 7.75
September 30, 2000 10.63 7.63
June 30, 2000 8.62 7.81
On March 14, 2003 the closing price for the common stock was $8.09 per
share. The average weekly trading volume of the stock was approximately 2,967
shares during the year ended December 31, 2002.
HOLDERS OF RECORD.
As of March 14, 2003, there were approximately 5,008 holders of record of
the Company's stock.
9
DIVIDENDS.
To date, the Company has not paid any cash dividends.
Under the terms of certain of the Company's credit facilities, the Company
is restricted from paying dividends in excess of 25% of its aggregate net
income.
ITEM 6. SELECTED FINANCIAL DATA.
The following selected consolidated financial data for the year ended
December 31, 2002, nine-month transition period ended December 31, 2001; and
fiscal years ended March 31, 2001, 2000, and 1999 are derived from the Company's
audited consolidated financial statements. Financial data for the nine months
ended December 31, 2002 is derived from the Company's unaudited consolidated
financial statements and is furnished with a view to providing the reader with
comparative results for the prior nine-month period, which coincides with the
Company's current reporting period. This data should be read in conjunction with
the financial statements and notes thereto. See "Item 8. Financial Statements
and Supplementary Data."
SELECTED FINANCIAL DATA
(IN THOUSANDS EXCEPT PER SHARE DATA)
Nine Months ended Year ended
December 31, Dec 31, Year ended March 31,
---------------------------------------------------------------------
2002 2001 2002 2001 2000 1999
---------------------------------------------------------------------
(Unaudited)
STATEMENT OF OPERATIONS:
Net revenues $ 51,504 $ 41,194 $ 67,005 $ 57,695 $ 49,227 $ 40,970
Gross profit 16,777 15,590 22,128 18,252 20,692 17,769
Other operating revenues, net (41) 195 (448) 213 40 194
Selling, general and administrative expenses (10,521) (9,884) (13,700) (12,342) (11,711) (8,949)
Operating income 6,215 5,901 7,980 6,123 9,021 9,014
Interest expense (3,641) (3,217) (4,549) (3,824) (2,225) (1,761)
Other income (63) 6 (43) 891 - -
Equity in net income of Duhart-Milon 694 509 842 761 735 766
Minority interest (542) (512) (748) (377) (1,290) (1,219)
Carmenet fire settlement gain - - - - - 4,447
Net income $1,818 $1,593 $ 2,296 $ 2,050 $ 3,681 $ 6,636
Net income per common share $ 0.15 $ 0.15 $ 0.19 $ 0.20 $ 0.34 $ 0.77
BALANCE SHEET DATA:
Working capital $ 57,986 $ 52,276 $ 57,986 $ 41,381 $ 29,981 $ 49,192
Total assets 200,194 183,909 200,194 157,891 145,665 103,471
Long-term obligations less current maturities 59,082 50,061 59,082 49,490 31,041 35,273
Shareholders' equity 94,793 91,315 94,793 75,134 73,672 58,291
In July 2002, the Company shifted a major distribution channel from a
broker to a distributor. Commissions and shipping costs incurred for sales to
the broker were recorded as selling, general and administrative expenses. Case
prices charged to the distributor have been reduced by an amount equal to these
commission and shipping costs. This caused a reduction of $1,266,000 in gross
revenues for the year ended December 31, 2002, when compared to previous
periods. For comparability purposes, the Company reclassified $2,130,000, for
the nine months ended December 31 2001, $2,866,000, $2,230,000 and $1,856,000 of
commissions and shipping costs from selling, general and administrative expenses
to net revenues for the fiscal years ended March 31, 2001, 2000 and 1999. The
reclassification made for the fiscal year ended March 31, 2001 was made only for
the purpose of information presented in the MD&A, and is not included in the
actual financial statements presented in Item 8.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
INTRODUCTION
In the ordinary course of business, the Company has made a number of
estimates and assumptions relating to the reporting of results of operations and
financial condition in the preparation of its financial statements in conformity
with accounting principles generally accepted in the United States of America.
Actual results could differ significantly from those estimates under different
assumptions and conditions. The Company believes that the following discussion
addresses the Company's most critical accounting policies, which are those that
are most important to the portrayal of the Company's financial condition and
results. The Company constantly re-evaluates these significant factors and makes
adjustments
10
where facts and circumstances dictate. Historically, actual results have not
significantly deviated from those determined using the necessary estimates
inherent in the preparation of financial statements. Estimates and assumptions
include, but are not limited to, customer receivables, inventories, assets held
for sale, fixed asset lives, contingencies and litigation. The Company has also
chosen certain accounting policies when options were available, including:
o The first-in, first-out (FIFO) method to value a majority of our
inventories; and
o The intrinsic value method, or APB Opinion No. 25, to account for our
common stock incentive awards; and
o We record an allowance for credit losses based on estimates of
customers' ability to pay. If the financial condition of our customers
were to deteriorate, additional allowances may be required.
These accounting policies are applied consistently for all years presented.
Our operating results would be affected if other alternatives were used.
Information about the impact on our operating results is included in the
footnotes to our consolidated financial statements.
The Company changed its fiscal year end from March 31 to December 31 in May
2001. As a result, in item 7 the Company discusses the results of operations for
the fiscal year ended December 31, 2002; the nine-month transition period ended
December 31, 2001; the nine-month periods ended December 31, 2002 (unaudited)
and December 31, 2000 (unaudited); and the fiscal year ended March 31, 2001.
The following discussion and analysis should be read in conjunction with
the Selected Financial Data presented in Item 6 hereto and the Company's
Consolidated Financial Statements and related notes in Item 8 hereto.
FORWARD LOOKING STATEMENTS
From time to time, information provided by the Company, statements made by
its employees, or information included in its filings with the Securities and
Exchange Commission (including this Form 10-K) may contain statements which are
not historical facts, so called "forward-looking statements" that involve risk
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 Form 10-K, the terms "anticipates," "expects," "estimates,"
"intends," "believes," and other similar terms as they relate to the Company or
its management are intended to identify such forward looking statements. In
particular, statements made in this Item 7., and the President's Letter to the
Shareholders relating to projections or predictions about the Company's future
investments in vineyards and other capital projects are forward looking
statements. The Company's actual future results may differ significantly from
those stated in any forward-looking statements. Factors that may cause such
differences include, but are not limited to ((3)) reduced consumer spending or a
change in consumer preferences, which could reduce demand for the Company's
wines; (ii) competition from numerous domestic and foreign wine producers which
could affect the Company's ability to sustain or grow its volume and revenue;
(iii) interest rates and other business and economic conditions which could
increase significantly the cost and risks of borrowings associated with present
and projected capital projects; (iv) the price and availability in the
marketplace of grapes meeting the Company's quality standards and other
requirements; (v) the effect of weather, agricultural pests and disease and
other natural forces on growing conditions and, in turn, the quality and
quantity of grapes produced by the Company; and (vi) regulatory changes which
might restrict or hinder the sale and/or distribution of alcoholic beverages.
Each of these factors, and other risks pertaining to the Company, the premium
wine industry and general business and economic conditions, are more fully
discussed herein and from time to time in other filings with the Securities and
Exchange Commission.
RECENT ACCOUNTING PRONOUNCEMENTS - The Financial Accounting Standards Board
(FASB) has issued the following accounting pronouncements:
SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143
requires that an obligation associated with the retirement of tangible
long-lived assets and the associated asset retirement costs be recognized as a
liability when incurred. Upon initial recognition of a liability for an asset
retirement obligation, an entity would capitalize that cost by recognizing an
increase in the carrying amount of the related long-lived asset by the same
amount as the liability. An entity would subsequently allocate that asset
retirement cost to expense using a systematic and rational method over its
useful life. The Company has adopted SFAS No. 143 for its calendar year
beginning January 1, 2003. The adoption of SFAS No. 143 should not have a
material effect on the Company's operating results or financial position.
SFAS No.145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections. This Statement rescinds SFAS
No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment
of that Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. This Statement amends SFAS No. 13, Accounting for
Leases, to eliminate an inconsistency between the required accounting for
sale-leaseback transactions and the required accounting for certain lease
modifications that have economic effects similar to sale-leaseback transactions.
The Statement also amends other existing authoritative pronouncements to make
various technical corrections, clarify meanings, or describe their applicability
under changed conditions. The adoption of SFAS No. 145 is not expected to have a
material effect on the Company's consolidated financial statements.
SFAS No.146, Accounting for Costs Associated with Exit or Disposal
Activities. This Statement addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The provisions of this Statement are
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of SFAS No. 146 is not expected to have a material effect on
the Company's consolidated financial statements.
SFAS No.148, Accounting for Stock-Based Compensation. This Statement amends
SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. This Statement permits two additional transition
methods for entities that adopt the preferable method of accounting for
stock-
11
based employee compensation. Both of those methods avoid the ramp-up
effect arising from prospective application of the fair value based method. In
addition, to address concerns about the lack of comparability caused by multiple
transition methods, this Statement does not permit the use of the original
Statement 123 prospective method of transition for changes to the fair value
based method made in fiscal years beginning after December 15, 2003. The Company
has not yet evaluated whether to adopt this statement nor has it evaluated the
potential impact on the Company's consolidated financial statements if the
statement is adopted. As of December 31, 2002, the Company has adopted the
disclosure requirements of the Statement and continues to follow the intrinsic
value method to account for stock-based employee compensation.
FASB Interpretation No. 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. The interpretation clarifies that a guarantor is required to recognize,
at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. It also significantly expands
the disclosures guarantors must include in their financial statements. While the
interpretation's accounting provisions are effective prospectively to guarantees
issued or modified after December 31, 2002, its disclosure requirements
generally apply to all guarantees and must be included in financial statements
of interim and annual periods ending after December 15, 2002. The adoption of
Interpretation No. 45 is not expected to have a material effect on the Company's
consolidated financial statements.
FASB Interpretation No. 46, Consolidation of Variable Interest Entities,
addresses consolidation by business enterprises of variable interest entities in
which 1) the equity investment is insufficient for the entity to finance its
activities without additional financial support through other interests who will
absorb some or all of the entity's expected losses, or 2) the equity investors
lack one or more essential characteristics of a controlling interest. Those
characteristics include the ability to make decisions about an entity's
activities through voting rights or similar rights; the obligation to absorb the
entity's expected losses, which makes it possible for the entity to finance its
activities; and the right to receive the entity's expected residual returns as
compensation for the risk of absorbing expected losses. This interpretation is
effective for the Company no later than the third quarter of 2003, and is not
currently expected to have a material effect on the Company's consolidated
financial statements.
RESULTS OF OPERATIONS
The following table represents financial data as a percentage of net
revenues for the indicated periods:
Year ended Nine Months Year ended
December 31, ended December 31, March 31,
----------- ------------------------------ ----------
2002 2002 2001 2000 2001
----------- ------------------------------ ----------
Net revenues 100 % 100 % 100 % 100 % 100 %
Gross profit 33 % 33 % 38 % 32 % 32 %
Other operating revenues, net (1)% 0 % 0 % 0 % 0 %
Selling, general and administrative expenses (20)% (20)% (24)% (23)% (21)%
Operating income 12 % 12 % 14 % 10 % 11 %
Interest expense, net (7)% (7)% (8)% (7)% (7)%
Other income 0 % 0 % 0 % 2 % 2 %
Equity in net income of Chateau Duhart-Milon 1 % 1 % 1 % 1 % 1 %
Minority interest (1)% (1)% (1)% (1)% (1)%
Net income 3 % 4 % 4 % 4 % 4%
As previously noted, in July 2002, the Company shifted a major distribution
channel from a broker to a distributor. Commissions and shipping costs incurred
for sales to the broker were recorded as selling, general and administrative
expenses. Case prices charged to the distributor have been reduced by an amount
equal to these commission and shipping costs. This caused a reduction of 1% in
gross profit and a corresponding increase of 2% in selling, general and
administrative costs for the year ended December 31, 2002, when compared to
previous periods. For comparability purposes, the Company reclassified
commissions and shipping costs from selling, general and administrative expenses
to net revenues for the nine months ended December 31, 2001 and the fiscal years
ended March 31, 2001, 2000 and 1999. This reclassification resulted in a
decrease in gross profit of 3%, 3% and 2%, and a corresponding increase in
selling, general and administration costs of 4%, 2% and 3% for the nine months
ended December 31, 2001, the fiscal year ended March 31, 2001, and the
nine-months ended March 31, 2000.
REVENUES
Net revenues for the year ended December 31, 2002 increased $25.8 million
or 63% as compared to the nine-month period ended December 31, 2001. Net
revenues for the nine months ended December 31, 2002, increased $10.3 million or
25% over the comparable period in the preceding year. The increase in 2002
relative to comparable periods in 2001 is primarily due to the tragic events
surrounding September 11, 2001 and the consequential economic downturn
experienced by the hospitality industry. Had sales trends remained
uninterrupted, 2002 revenue increases would have been more consistent with
comparable periods. To a lesser extent, the increases in 2002 net revenues were
influenced by the sale of the Carmenet brand and related inventories. Net
revenues for the nine-months ended December 31, 2001 decreased $3.0 million or
7% over the
12
comparable period in the prior year. Once more, the decrease in net revenue
reflects the economic decline resulting from the aforementioned events, which
was most acutely felt by the Company in the last three months of 2001.
GROSS PROFIT
Gross profit for the year ended December 31, 2002 increased $6.5 million or
42% as compared to the nine-months ended December 31, 2001. Gross profit for the
nine months ended December 31, 2002 increased $1.2 million over the comparable
period in the preceding year. This was primarily the result of sales volume
growth offset by increased discounts and slightly higher costs attributable to
the release and sale of 2001 vintage wines.
Gross profit for the nine-months ended December 31, 2001 increased $1.5
million or 11% over the comparable period in the preceding year. This was
primarily the result of lower costs attributable to the release and sale of 2000
vintage wines.
The gross profit percentage remained consistent at 33% for the year and
nine months ended December 31, 2002, compared to 38% reported for the nine
months ended December 31, 2001. This decrease on gross profits is as expected
due to an oversupply of premium wine and increased competition within the wine
industry. Gross profit percentage increased to 38% for the nine months ended
December 31, 2001, compared to 31% for the nine months ended December 31, 2000
due to increased average sales prices coupled with lower per unit wine costs
resulting from higher 1996 and 1997 harvest yields.
OTHER OPERATING REVENUES, NET
Revenue from other operations primarily consists of net profit (loss) from
sales of bulk wine and revenue obtained from third-party wineries, net of
related expenses, for grape crushing or wine bottling. This aspect of the
Company's operation is normally not significant. The Company cannot predict the
significance of such operations in the future, as this source of revenue is
highly unpredictable and largely contingent on other wineries' demand for extra
production capacity, which can and does vary significantly from year to year.
Such revenue for the year ended December 31, 2002 decreased $.6 million as
compared to the nine-months ended December 31, 2001. Such revenue for the nine
months ended December 31, 2002 decreased $.2 million over the comparable period
in the preceding year. Such revenue for the nine months ended December 31, 2001
decreased $.04 million over the comparable period in the preceding year. This
was attributable to an increase in losses on the sale of bulk wine, due to
quality or other factors, for product that is not required in the Company's
product line.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended December
31, 2002, increased $3.8 million or to 20% of net revenues as compared to the
nine-month period ended December 31, 2001. Selling, general and administrative
expenses for the nine-months ended December 31, 2002, decreased from 24% to 20%
of net revenues as compared to the nine-month period ended December 31, 2001.
This decrease is due to an increase in sales volume and the resulting net
revenues growth. These changes are due to a strategic focus to grow selling and
marketing expenditures to remain competitive in these difficult economic times
offset by strict operating expense control.
The Company reduced its selling, general and administrative costs by $.01
million for the nine-months ended December 31, 2001 as compared to the
comparable period in the preceding year.
OPERATING INCOME
Operating income for the year ended December 31, 2002 increased $2.0
million or 35% as compared to the nine-month period ended December 31, 2001.
Operating income for the nine-months ended December 31, 2002 increased $.3
million or 5% as compared to the nine-month period ended December 31, 2001.
Operating income for the nine-months ended December 31, 2001 increased $1.6
million or 37% as compared to the nine-month period ended December 31, 2000. The
increases are due to the increase in gross profits, partially offset by the
increases in selling, general and administrative expenses as described above.
INTEREST EXPENSE
For the year ended December 31, 2002, interest expense increased by $1.3
million or 41% as compared to the nine-month period ended December 31, 2001.
Interest expense for the nine months ended December 31, 2002 and 2001 increased
$.4 million and $.3 million, respectively, over the comparable periods in the
preceding year. This increase was a result of higher average outstanding
borrowings, which are a result of continuing capital expenditures related to
winery and vineyard expansions, amortization of indebtedness renewal costs
offset by a reduction in interest rates with the Company's revolving bank loan.
Additionally, interest expense increased from the issuance of two-convertible
subordinated promissory notes. The notes are more fully described in "Liquidity
and Capital Resources - Borrowing Arrangements" below.
OTHER INCOME
For the year ended December 31, 2002, other income decreased $.05 million
as compared to the nine-month period ended December 31, 2001. Other income for
the nine months ended December 31, 2002 and 2001 decreased $.07 million and
increased $.9 million, respectively, over the comparable periods in the
preceding year. Although not significant to the Company's operations, the other
income is due to net gains (losses) from the sale of non-strategic assets during
2002.
For the nine-months ended December 31, 2000, the increase in other income
was the net result of the sale of the 10,000-square foot Hewitt House and four
surrounding landscaped acres.
EQUITY IN NET INCOME OF DUHART-MILON
13
The Company's 23.5% equity interest in the net income of Duhart-Milon for
the year ended December 31, 2002 and for the nine months ended December 31,
2002, 2001 and 2000 were $842,000, $694,000, $509,000, and $714,000,
respectively.
The Company monitors its investment in Duhart-Milon primarily through its
on-going communication with DBR. Such communication is facilitated by the
presence of DBR's representation on the Company's Board of Directors.
Additionally, various key employees of the Company make periodic visits to
Duhart-Milon's offices and production facilities.
Since the investment in Duhart-Milon is a long-term investment denominated
in a foreign currency, the Company records the gain or loss for currency
translation in other comprehensive income or loss, which is a separate component
of shareholders' equity. The amount recorded was decreased to $3.5 million from
$4.6 million for the year ended December 31, 2002 as compared to the prior year,
due to the increase in the relative worth of the "EURO" when compared to the
U.S. dollar.
MINORITY INTEREST
The minority interest in the net income of Edna Valley Vineyard ("EVV") and
Canoe Ridge Vineyard, LLC ("CRV") consists of the following (IN THOUSANDS):
Nine Months Ended Year Ended Year Ended
December 31, December 31, March 31,
------------------ --------------------------
Venture Minority Owner 2002 2001 2002 2001
- ------- -------------- ------------------ --------------------------
Edna Valley Vineyard Paragon Vineyard Co., Inc. (50.0%) $542 $512 $ 748 $ 165
Canoe Ridge Vineyard Various (49.5%) - - - 212
------------------- ---------------------------
$542 $512 $748 $ 377
=================== ===========================
The financial statements of Edna Valley Vineyard ("EVV") are consolidated
with the Company's financial statements. The interest in EVV attributable to
parties other than the Company is accounted for as a "minority interest". The
increase in minority interest was $.2 million, or 46% for the year ended
December 31, 2002 as compared to the nine-months ended December 31, 2001. The
minority interest for the nine months ended December 31, 2002 and 2001,
increased $.03 million and $.2 million, respectively. These increases were
primarily due to increased EVV net income attributable to higher sales volume
with EVV wines. The Company acquired the remaining 49.5% minority interest in
Canoe Ridge Vineyard, LLC from the other partners in February 2001. Company
management believes that EVV will continue to contribute significantly to the
Company's consolidated results of operations.
NET INCOME
Net income for the year ended December 31, 2002 was $2.3 million, an
increase of $.7 million, or 44% as compared to the nine-month period ended
December 31, 2001. Net income for the nine-months ended December 31, 2002 and
2001, increased $.2 million and $.02 million as compared to the preceding period
in the prior year. These increases were primarily due to increased sales volume
offset by higher selling, general and administrative expenses and interest
expense.
SEASONALITY
The Company's wine sales from quarter to quarter are highly variable due
to, among other things, the timing of the release of wines for sale and changes
in consumer demand. Sales are typically strongest during the fourth quarter
because of heavy holiday sales and because most wines generally are released
during the end of the third and beginning of the fourth quarters.
LIQUIDITY AND CAPITAL RESOURCES
WORKING CAPITAL
Working capital as of December 31, 2002 was $58 million, compared to
$51.7 million at December 31, 2001. The $6.3 million increase was primarily
attributable to an increase in inventory ($4.6 million) accounts receivable
($4.3 million), accounts payable and accrued liabilities ($3.8 million) offset
by a net increase in revolving bank loan borrowings ($6.4 million).
The Company has historically funded its growth through increases in
borrowings and cash flow from operations. During 2002, the Company's primary use
of its capital was to finance capital expenditures of $18.05 million and a $4.6
million increase in inventory.
Management expects that the Company's working capital needs will grow
significantly to support expected future growth in sales volume. Due to the
lengthy aging and processing cycles involved in premium wine production,
expenditures for inventory and fixed assets need to be made one to three years
or more in advance of anticipated sales. The Company currently expects its
operating and capital spending requirements will total approximately $78.4
million for the year ending December 31, 2003.
The Company expects to finance these future capital needs through
operations, security offerings, and additional borrowings. There can be no
assurance that the Company will be able to obtain this financing on terms
acceptable to the Company.
BORROWING ARRANGEMENTS
On September 15, 2000 the Company refinanced certain borrowings through the
issuance of $30 million of Senior Unsecured Notes (the "2000 Notes"). Proceeds
from the Notes were used to repay a portion of the Company's revolving bank loan
in the amount of $20 million and to
14
repay $10 million of another $30 million term loan. Interest on the Notes is
payable quarterly at rates ranging from 8.90% to 9.05%, as amended on February
9, 2001, and principal repayments are scheduled beginning September 15, 2004
through maturity on September 15, 2010. In connection with this refinancing,
maximum revolving debt borrowings were reduced from $40 million to $25 million.
The Notes were issued pursuant to a Note Purchase Agreement, which contains
restrictive covenants including requirements to maintain certain financial
ratios and restrictions on additional indebtedness, asset sales, investments,
and payment of dividends. At March 31, 2001 the Company was not in compliance
with one of these covenants, however, the Note holders have subsequently waived
such non-compliance. At December 31, 2002 and 2001, the Company was in
compliance with all bank covenants. Management is in constant communication with
our lenders regarding compliance with the financial covenants through December
31, 2003. In the event that economic conditions weaken from 2002, one or more of
the financial covenants could be impacted. Our lenders are aware of this
possibility and management believes that a waiver or amendment could be
obtained.
The Company's revolving bank loan expired March 31, 2002 and two extensions
were provided extending the maturity date to April 30, 2002. On April 22, 2002,
the Company finalized the borrowing arrangement with the bank that had provided
the revolving bank loan. The new borrowing arrangement with its bank involves
both (1) a $55 million revolving credit facility secured first by inventory and
accounts receivable and second by substantially all of the Company's fixed
assets (other than certain specified assets), and (2) a $17.5 million term loan
secured first by certain of the Company's fixed assets (other than certain
specified assets) and second by the Company's inventory and accounts receivable,
each on a pari passu basis with the holders of the 2000 Notes. In connection
with the finalization, the Company amended certain of the provisions applicable
to the Notes.
On August 23, 2002, the Company acquired the winery and vineyard site
formerly known as Chateau Beaucanon Winery in Rutherford, California. The site
will be used as the home for the Provenance Vineyard brand. The purchase price
was $8.9 million.
The acquisition was funded by the issuance of two convertible subordinated
promissory notes in exchange for $11 million in cash (the "2002 Notes"). The
2002 Notes were issued to Les Domaines Baron de Rothschild (Lafite) ("DBR"), in
the amount of $8.25 million, and SFI Intermediate Limited or its affiliates
("SFI"), in the amount of $2.75 million. The 2002 Notes accrue interest on the
principal sum at a rate of 9% per annum. The principal sum and all accrued
interest are due and payable in full, two years from the date of the 2002 Notes
(the "Maturity Date"). At the Maturity Date, the Company may elect to pay all of
the outstanding principal and accrued interest in cash or may elect to repay all
or part of these amounts through conversion into shares of Company common shares
at the Conversion Price of $9.4207 per share (the "Conversion Price"). DBR or
SFI may elect to convert all outstanding principal only in the event of a change
of control transaction, as defined in the terms of the 2002 Notes.
In conjunction with the above activities, the Company, its lenders under
the Company's Credit Agreement and its noteholders under the Company's Amended
and Restated Note Purchase Agreement amended the Company's Credit Agreement and
its Amended and Restated Note Purchase Agreement (1) to reflect the lenders' and
noteholders' consent to the Beaucanon acquisition and the issuance of the Notes
and (2) to make certain amendments in the Credit Agreement and the Amended and
restated Note Purchase Agreement, including the exclusion of the Notes from the
financial covenants contained in those agreements.
We are exposed to market risk from changes in interest rates. To manage
this exposure, we have entered into interest rate exchange agreements. We do not
use financial instruments for trading purposes and we are not a party to any
leveraged derivatives.
The Financial Accounting Standards Board ("FASB") has issued SFAS No. 133,
"Accounting for Derivative Instruments and Hedging Activities", as amended by
SFAS No. 138 that establishes new accounting and reporting standards for
derivative instruments and hedging activities. It requires that derivatives be
recognized in the balance sheet at fair value. (See Note 7 to the Company's
Consolidated Financial Statements).
DISCLOSURES ABOUT MARKET RISK
The following disclosures should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations. These
disclosures are intended to discuss certain material risks of the Company's
business as they appear to management at this time. However, this list is not
exhaustive. Other risks may, and likely will, arise from time to time.
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 is 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.
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.
15
OUR PROFITS DEPEND LARGELY ON SALES IN CERTAIN STATES AND ON SALES OF
CERTAIN VARIETALS
In the year ended December 31, 2002, approximately 85% 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.
Approximately 87% of our net revenues in the year ended December 31,
2002were concentrated in our top four selling varietal wines. Specifically,
sales of Chardonnay, Pinot Noir, Cabernet Sauvignon and Merlot accounted for
43%, 16%, 14% and 14% of our net revenues, respectively.
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.
AGRICULTURAL RISKS COULD ADVERSELY AFFECT OUR BUSINESS
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 the Company, decreasing the supply of the Company's products and negatively
impacting profitability.
Many California vineyards have been infested in recent years with
phylloxera. The Company's vineyard properties are primarily planted to
rootstocks believed to be resistant to phylloxera. However, there can be no
assurance that the Company's existing vineyards, or the rootstocks the Company
is now using in its 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. The Company is actively supporting the efforts
of the agricultural industry to control this pest and is 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, which resulted in colder and
wetter soils than are typical during California's grape growing season.
Consequently, the 1999 harvest was postponed by approximately four to six weeks
depending on the geographic location and varietals. The size of the Company's
most significant crops ranged from normal-sized yields to 50% of normal yields
(depending on the varietal and particular estate).
Despite the reduction in the yield, the harvested estate crops, in
combination with contracted grape purchases, are expected to permit the Company
to meet originally anticipated sales-projections for its 1999 vintage
Chardonnay, Cabernet, and Merlot varietals. Together these varietals have
historically comprised between 80% to 89% of our aggregate annual production.
WE MAY NOT BE ABLE TO GROW OR ACQUIRE ENOUGH QUALITY GRAPES FOR OUR WINES
The adequacy of our grape supply is influenced by consumer demand for wine
in relation to industry-wide production levels. While we believe that we can
secure sufficient supplies of grapes from a combination of our own production
and from grape supply contracts with independent growers, we cannot be certain
that grape supply shortages will not occur. A shortage in the supply of wine
grapes could result in an increase in the price of some or all grape varieties
and a corresponding increase in our wine production costs.
AN OVERSUPPLY OF GRAPES MAY 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 increase in grape production has resulted in an excess of supply over
demand and force wineries to reduce, or not increase 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 ten largest distributors combined represented
approximately 22% and 42%, respectively, of our net revenues for the year ended
December 31, 2002. Sales to our ten largest distributors are expected to
continue to represent a substantial portion of
16
our net revenues in the future. Effective July 1, 2002, the Company switched
from a single broker to a distributor in California. 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. Any
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 increased working capital
requirements over the next several years, which must be financed by cash from
operations and by additional borrowings or additional equity.
ADVERSE PUBLIC OPINION ABOUT ALCOHOL MAY HARM OUR BUSINESS
A number of research studies suggest that various health benefits may
result from the moderate consumption of alcohol, but other studies suggest that
alcohol consumption does not have any health benefits and may in fact increase
the risk of stroke, cancer and other illnesses. If an unfavorable report on
alcohol consumption gains general support, it could harm the wine industry and
our business.
WE USE PESTICIDES AND OTHER HAZARDOUS SUBSTANCES IN THE OPERATION OF OUR
BUSINESS
We use pesticides and other hazardous substances in the operation of our
business. If hazardous substances are discovered on, or emanate from, any of our
properties, and their release presents a threat of harm to public health or the
environment, we may be held strictly liable for the cost of remediation. Payment
of such costs could have a material adverse effect on our business, financial
condition and results of operations. We maintain insurance against these kinds
of risks, and others, under various insurance policies. However, our insurance
may not be adequate or may not continue to be available at a price or on terms
that are satisfactory to us.
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 5% of total consolidated revenue for the nine months
ended December 31, 2002 and the volume of international transactions is
increasing, which may increase this risk in the future.
17
INFRINGEMENT OF OUR TRADEMARKS MAY DAMAGE OUR BRAND NAMES OR OUR BUSINESS
Our wines are branded consumer products, and we distinguish our wines from
our competitors' by enforcement of our trademarks. There can be no assurance
that competitors will refrain from infringing our marks or using trademarks,
tradenames or trade dress which dilute our intellectual property rights, and any
such actions may require us to become involved in litigation to protect these
rights. Litigation of this nature can be very expensive and tends to divert
management's time and attention.
OUR ACQUISITIONS AND POTENTIAL FUTURE ACQUISITIONS INVOLVE A NUMBER OF
RISKS
Our acquisition of Provenance Vineyards, Hewitt Vineyard, Suscol Ranch,
Staton Hills Winery (renamed Sagelands Vineyard), the Jade Mountain brand,
enlarging Canoe Ridge Vineyard and buying out our partners, 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 integrating the technology and
infrastructures of disparate entities; risks inherent in the production and
marketing wine and replanting of existing vineyards from white wine grapes to
red wine grapes.
We relied on debt financing to purchase Provenance Vineyards, Hewitt
Vineyard, Suscol Ranch, Staton Hills Winery, the Jade Mountain brand, enlarging
Canoe Ridge Vineyard and buying out our partners and other vineyard land and
related assets during the fiscal years ended December 31, 2001 and 2002.
Consequently our debt-to-equity ratio is high in relation to our historical
standards, even after the successful completion of our rights offering in
November 2001. 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
report, may have a significant effect on the market price of our shares. 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. These broad
market fluctuations may reduce the market price of our shares.
18
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
THE CHALONE WINE GROUP, LTD.
INDEX TO FINANCIAL STATEMENTS
PAGE
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets......................................... 20
Consolidated Statements of Income................................... 21
Consolidated Statements of Shareholders' Equity..................... 22
Consolidated Statements of Cash Flows............................... 23
Notes to Consolidated Financial Statements.......................... 24
INDEPENDENT AUDITORS REPORTS..............................................37, 38
19
THE CHALONE WINE GROUP, LTD.
CONSOLIDATED BALANCE SHEETS
(All amounts in thousands, except share data)
ASSETS
December 31, December 31,
2002 2001
---- ----
Current assets:
Cash $ - $ -
Accounts receivable, net 15,770 11,475
Notes receivable 190 181
Income tax receivable 223 223
Inventory 81,272 76,658
Prepaid expenses and other current assets 1,000 1,359
----------------------
Total current assets 98,455 89,896
----------------------
Investment in Chateau Duhart-Milon 10,067 7,897
Non-current notes receivable 447 653
Property, plant and equipment - net 77,953 73,232
Goodwill, 8,582 8,582
Trademarks 2,875 2,797
Other assets 1,815 852
----------------------
Total assets $200,194 $183,909
======================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term obligations $ 2,295 $ 2,034
Current portion of related party note payable - 18
Current portion of obligations under capital lease 716 716
Revolving bank loan 18,523 12,086
Accounts payable and accrued liabilities 18,935 22,766
----------------------
Total current liabilities 40,469 37,620
Long-term obligations, less current maturities 46,753 47,082
Long-term obligations, convertible subordinated debt 11,000 -
Obligations under capital lease, less current portion 1,329 2,110
Related party note payable, less current portion - 869
Liability on interest rate swap contract 1,355 664
Deferred income taxes 923 1,048
----------------------
Total liabilities 101,829 89,393
----------------------
Minority interest 3,572 3,201
Shareholders' equity:
Common stock - authorized 15,000,000 shares no
par value; issued and outstanding: 12,075,101 and
12,067,504 shares, respectively 76,474 76,433
Retained earnings 21,790 19,494
Accumulated other comprehensive loss (3,471) (4,612)
----------------------
Total shareholders' equity 94,793 91,315
----------------------
Total liabilities and shareholders' equity $200,194 $183,909
======================
The accompanying notes are an integral part of the consolidated financial statements
20
THE CHALONE WINE GROUP, LTD.
CONSOLIDATED STATEMENTS OF INCOME
(All amounts in thousands, except per share data)
Year ended Nine Months Year ended
December 31, ended December 31, March 31,
----------- ------------------------------ ----------
2002 2002 2001 2000 2001
----------- ------------------------------ ----------
(Unaudited) (Unaudited)
Gross revenues $ 69,001 $ 53,040 $ 42,353 $ 45,481 $ 62,213
Excise taxes (1,996) (1,536) (1,159) (1,252) (1,652)
-------- -------- -------- -------- --------
Net revenues 67,005 51,504 41,194 44,229 60,561
Cost of wines sold (44,877) (34,727) (25,604) (30,125) (39,443)
-------- -------- -------- -------- --------
Gross profit 22,128 16,777 15,590 14,104 21,118
Other operating revenues (expenses), net (448) (41) 195 160 213
Selling, general and administrative expenses (13,700) (10,521) (9,884) (9,971) (15,208)
-------- -------- -------- -------- --------
Operating income 7,980 6,215 5,901 4,293 6,123
Interest expense, net (4,549) (3,641) (3,217) (2,887) (3,824)
Other income (expense) (43) (63) 6 868 891
Equity in net income of Chateau Duhart-Milon 842 694 509 714 761
Minority interests (748) (542) (512) (315) (377)
-------- -------- -------- -------- --------
Income before income taxes 3,482 2,663 2,687 2,673 3,574
Income taxes (1,186) (845) (1,094) (1,096) (1,524)
-------- -------- -------- -------- --------
Net income $ 2,296 $ 1,818 $ 1,593 $ 1,577 $ 2,050
======== ======== ======== ======== ========
Net income available to common shareholders $ 2,296 $ 1,818 $1,593 $1,577 $2,050
Earnings per share-basic $ 0.19 $ 0.15 $ 0.15 $ 0.20 $ 0.20
Earnings per share-diluted $ 0.19 $ 0.15 $ 0.15 $ 0.20 $ 0.20
The accompanying notes are an integral part of the consolidated financial statements
21
THE CHALONE WINE GROUP, LTD.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(All amounts in thousands)
Common Stock Accumulated
____________________ Other Compre-
Number of Retained Comprehensive hensive
Shares Amount Earnings Loss Total Income
--------- ------- ------- ------------- ------- -------
Balance, March 31, 2000 10,224 61,377 15,851 (3,556) 73,672 2,421
Employee stock purchase plan 7 48 - - 48 -
Options exercised 8 61 - - 61 -
Profit sharing, net of repurchases 9 92 - - 92 -
Foreign currency
translation adjustment - - - (789) (789) (789)
Net income - - 2,050 - 2,050 2,050
------ ------- ------- ------- ------- -------
Balance, March 31, 2001 10,248 61,578 17,901 (4,345) 75,134 1,261
Employee stock purchase plan 3 23 - - 23 -
Options exercised 53 188 - - 188 -
Profit sharing, net of repurchases (1) (15) - - (15) -
Foreign currency translation
adjustment - - - 80 80 80
Cumulative effect of adopting
SFAS No. 133 (net of tax of $129) - - - (189) (189) (189)
Changes in fair value of derivatives
(net of tax of $141) - - - (203) (203) (203)
Transition Adjustment reclassified - - - - - -
in earnings (net of tax of $32) 45 45 45
Rights Offering 1,765 14,659 - - 14,659 -
Net income - - 1,593 - 1,593 1,593
------ ------- ------- ------- ------- -------
Balance, December 31, 2001 12,068 $76,433 $19,494 $(4,612) $91,315 $ 1,326
------ ------- ------- ------- ------- -------
Employee stock purchase plan 4 29 - - 29 -
Options exercised 1 13 - - 13 -
Profit sharing, net of repurchases 2 (1) - - (1) -
Foreign currency
translation adjustment - - - 1,436 1,436 1,436
Changes in fair value of derivatives
(net of tax of $284) - - - (408) (408) (408)
Transition Adjustment reclassified
in earnings (net of tax of $78) - - - 113 113 113
Net income - - 2,296 - 2,296 2,296
------ ------- ------- ------- ------- -------
Balance, December 31, 2002 12,075 $76,474 $21,790 $(3,471) $94,793 $ 3,437
------ ------- ------- ------- ------- -------
The accompanying notes are an integral part of the consolidated financial statements
22
THE CHALONE WINE GROUP, LTD.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(All amounts in thousands)
Year Ended Nine Months Year Ended
December 31, Ended December 31, March 31,
------------ ----------------------------------- ---------
2002 2002 2001 2000 2001
------------ -------- -------- -------- ---------
(Unaudited) (Unaudited)
Cash flows from operating activities:
Net income $ 2,296 $ 1,818 $ 1,593 $ 1,577 $ 2,050
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 9,019 7,512 5,644 5,318 5,877
Equity in net income of Chateau Duhart-Milon (842) (694) (509) (714) (761)
Increase in minority interests 748 543 512 315 377
Other (208) (209) 44 (803) (799)
Changes in:
Accounts and other receivables (4,295) (3,785) (1,347) (1,734) 1,266
Income taxes receivable - - (223) - -
Inventories (4,614) (10,172) (17,325) (11,776) (5,365)
Prepaid expenses and other assets (750) (323) (368) 281 (34)
Deferred income taxes 167 152 1,426 - (734)
Accounts payable and accrued liabilities (3,840) 11,729 14,952 8,783 1,281
-------- -------- -------- -------- --------
Net cash provided by (used in) operating activities (2,319) 6,571 4,399 1,247 3,158
-------- -------- -------- -------- --------
Cash flows from investing activities:
Capital expenditures (9,301) (8,005) (8,305) (10,821) (15,200)
Property and business acquisitions (8,912) (8,912) - (3,518) (3,500)
Distributions to minority partner (377) (377) - - -
Proceeds from disposal of property and equipment 4,862 4,855 136 7,518 7,536
Net changes of notes receivable 197 148 (834) - (470)
Investment in Edna Valley Vyd brand name and
joint venture - - (1,050) - -
Acquisition of minority interest in Canoe Ridge
Vineyard - - - - (3,960)
Distributions from Duhart-Milon 108 108 519 557 1,294
-------- -------- -------- -------- --------
Net cash used in investing activities (13,423) (12,183) (9,534) (6,264) (14,300)
-------- -------- -------- -------- --------
Cash flows from financing activities:
Borrowings (repayment) on revolving bank
loan-net 6,437 (3,919) (7,913) (14,057) (7,018)
Distributions to minority interests - - - (700) (700)
Proceeds from issuance of long-term debt 11,000 11,000 - 30,000 30,000
Net change in capital lease obligation (781) (597) (326) - -
Repayment of long-term debt (887) (868) (1,537) (10,272) (11,285)
Repayment of short-term debt (68) (68) - - -
Net proceeds from rights offering - - 14,659 - -
Proceeds from issuance of common stock 41 64 196 46 201
-------- -------- -------- -------- --------
Net cash provided by financing activities 15,742 5,612 5,079 5,017 11,198
-------- -------- -------- -------- --------
Net increase (decrease) in cash and equivalents - - (56) - 56
Cash and equivalents at beginning of year - - 56 - -
-------- -------- -------- -------- --------
Cash and equivalents at end of year $ - $ - $ - $ - $ 56
======== ======== ======== ======== ========
Other cash flow information:
Interest paid $ 5,242 $ 4,065 $ 3,373 $ 3,018 $ 3,449
Income taxes paid 1,701 869 984 222 370
Non-cash investing and financing activities:
Interest swap flucuation, net $ 1,141 $ 1,028 $ 347 $ - $ -
Equipment acquired under capital lease - - 3,152 - -
The accompanying notes are an integral part of the consolidated financial statements
23
THE CHALONE WINE GROUP, LTD.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BUSINESS
The Chalone Wine Group, Ltd. ("the Company") produces and sells super
premium to luxury quality table wines. The Company sells the majority of its
products to wholesale distributors, restaurants, and retail establishments
throughout the United States, Canada and Europe. Export sales accounted for
approximately 5%, 3% and 4%, respectively, of total revenue for the year ended
December 31, 2002, nine months ended December 31, 2001, and for the fiscal year
ended March 31, 2001. The Company supplies some of its grape needs from its
estate-owned vineyards but utilizes independent grape growers for a majority of
its grape requirements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the Company's significant accounting policies consistently
applied in the preparation of the accompanying consolidated financial statements
follows.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of the Company,
its majority owned subsidiaries, and Edna Valley Vineyard ("EVV"), a winery
operation in San Luis Obispo County, California, owned 50% by the Company and
50% by Paragon Vineyard Company, Inc. ("Paragon"). The Company is EVV's managing
joint venture partner and supervises EVV's winery operations, sells and
distributes the wine and is deemed to control EVV for accounting purposes. The
Company has certain commitments related to its continuing ownership of EVV (See
Note 13). Intercompany transactions and balances have been eliminated.
At December 31, 2002, Domaines Baron de Rothschild (Lafite) ("DBR"), a
French company, owned approximately 45.7% of the Company's outstanding common
stock, and the Company owns a 23.5% partnership interest in DBR's Societe Civile
Chateau Duhart-Milon ("Duhart-Milon"), a Bordeaux wine-producing estate located
in Pauillac, France. The Company accounts for this investment using the equity
method.
ACCOUNTING ESTIMATES
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported financial
statement amounts and related disclosures at the date of the financial
statements. Actual results could differ from these estimates.
ACCOUNTS RECEIVABLE
Accounts receivable are reported at net realizable value. The Company has
established an allowance for doubtful accounts based upon factors pertaining to
the credit risk of specific customers, historical trends, and other information.
Delinquent accounts are written-off when it is determined that the amounts are
uncollectible. Receivables in excess of 90 days were approximately $340,000 at
December 31, 2002.
INVENTORY
Inventory is stated at the lower of cost or market. Cost for bulk and
bottled wines is determined on an accumulated weighted average basis and
includes grape purchases and supplies, farming and harvesting costs, winery and
bottling costs. Wine production supplies are stated at FIFO (first-in,
first-out) cost. All bulk and bottled wine inventories are classified as current
assets in accordance with recognized industry practice, although a portion of
such inventories will be aged for periods longer than one year.
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject the Company to
concentrations of credit risk, consist primarily of receivables. The Company
performs ongoing credit evaluations of its customers' financial position and
generally does not require collateral. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations.
24
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at cost, with depreciation provided
in amounts sufficient to allocate the depreciable assets to operations over
their estimated useful lives. For financial reporting purposes depreciation of
property, plant and equipment, which includes assets under capital lease is
provided on the straight-line method, with the exception of barrels, which is
depreciated using an accelerated method. For tax reporting purposes accelerated
methods are used.
In August 2002, the Company purchased substantially all of the assets of a
winery in Napa County, California (See Note 7). The costs of property, plant and
equipment were allocated to each asset acquired based on their relative
estimated fair values at the date of acquisition.
The ranges of useful lives used in computing depreciation are ((3)) 15 to
35 years for vineyard development costs, (ii) 80 years for caves, (iii) 15 to 40
years for buildings and (iv) 3 to 20 years for machinery and equipment.
Capitalized costs of planting new vines and ongoing cultivation costs for
vines not yet bearing fruit, including interest, are classified as vineyard
development. Depreciation commences in the initial year the vineyard yields a
commercial crop, generally in the third or fourth year after planting.
Interest of $1.2 million, $.7 million and $.8 million was capitalized to
property, plant and equipment for the year ended December 31, 2002, nine months
ended December 31, 2001 and the fiscal year ended March 31, 2001, respectively.
Caves represent improvement costs to dig into hillsides and structurally
reinforce underground tunnels used to age and store the Company's wines.
INTANGIBLE ASSETS
The Company's intangible assets consist of goodwill and trademarks. As of
January 1, 2002 the Company adopted SFAS No. 142, GOODWILL AND OTHER INTANGIBLE
ASSETS. Accordingly, goodwill and trademarks that have been determined to
possess indefinite lives will not be amortized, but instead will be reviewed for
impairment at least annually. Impairment is the condition that exists when the
carrying amount of goodwill exceeds its implied fair value. The Company applied
impairment tests to its recorded goodwill in accordance with SFAS 142 and
determined that no impairment loss had occurred during the year ended December
31, 2002.
For purposes of pro forma disclosure, had the Company's goodwill and
trademarks been accounted for under SFAS No. 142, net income and earnings per
share would have been increased to the following pro forma amounts (IN
THOUSANDS, EXCEPT PER SHARE DATA):
Nine Months
Year Ended Ended Year Ended
December 31, December 31, March 31,
------------ ------------ ----------
2002 2001 2001
------------ ------------ ----------
Reported net income $ 2,296 $ 1,593 $ 2,050
Goodwill amortization - 280 290
Trademark amortization - 109 145
------------ ------------ ----------
Adjusted net income $ 2,296 $ 1,982 $ 2,485
BASIC EARNINGS PER SHARE
Reported net income $ 0.19 $ 0.15 $ 0.20
Goodwill - 0.03 0.03
Trademark - 0.01 0.01
------------ ------------ ----------
Adjusted net income $ 0.19 $ 0.19 $ 0.24
DILUTED EARNINGS PER SHARE
Reported net income $ 0.19 0.15 0.20
Goodwill - 0.03 0.03
Trademark - 0.01 0.01
------------ ------------ ----------
Adjusted net income $ 0.19 $ 0.19 $ 0.24
IMPAIRMENT OF LONG-LIVED ASSETS
As of December 31, 2002 the Company adopted SFAS No. 144, ACCOUNTING FOR
THE IMPAIRMENT OR DISPOSAL OF LONG-LIVED ASSETS. Statement 144 establishes a
single-accounting model for long-lived assets to be disposed of while
maintaining many of the provisions relating to impairment testing and valuation.
The adoption of this Statement will not materially change the way the Company
reviews and calculates asset impairment charges.
The Company evaluates its long-lived assets for impairment whenever events
or changes in circumstances indicate that the carrying amount of such assets or
intangibles may not be recoverable. Recoverability of assets to be held and used
is measured by a comparison of the carrying
25
amount of the assets to future undiscounted net cash flows expected to be
generated by the assets. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
FOREIGN CURRENCY TRANSLATION
The functional currency of the Company's investee, Duhart-Milon, is the
French franc and as a result the Company records the effect of exchange gains
and losses on its equity in Duhart-Milon in other comprehensive income or loss,
a separate component of shareholder's equity.
REVENUE RECOGNITION
Revenue is recognized when the product is shipped, and title passes to the
customer. Revenue from product sold at the Company's retail locations is
recognized at the time of sale. Revenue is recorded net of sales returns,
including a provision for estimated future returns. Sales returns have
historically been insignificant. The Company generally allows thirty days from
the date of shipment for customers to make payment. No products are sold on
consignment.
SHIPPING COSTS
Shipping costs are included in selling, general and administrative expense
and totaled $290,200, $114,000 and $836,000 for the year ended December 31,
2002, for the nine months ended December 31, 2001 and for the fiscal year ended
March 31, 2001 (See Note 17).
ACCOUNTING FOR INCOME TAXES
The Company provides for income taxes under the liability method.
Accordingly, deferred income tax assets and liabilities are computed for
differences between the financial statement and tax bases of assets and
liabilities that will result in taxable or deductible amounts in the future
based on enacted tax laws and rates applicable to the periods in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to amounts, which are
more likely than not to be realized.
STOCK BASED COMPENSATION
The Company has elected to follow Accounting Principles Board Opinion No.
25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES, (APB 25) and related
Interpretations in accounting for its employee stock options because, as
discussed below, the alternative fair value accounting provided for under FASB
Statement No. 123, ACCOUNTING FOR STOCK-BASED COMPENSATION, Under APB 25,
because the exercise price of the Company's employee stock options equals the
market price of the underlying stock on the date of grant, no compensation
expense is recognized. SFAS 123, ACCOUNTING FOR STOCK-BASED COMPENSATION,
requires the disclosure of pro forma net income and earnings per share had the
Company adopted the fair value method as of the beginning of fiscal year 1995.
Under SFAS 123, the fair value of stock-based awards to employees is calculated
through the use of option pricing models, even though such models were developed
to estimate the fair value of freely tradable, fully transferable options
without vesting restrictions, which significantly differ from the Company's
stock option awards. These models also require subjective assumptions, including
future stock volatility and expected time to exercise, which greatly affect the
calculated values. The Company's calculations were made using the Black-Scholes
option pricing model with the following weighted average assumptions:
Twelve Months Nine Months Twelve Months
ended ended ended
December 31, December 31, December 31,
2002 2001 2000
------------ ------------ ------------
Expected life, following vesting (months) 117 117 117
Stock volitility 32.5% 31.2% 28.2%
Risk-free interest rate 5.2% 6.5% 6.9%
Dividends - - -
The Company's calculations are based on a multiple option valuation approach and
forfeitures are recognized as they occur.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized over the options' vesting period. Had the Company's stock
option and stock purchase plan been accounted for under SFAS No. 123, net income
and earnings per share would have been reduced to the following pro forma
amounts (IN THOUSANDS, EXCEPT PER SHARE DATA) (See Recent Accounting
Pronouncements):
26
Twelve Months Nine Months
Ended Ended Year Ended
December 31, December 31, March 31,
------------ ------------ ----------
2002 2001 2001
------------ ------------ ----------
Net income:
As reported $ 2,296 $ 1,593 $ 2,050
Pro forma $ 1,739 $ 1,003 $ 1,759
Earnings per share:
Basic $ 0.19 $ 0.15 $ 0.20
Diluted $ 0.19 $ 0.15 $ 0.20
Pro forma basic $ 0.14 $ 0.10 $ 0.17
Pro forma diluted $ 0.14 $ 0.09 $ 0.17
DERIVATIVE FINANCIAL INSTRUMENTS
The Company uses derivative instruments to manage exposures to interest
rate risks in accordance with its risk management policy. The Company's
objectives for holding derivatives are to minimize the risks using the most
effective methods to eliminate or reduce the exposure to interest rate
fluctuations. The Company formally documents the relationship between hedging
instruments and hedged items as well as its risk management objective and
strategy for undertaking its hedging activities. The Company formally designates
derivatives as hedging instruments on the date the derivative contract is
entered into. The Company assesses, both at inception of the hedge and on an
ongoing basis, whether derivatives used as hedging instruments are highly
effective in offsetting the changes in the fair value or cash flows of hedged
items. If it is determined that a derivative is not highly effective as a hedge
or ceases to be highly effective, the Company discontinues hedge accounting
prospectively.
Changes in the fair value of derivative instruments designated as cash flow
hedges, to the extent the hedges are highly effective, are recorded in other
comprehensive income, net of related tax effects. The ineffective portion of the
cash flow hedge, if any, is recognized in current-period earnings. Other
comprehensive income is relieved when current earnings are affected by the
variability of cash flows relating to the derivative hedged. During the periods
ended December 31, 2002 and 2001, the Company's derivative contracts consisted
only of an interest rate swap used by the Company to convert a portion of its
variable rate long-term debt to fixed rate.
The Company does not enter into financial instruments for trading or
speculative purposes. Payments or receipts on interest rate swap agreements are
recorded in interest expense. Forward exchange contracts are used to manage
exchange rate risks on certain purchase commitments, generally French oak
barrels, denominated in foreign currencies. Gains and losses relating to firm
purchase commitments are deferred and are recognized as adjustments of carrying
amounts or in income when the hedged transaction occurs. The Company did not
transact in forward exchange contracts during the 2002 year. The nominal amounts
and related foreign currency transaction gains and losses, net of the impact of
hedging, were not significant in nine months ended December 31, 2001 and the
fiscal year ended 2001.
NET INCOME PER SHARE
Basic net income per share ("EPS") excludes dilution and is computed by
dividing net income available to common stockholders by the weighted average
number of common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts to issue
common stock (e.g. stock options) were exercised and converted into stock. For
all periods presented, the difference between basic and diluted EPS for the
Company reflects the inclusion of dilutive stock options, the effect of which is
calculated using the treasury stock method as shown below. The convertible
common stock was not included in the computation of diluted earnings per share
because the effect of conversion would be antidilutive.
The following reconciles audited amounts reported in the financial
statements (IN THOUSANDS, EXCEPT PER SHARE DATA):
27
Effect of dilutive securities
-----------------------------
Stock
Basic EPS Warrants options Diluted EPS
--------- -------- ------- -----------
Year ended December 31, 2002:
Income available to common stockholders $ 2,296 - - $ 2,296
Weighted average shares outstanding 12,072 - 19 12,091
------- -------
Earnings per common share $ 0.19 $ 0.19
======= =======
Nine months ended December 31, 2001:
Income available to common stockholders $ 1,593 - - $ 1,593
Weighted average shares outstanding 10,558 - 58 10,616
------- -------
Earnings per common share $ 0.15 $ 0.15
======= =======
Year ended March 31, 2001:
Income available to common stockholders $ 2,050 - - $ 2,050
Weighted average shares outstanding 10,238 - 14 10,252
------- -------
Earnings per common share $ 0.20 $ 0.20
======= =======
Recent Accounting Pronouncements - The Financial Accounting Standards Board
(FASB) has issued the following accounting pronouncements:
SFAS No. 143, Accounting for Asset Retirement Obligations. SFAS No. 143
requires that an obligation associated with the retirement of tangible
long-lived assets and the associated asset retirement costs be recognized as a
liability when incurred. Upon initial recognition of a liability for an asset
retirement obligation, an entity would capitalize that cost by recognizing an
increase in the carrying amount of the related long-lived asset by the same
amount as the liability. An entity would subsequently allocate that asset
retirement cost to expense using a systematic and rational method over its
useful life. The Company has adopted SFAS No. 143 for its calendar year
beginning January 1, 2003. The adoption of SFAS No. 143 should not have a
material effect on the Company's operating results or financial position.
SFAS No.145, Rescission of FASB Statements No. 4, 44, and 64, Amendment of
FASB Statement No. 13, and Technical Corrections. This Statement rescinds SFAS
No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment
of that Statement, SFAS No. 64, Extinguishments of Debt Made to Satisfy
Sinking-Fund Requirements. This Statement also rescinds SFAS No. 44, Accounting
for Intangible Assets of Motor Carriers. This Statement amends SFAS No. 13,
Accounting for Leases, to eliminate an inconsistency between the required
accounting for sale-leaseback transactions and the required accounting for
certain lease modifications that have economic effects similar to sale-leaseback
transactions. The Statement also amends other existing authoritative
pronouncements to make various technical corrections, clarify meanings, or
describe their applicability under changed conditions. The adoption of SFAS No.
145 is not expected to have a material effect on the Company's consolidated
financial statements.
SFAS No.146, Accounting for Costs Associated with Exit or Disposal
Activities. This Statement addresses financial accounting and reporting for
costs associated with exit or disposal activities and nullifies Emerging Issues
Task Force (EITF) Issue No. 94-3, "Liability Recognition for Certain Employee
Termination Benefits and Other Costs to Exit an Activity (including Certain
Costs Incurred in a Restructuring)." The provisions of this Statement are
effective for exit or disposal activities that are initiated after December 31,
2002. The adoption of SFAS No. 146 is not expected to have a material effect on
the Company's consolidated financial statements.
SFAS No.148, Accounting for Stock-Based Compensation. This Statement amends
SFAS No. 123, Accounting for Stock-Based Compensation, to provide alternative
methods of transition for a voluntary change to the fair value based method of
accounting for stock-based employee compensation. In addition, this Statement
amends the disclosure requirements of Statement 123 to require prominent
disclosures in both annual and interim financial statements about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported results. This Statement permits two additional transition
methods for entities that adopt the preferable method of accounting for
stock-based employee compensation. Both of those methods avoid the ramp-up
effect arising from prospective application of the fair value based method. In
addition, to address concerns about the lack of comparability caused by multiple
transition methods, this Statement does not permit the use of the original
Statement 123 prospective method of transition for changes to the fair value
based method made in fiscal years beginning after December 15, 2003. The Company
has not yet evaluated whether to adopt this statement nor has it evaluated the
potential impact on the Company's consolidated financial statements if the
statement is adopted. As of December 31, 2002, the Company has adopted the
disclosure requirements of the Statement and continues to follow the intrinsic
value method to account for stock-based employee compensation.
FASB Interpretation No. 45, Guarantor's Accounting and Disclosure
Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of
Others. The interpretation clarifies that a guarantor is required to recognize,
at the inception of a guarantee, a liability for the fair value of the
obligation undertaken in issuing the guarantee. It also significantly expands
the disclosures guarantors must include in their financial statements. While the
interpretation's accounting provisions are effective prospectively to guarantees
issued or modified after December 31, 2002, its disclosure requirements
generally apply to all guarantees and must be included in financial statements
of interim and annual periods ending after December 15, 2002. The adoption of
Interpretation No. 45 is not expected to have a material effect on the Company's
consolidated financial statements.
28
FASB Interpretation No. 46, Consolidation of Variable Interest Entities,
addresses consolidation by business enterprises of variable interest entities in
which 1) the equity investment is insufficient for the entity to finance its
activities without additional financial support through other interests who will
absorb some or all of the entity's expected losses, or 2) the equity investors
lack one or more essential characteristics of a controlling interest. Those
characteristics include the ability to make decisions about an entity's
activities through voting rights or similar rights; the obligation to absorb the
entity's expected losses, which makes it possible for the entity to finance its
activities; and the right to receive the entity's expected residual returns as
compensation for the risk of absorbing expected losses. This interpretation is
effective for the Company no later than the third quarter of 2003, and is not
currently expected to have a material effect on the Company's consolidated
financial statements.
SEGMENT REPORTING
The Company produces and sells premium to luxury quality table wines and
has determined that its product line operating segments, although consisting of
multiple products and brands, all have similar production processes, customer
types, distribution methods and other economic characteristics. Accordingly,
these operating segments have been aggregated as a single operating segment in
the consolidated financial statements.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounts receivable, accounts payable and accrued expenses, and certain
other assets and liabilities are considered financial instruments. Carrying
values are estimated to approximate fair values for these instruments as they
are short-term in nature and are receivable or payable on demand.
NOTE 3 - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
A summary of the changes in the Company's allowance for doubtful accounts
receivable is as follows:
Balance at Charges to Balance at
Beginning of Costs and End of
Period Expenses Deductions Period
------------ ---------- ---------- ----------
Year ended March 31:
2001 $ 129 $ 320 $ (56) $ 393
===== ===== ===== =====
Nine months ended December 31:
2001 $ 393 $ 490 $(105) $ 778
===== ===== ===== =====
Year ended December 31:
2002 $ 778 $ 490 $(931) $ 337
===== ===== ===== =====
NOTE 4 - INVENTORY
Inventory consists of the following (IN THOUSANDS):
December 31, December 31,
2002 2001
------------ ------------
Bulk wine $ 48,312 $ 44,616
Bottled wine 32,171 31,303
Wine packaging supplies 415 313
Other 374 426
-------- --------
Total $ 81,272 $ 76,658
======== ========
29
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consist of the following (IN THOUSANDS):
December 31, December 31,
2002 2001
------------ -----------
Land $ 20,737 $ 18,091
Vineyards 12,960 8,310
Vineyards under development 17,583 18,291
Caves 1,678 1,678
Buildings 26,592 24,541
Machinery and equipment 36,136 33,123
-------- --------
115,686 104,034
Accumulated depreciation (37,733) (30,802)
-------- --------
Total $ 77,953 $ 73,232
======== ========
NOTE 6 - ACQUISITION
On August 23, 2002, the Company acquired substantially all of the assets of
the winery and vineyard site formerly known as Beaucanon Winery in Rutherford,
California. The purchase price was $8.9 million and was accounted for using the
purchase method of accounting in accordance with SFAS 141, Business
Combinations. The purchase price was allocated to each asset acquired based on
their relative estimated fair values at the date of acquisition. No goodwill or
other intangible assets were recorded. The Company financed the acquisition with
subordinated debit to related parties (See Note 8).
NOTE 7 - INVESTMENT IN CHATEAU DUHART-MILON
Duhart-Milon's condensed balance sheet as of December 31, 2002 and 2001 and
the results of its operations for the year ended December 31, 2002, nine months
ended December 31, 2001 and fiscal year ended March 31, 2001 are as follows
(translated into U.S. dollars at the year-end and average exchange rate for the
period, respectively) (IN THOUSANDS):
December 31, December 31,
------------ ------------
2002 2001
------------ ------------
Inventory $ 3,887 $ 3,307
Other current assets 9,475 7,678
-------- --------
Current assets 13,362 10,985
-------- --------
Property and equipment, net 2,825 1,673
-------- --------
Total assets $ 16,187 $ 12,658
======== ========
Current liabilities $ 2,668 $ 1,960
Partner's equity 13,519 10,698
-------- --------
Total liabilities and equity $ 16,187 $ 12,658
======== ========
Duhart-Milon's results of operations are summarized as follows (IN
THOUSANDS):
30
Year Nine Months Year
Ended Ended Ended
December 31, December 31, March 31,
2002 2001 2001
------------ ------------ ---------
Revenues $ 6,726 $ 3,504 $ 5,470
Cost of Sales (2,955) (1,355) (2,453)
------- ------- -------
Gross profit 3,771 2,149 3,017
------- ------- -------
Revenues (expenses) from other
operations, net (189) 19 221
------- ------- -------
Net earnings $ 3,582 $ 2,168 $ 3,238
======= ======= =======
Equity in investment of Duhart-Milon $ 842 $ 509 $ 761
======= ======= =======
On October 1, 1995, the carrying amount of the Company's investment in
Duhart-Milon was greater than its share of Duhart-Milon's net assets by
approximately $8.9 million. This difference related primarily to the underlying
value of the land owned by Duhart-Milon and, accordingly is not amortized. A
portion of that difference, however, was attributable to inventory and was
amortized based on annual sales quantities through March 31, 2001. Since the
investment in Duhart-Milon is a long-term investment denominated in a foreign
currency, the Company recognizes currency translation gains or losses in
shareholders' equity as accumulated comprehensive income or loss, which totaled
$2,830,000 as of December 31, 2002. This amount decreased from $4,265,000 as of
December 31, 2001 due to the increase in the relative worth of the French franc
when compared to the U.S. dollar during the twelve months ended December 31,
2002.
31
NOTE 8 - BORROWING ARRANGEMENTS
Borrowing arrangements consist of the following (IN THOUSANDS):
December 31, December 31,
2002 2001
------------ ------------
Revolving bank loan of $25,000,000, interest at
LIBOR +1.375% (3.255% at December 31, 2001),
interest payable monthly, unsecured, due March
2002 (see below) $ - $ 12,086
Revolving bank loan of $50,000,000, interest at
the Eurodollar Rate based on LIBOR plus an
indexed spread (3.89% combined at December 31,
2002), interest payable on the last day of each
interest period ranging from one to six months,
secured, due April 2009 (see below) 16,098 -
Swingline bank loan of $5,000,000, interest at
0.5% per annum above the latest Federal Funds
Rate plus an indexed spread (3.34% combined at
December 31, 2002), interest payable monthly,
secured, due April 2005 (see below) 2,425 -
Senior unsecured notes (Series A, B, C), interest
at rates ranging from 8.90% to 9.05%, payable
monthly, principal payments due annually start-
ing September 2004 - 30,000
Senior secured notes (Series A, B, C), interest
at rates ranging from 8.90% to 9.23% at December
31, 2002 payable monthly, principal payments
commencing September 2004, payable annually
through September 15, 2010 (see below) 30,000 -
Bank term loan, interest at the Eurodollar Rate
based on LIBOR plus an indexed spread (4.39%
combined at December 31, 2002), interest payable
on the last day of each interest period ranging
from one to six months, principal payments
commencing June 2003 payable quarterly through
April 2009 (see below) - 17,500
Bank term loan, interest at the Eurodollar Rate
based on LIBOR plus an indexed spread (4.39%
combined at December 31, 2002), interest payable
on the last day of each interest period ranging
from one to six months, principal payments
commencing June 2003 payable quarterly through
April 2009 (see below) 17,500 -
Mortgage note payable to financial institution,
interest at varying rates (3.25% at December 31,
2002), principal and interest payable monthly
through August 2021 1,548 1,616
-------- --------
67,571 61,202
Less current maturities (20,818) (14,120)
-------- --------
Long-term obligations, net of current maturities $ 46,753 $ 47,082
======== ========
Related party note payable, interest at 7.03%,
paid in full during 2002 $ - $ 887
Convertible subordinated note to related party,
interest at 9.00% per annum, interest and
principal due August 2004 (convertible into
common stock at $9.4207 per share) 2,750 -
Convertible subordinated note to related party,
interest at 9.00% per annum, interest and
principal due August 2004 (convertible into
common stock at $9.4207 per share) 8,250 -
-------- --------
11,000 887
Less current maturities - (18)
-------- --------
Related party note payable, net of current
maturities $ 11,000 $ 869
======== ========
At December 31, 2001 the revolving credit facility and term loan were
pursuant to an agreement with a bank that was entered into in March 1999. The
agreement included restrictive covenants regarding: maintenance of certain
financial ratios; mergers or acquisitions; loans, advances or debt guarantees;
additional borrowings; annual lease expenditures; annual fixed asset
expenditures; changes in control of the Company; and declaration or payment of
dividends.
On September 15, 2000 the Company refinanced certain borrowings through the
issuance of $30 million of Senior Unsecured Notes (the "2000 Notes"). Proceeds
from the 2000 Notes were used to repay $20 million of revolving bank borrowings
under a previous credit agreement and $10 million of the $30 million term loan.
Currently, interest on the 2000 Notes is payable quarterly at rates ranging from
8.90% to 9.05% and annual principal repayments are scheduled to begin September
15, 2004 through maturity on September 15, 2010.
32
The 2000 Notes were issued pursuant to a Note Purchase Agreement, which
contained restrictive covenants including requirements to maintain certain
financial ratios and restrictions on additional indebtedness, asset sales,
investments, and payment of dividends.
In 2002, the Company's revolving bank loan expired and two extensions were
provided extending the maturity date to April 30, 2002. On April 22, 2002, the
Company finalized the borrowing arrangement with the bank that had provided the
revolving bank loan. The new borrowing arrangement with its bank involves both
(1) a $55 million revolving credit facility secured first by inventory and
accounts receivable and second by substantially all of the Company's fixed
assets (other than certain specified assets), and (2) a $17.5 million term loan
secured first by certain of the Company's fixed assets (other than certain
specified assets) and second by the Company's inventory and accounts receivable,
each on a pari passu basis with the holders of the 2000 Notes. In connection
with the finalization, the Company amended certain of the provisions applicable
to the 2000 Notes.
In connection with the $55 million revolving credit facility, the Company
is obligated for the payment of fees relative to the unused portion at indexed
rates ranging from 0.25% to 0.45%. The fees are computed daily on the
outstanding unused balance. At December 31, 2002, the unused portion of the
facility commitment was $36.5 million.
On August 23, 2002, the Company acquired the winery and vineyard site
formerly known as Chateau Beaucanon Winery in Rutherford, California. The site
is the home for the Provenance Vineyard brand. The purchase price was $8.9
million. The acquisition was funded by the issuance of two convertible
subordinated promissory notes in exchange for $11 million in cash (the "2002
Notes"). The 2002 Notes were issued to Les Domaines Baron de Rothschild (Lafite)
("DBR"), in the amount of $8.25 million, and SFI Intermediate Limited or its
affiliates ("SFI"), in the amount of $2.75 million. The 2002 Notes accrue
interest on the principal sum at a rate of 9% per annum. The principal sum and
all accrued interest are due and payable in full, two years from the date of the
2002 Notes (the "Maturity Date"). At the Maturity Date, the Company may elect to
pay all of the outstanding principal and accrued interest in cash or may elect
to repay all or part of these amounts through conversion into shares of Company
common shares at the Conversion Price of $9.4207 per share (the "Conversion
Price"). DBR or SFI may elect to convert all outstanding principal only in the
event of a change of control transaction, as defined in the terms of the 2002
Notes.
In conjunction with the above activities, the Company, its lenders under
the Company's Credit Agreement and its noteholders under the Company's Amended
and Restated Note Purchase Agreement amended the Company's Credit Agreement and
its Amended and Restated Note Purchase Agreement (1) to reflect the lenders' and
noteholders' consent to the Beaucanon acquisition and the issuance of the 2002
Notes and (2) to make certain amendments in the Credit Agreement and the Amended
and restated Note Purchase Agreement, including the exclusion of the 2002 Notes
from the financial covenants contained in those agreements.
Maturities of borrowings for each of the next five years ending at December
31 are as follows (IN THOUSANDS):
2003 $ 20,818
2004 18,313
2005 7,317
2006 7,321
2007 7,325
Thereafter 17,477
------------
Total $ 78,571
============
In 1999 the Company entered into an interest-rate swap contract for a
notional amount of $20.0 million, maturing on April 6, 2006 the balance of which
was reduced to $17.5 million at December 31, 2002 and 2001. This contract
effectively converts the variable LIBOR rate, which would otherwise be paid by
the Company on its $20.0 million bank term-loan balance into a fixed-rate
obligation over a period which corresponds to that of the underlying loan
agreement. During that time, the rate that the Company will be obligated to pay,
after including the lending institution's additional mark-up (which is based on
financial ratios, and varies accordingly), will be fixed at 6.95%. Effective
April 1, 2001, the Company adopted SFAS No.133, "Accounting for Derivative
Instruments and Hedging Activities" (See note 14). The fair value of the
contract was approximately $1.36 million on December 31, 2002. This amount (net
of tax effect) will be the cumulative transition adjustment recorded in other
comprehensive income as required under SFAS No. 133.
NOTE 9 - STOCK BASED COMPENSATION
On February 10, 1997, the Board of Directors adopted the 1997 Stock Option
Plan (the "Plan"). The Plan provides for the grant of stock options to officers
and other key employees of the Company, as well as non-employee directors and
consultants, for an aggregate of up to 1,000,000 shares of common stock, plus
any shares under the Company's 1987 Stock Option Plan, which expired in February
1997, or the 1988 Non-Discretionary Stock Option Plan, which expired in December
1996, that become available for issuance as a result of forfeitures to the
Company under the terms of such plans. These options generally expire 10 years
from the date of grant and vest after a three-month period. As of December 31,
2002, approximately 139,538 options were available for future grant under the
Plan.
Option activity under the plans has been as follows:
33
Weighted
Average
Number of Exercise
Shares Price
--------- --------
Outstanding, March 31, 2000 662,419 $ 10.36
-------- -------
Granted (weighted average fair value of $4.56) 169,640 8.43
Exercised (17,800) 8.64
Canceled (23,765) 9.97
-------- -------
Outstanding, March 31, 2001 790,494 10.00
-------- -------
Granted (weighted average fair value of $5.91) 172,873 11.11
Exercised (121,105) 8.63
Canceled (5,059) 9.58
-------- -------
Outstanding, December 31, 2001 837,203 10.43
======== =======
Granted (weighted average fair value of $5.06) 207,978 9.60
Exercised (1,532) 8.38
Canceled (137,500) 11.22
-------- -------
Outstanding, December 31, 2002 906,149 $ 10.18
-------- -------
Additional information regarding options outstanding as of December 31,
2002 is as follows:
Options Outstanding (all exercisable)
---------------------------------------------------
Range of Weighted Avg.
Exercise Number Remaining Weighted Avg.
Prices Outstanding Contractual Life Exercise Price
- -------- ----------- ---------------- --------------
$5.00-$7.99 25,480 1.5 years $ 6.83
$8.00-$9.99 433,369 5.5 years 9.17
$10.00-$12.99 447,300 5.0 years 11.34
------- --------- -------
906,149 5.1 years $ 10.18
------- --------- -------
All options outstanding at December 31, 2002 are exercisable, except for
9,600 options granted December 31, 2002 with an exercise price of $8.24.
EMPLOYEE STOCK PURCHASE PLAN
Under the Employee Stock Purchase Plan, (the "Purchase Plan"), eligible
employees are permitted to use salary withholdings to purchase shares of
common stock at a price equal to 85% of the lower of the market value of the
stock at the beginning or end of each three-month offer period or beginning of
the Purchase Plan start (27 months), subject to an annual limitation. Shares
issued under the plan were 3,923 shares for the twelve months ended December 31,
2002, 3,145 shares for the nine months ended December 31, 2001 and 6,735 shares
for the year ended March 31, 2001, respectively, at weighted average prices of
$7.43, $7.37 and $7.15, respectively. The weighted average fair value per share
of the awards in the twelve months ended December 31, 2002, for the nine months
end December 31, 2001 and for the year ended March 31, 2001 was $9.22, $8.67 and
$8.42, respectively. At December 31, 2002, 724 shares were reserved for future
issuances under the Purchase Plan.
NOTE 10 - COMMON STOCK
In connection with the issuance of convertible subordinated promissory
notes in August 2002, the Company may elect to pay all of the outstanding
principal and accrued interest in cash or may elect to repay all or part of
these amounts through conversion into shares of the Company's common shares at
the Conversion Price of $9.4207 per share. The note holders may elect to convert
all outstanding principal only in the event of a change of control transaction,
as defined in the terms of the Notes (See Note 7).
To date, the Company has not paid any cash dividends. Under the terms of
certain of the Company's credit facilities, the Company is restricted from
paying dividends in excess of 25% of its consolidated net income (See Note 7).
NOTE 11 - EMPLOYEE BENEFIT PLANS
The Company has a qualified profit-sharing plan, which provides for Company
contributions, as determined annually by the Board of Directors, based on the
Company's previous year performance. These contributions may be in the form of
common stock or cash as determined by the Board of Directors. The Company
contributed $57,000, $173,000 and $143,000 for the year ended December 31, 2002,
for the nine months ended December 31, 2001 and for the fiscal year ended March
31, 2001, respectively. At December 31, 2002, the plan held approximately 42,620
shares of the Company's common stock. At the participant's option, upon
termination of service of any plan participant, the Company will repurchase that
participant's shares held in the plan at market value.
The Company sponsors a defined-contribution savings plan under Section
401(k) of the Internal Revenue Code covering substantially all full-time U.S.
employees. Participating employees may contribute up to 15% of their eligible
compensation up to the annual Internal Revenue Service contribution limit. As
determined by the Board of Directors, the Company matches employee contributions
according to a specified
34
formula and contributed $193,000, $177,000, and $136,000 to this plan for the
year ended December 31, 2002, for the nine months ended December 31, 2001 and
for the fiscal year ended March 31, 2001, respectively.
NOTE 12 - INCOME TAXES
The provision for income taxes for the year ended December 31, 2002, nine
months ended December 31, 2001 and fiscal year ended March 31, 2001 are
summarized as follows (IN THOUSANDS):
Nine Months
Year ended ended Year ended,
December 31, December 31, March 31,
2002 2001 2001
------------ ------------ -----------
Federal
Current $ 967 $ (223) $ 1,782
Deferred (31) 1,047 (583)
------- ------- -------
936 824 1,199
------- ------- -------
State
Current 191 51 477
Deferred 59 219 (152)
------- ------- -------
250 270 325
------- ------- -------
$ 1,186 $ 1,094 $ 1,524
------- ------- -------
The provisions for income taxes differ from amounts computed at the U.S.
Federal statutory rate as follows (IN THOUSANDS):
Nine Months
Year ended ended Year ended,
December 31, December 31, March 31,
2002 2001 2001
------------ ------------ -----------
Income tax at statutory rate $ 1,282 $ 913 $ 1,215
State tax net of federal benefit 227 157 208
Change in valuation allowance (133) 704 -
Foreign tax credit (225) (550) -
Other 35 (130) 101
------- ------- -------
$ 1,186 $ 1,094 $ 1,524
======= ======= =======
The Company's deferred tax assets (liabilities) were as follows (IN
THOUSANDS):
Nine Months
Year ended ended
December 31, December 31,
2002 2001
------------ ------------
Net operating loss and tax credit carryforward $ 3,468 $ 3,800
Valuation Allowance (2,838) (2,971)
Basis Difference in property, plant and
equipment (1,896) (2004)
Basis Difference in inventory (1,046) (859)
Derivative financial instrument 532 261
Accrued compensation 485 301
Other (79) (69)
------- -------
Net deferred tax assets (liability) $(1,374) $(1,541)
======= =======
Classified as:
Current deferred tax assets (liabilities) $ (451) $ (493)
======= =======
Long-term deferred tax liabilities $ (923) $(1,048)
------- -------
The Company and its subsidiaries file their federal tax returns on a
consolidated basis. As of December 31, 2002, Sagelands Vineyard has a federal
net operating loss carryforward of approximately $8.9 million that will expire
through 2018. A valuation allowance has been established for a portion of the
related deferred tax asset that management believes may not be realized due to
annual limitations resulting from the ownership
35
change in Sagelands Vineyard. In addition, the Company has a foreign tax credit
carryforward of approximately $418,000 that will expire through 2007. A full
valuation allowance has been established against this credit.
NOTE 13 - TRANSACTIONS WITH RELATED PARTIES
The consolidated statements of income include the following transactions
with related parties (IN THOUSANDS):
Nine Months
Year Ended Ended Year Ended
December 31, December 31, 31-Mar
------------ ------------ ----------
2002 2001 2001
------------ ------------ ----------
Wine purchases from related parties $ 1,048 $ 2,054 $ 1,781
Grape purchases from related parties 5,313 5,781 5,002
Lease expense for land and facilities
to joint venture partner 96 96 15
Interest expense to related parties 376 75 -
NOTE 14 - COMMITMENTS AND CONTINGENCIES
As of December 31, 2002 future minimum lease payments (excluding the effect
of future increases in payments based on indices which cannot be estimated at
the present time) required under noncancelable operating leases with terms in
excess of one year are as follows: (IN THOUSANDS)
2003 $ 1,099
2004 1,009
2005 976
2006 1,014
2007 998
Thereafter 5,443
-------------
Total $ 10,539
=============
Rent expense charged to operations was $969,000, $982,000 and $1,351,000
for the year ended December 31, 2002, nine months ended December 31, 2001 and
for the fiscal year ended March 31, 2001, respectively.
In 1991, the Company and Paragon entered into an agreement ("old
agreement") to provide the Company with the option to convert EVV into a
"permanent partnership" of unlimited duration. Under the old agreement, the
Company had made payments totaling $1,070,000 to Paragon to have the right to
extend the life of the joint venture. Under a new agreement, entered into on
December 27, 1996 ("new agreement"), the Company agreed to further payments
totaling $4,540,000, which provided for the Company's continued 50% ownership
throughout the remaining life of the joint venture. The payments made to extend
the life of the joint venture and maintain continuing ownership of the joint
venture are included in goodwill and were being amortized over 40 years through
December 31, 2001. Per FASB pronouncements No. 141 and 142, goodwill will no
longer be amortized. Also, in December 2001, the Company purchased 50% of the
brand name, Edna Valley, for $200,000, which is currently licensed to the joint
venture by Paragon.
The Company has contracted with various growers and certain wineries to
supply a large portion of its future grape requirements and a smaller portion of
its future bulk wine requirements. The Company estimates that it has contracted
to purchase approximately 9,000 to 13,000 tons of grapes per year over the next
ten years. While most of these contracts stipulate that prices will be
determined by current market conditions at the time of purchase, several
long-term contracts provide for minimum grape or bulk wine prices. Purchases
under these contracts were $18,883,000 and $19,570,000 for the year ended
December 31, 2002 and the nine-months ended December 31, 2001.
NOTE 15 - DERIVATIVE INSTRUMENTS
Effective April 1, 2001, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 133, "Accounting for Derivative Instruments
and Hedging Activities." SFAS 133 as amended by SFAS 138, "Accounting for
Certain Derivative Instruments and Certain Hedging Activities", requires that
derivative instruments, including certain derivative instruments embedded in
other contracts, be recorded as assets or liabilities, measured at fair value.
For each period, changes in fair value are reported in current earnings or other
comprehensive income, depending on whether a derivative is designated as part of
a hedge transaction and, if it is, the type of hedge transaction. SFAS No. 133
also requires the Company to formally document, designate, and assess the
effectiveness of transactions that receive hedge accounting treatment. Upon
adoption of SFAS No. 133, the Company recorded a derivative liability of
$318,000 and, as other comprehensive income, $189,000 ($318,000 pre-tax)
representing the cumulative effect of this change in accounting principle as the
Company has designated the contract as a highly effective cash flow hedge. The
fair value of this derivative (an interest rate swap) as of December 31, 2002
was $1,355,000. The net change in the swap's carrying value from December 31,
2001 to December 31, 2002 of $408,000 (net of tax of $284,000) is reflected as a
reduction to other comprehensive loss in shareholders' equity. The estimated
loss expected to be reclassified into earnings for the year ending December 31,
2003 is $337,000.
36
NOTE 16 - OBLIGATIONS UNDER CAPITAL LEASE
The Company leases barrels under long-term leases and has the option to
purchase the barrels for a nominal cost at the termination of the lease.
Property, plant and equipment include $945,500 of assets held under capital
leases, which is net of accumulated amortization of $2,207,000. Future minimum
lease payments for assets under capital leases at December 31, 2002 are as
follows: (IN THOUSANDS)
2003 $ 891
2004 891
2005 467
-------
Total minimum lease payments $ 2,249
Less amount representing interest (204)
-------
Present value of net minimum lease payments 2,045
Less current portion (716)
-------
Obligations under capital lease, less current portion $ 1,329
========
NOTE 17 - QUARTERLY DATA (UNAUDITED)
The Company's quarterly operating results for the twelve-month period ended
December 31, 2002, the nine-month transition period ended December 31, 2001 and
the fiscal year ended March 31, 2001 are summarized below (IN THOUSANDS, EXCEPT
PER SHARE DATA):
Gross EPS
Quarter ended revenues Gross profit Net income (diluted)
- ------------------ -------- ------------ ---------- ---------
December 31, 2002 $ 20,801 $ 5,664 $ 694 $ 0.06
September 30, 2002 19,012 6,633 664 0.05
June 30, 2002 13,227 4,480 460 0.04
March 31, 2002 15,961 5,351 478 0.04
December 31, 2001 16,209 5,794 654 0.06
September 30, 2001 12,817 4,926 525 0.05
June 30, 2001 13,327 4,870 414 0.04
March 31, 2001 14,656 4,938 473 0.05
December 31, 2000 18,828 6,453 789 0.08
September 30, 2000 14,211 4,315 240 0.02
June 30, 2000 14,518 5,412 548 0.05
EPS calculations for each of the quarters are based on the weighted average
common and common equivalent shares outstanding for each period, and the sum of
the quarters may not be necessarily equal to the full year EPS amount. EPS for
the quarter ended December 31, 2001 was calculated using net income available to
common stockholders.
NOTE 18 - RECLASSIFICATIONS
In July 2002, the Company shifted a major distribution channel from a
broker to a distributor. Commissions and shipping costs incurred for sales to
the broker were recorded as selling, general and administrative expenses. Case
prices charged to the distributor have been reduced by an amount equal to these
commission and shipping costs. This caused a reduction of $1,266,000 in gross
revenues for the year ended December 31, 2002, when compared to previous
periods. For comparability purposes, the Company reclassified $2,130,000 of
commissions and shipping costs from selling, general and administrative expenses
to net revenues for the nine months ended December 31, 2001.
In addition, certain other prior period amounts have been reclassified in
order to conform to the current period presentation.
37
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
The Chalone Wine Group, Ltd.
We have audited the accompanying consolidated balance sheets of The Chalone
Wine Group, Ltd., as of December 31, 2002 and 2001, and the related consolidated
statements of income, shareholders' equity, and cash flows for the year ended
December 31, 2002 and the nine months ended December 31, 2001. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of The Chalone
Wine Group, Ltd., as of December 31, 2002 and 2001, and the results of its
operations and cash flows for the year ended December 31, 2002 and the nine
months ended December 31, 2001, in conformity with accounting principles
generally accepted in the United States of America.
As discussed in Note 2 to the consolidated financial statements, effective
January 1, 2002, the Company adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets".
/s/ MOSS ADAMS LLP
Santa Rosa, California
February 21, 2003
38
INDEPENDENT AUDITORS' REPORT
Board of Directors and Shareholders
The Chalone Wine Group, Ltd.
We have audited the accompanying consolidated statements of income,
shareholders' equity, and cash flows for the year ended March 31, 2001. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provide a reasonable
basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in
all material respects, the results of operations and cash flows of The Chalone
Wine Group, Ltd. and subsidiaries for the year ended March 31, 2001 in
conformity with accounting principles generally accepted in the United States of
America.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
May 11, 2001
39
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement relating to the 2003 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission within 120
days after December 31, 2002.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement relating to the 2003 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission within 120
days after December 31, 2002.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDERS MATTERS.
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement relating to the 2003 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission within 120
days after December 31, 2002.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is incorporated herein by reference
to the Company's Proxy Statement relating to the 2003 Annual Meeting of
Shareholders to be filed with the Securities and Exchange Commission within 120
days after December 31, 2002.
ITEM 14. CONTROLS AND PROCEDURES.
Within the 90-day period prior to the date of the report, the Company
carried out an evaluation, under the supervision and with the participation of
the Company's management, including its Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of the
Company's disclosure controls and procedures. Based on that evaluation, the
Chief Executive Officer and the Chief Financial Officer concluded that the
Company's disclosure controls and procedures are effective in a timely manner to
alert them to material information relating to the Company, which is required to
disclosed by the Company in the reports that it files or submits under the
Securities Exchange Act of 1934. There have been no significant changes in our
internal or other factors that could adversely affect these controls, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
A(1). FINANCIAL STATEMENTS.
The following financial statements of the Company are included in PART II,
ITEM 8:
PAGE
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets......................................... 20
Consolidated Statements of Income................................... 21
Consolidated Statements of Shareholders' Equity..................... 22
Consolidated Statements of Cash Flows............................... 23
Notes to Consolidated Financial Statements.......................... 24
INDEPENDENT AUDITORS REPORTS............................................. 37, 38
A(2). FINANCIAL STATEMENT SCHEDULES.
Schedules are omitted because they are not applicable, not required, were
filed subsequent to the filing of the Form 10-K, or because the information
required to be set forth herein is included in the consolidated financial
statements or in notes thereto.
40
B. REPORTS ON FORM 8-K.
The Company filed no reports on Form 8-K during the last quarter of the
period covered by this Report:
C. EXHIBITS.
A copy of any exhibits (at a reasonable cost) or the Exhibit Index will be
furnished to any shareholder of the Company upon receipt of a written request
therefor. Such request should be sent to The Chalone Wine Group, Ltd., 621
Airpark Road, Napa, California 94558, Attention: Investor Relations.
41
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
3.1 Restated Articles of Incorporation, as amended through
June 3, 1985. ((3))
3.2 Amendment to Restated Articles, filed June 6, 1988. (ii)
3.3 Amendment to Restated Articles, filed May 17, 1991. (iii)
3.4 Amendment to Restated Articles, filed July 14, 1993. (iv)
3.5 Bylaws, as amended through December 1992. (i)
3.6 1993 Bylaw amendments. (iv)
3.7 Amendment to Restated Articles, filed June 24 ,2002
4.1 5% Convertible Subordinated Debenture Due 1999 (SDBR
Debenture), issued to Les Domaines Barons de Rothschild
(Lafite) ("DBR"), dated April 19, 1989. (v)
4.2 Shareholders' Agreement between the Company and DBR,
dated April 19, 1989. (v)
4.3 Form of 5% Convertible Subordinated Debenture Due
1999 (third-party debentures), issued April 19 and 28, 1989. (v)
4.4 5% Convertible Subordinated Debenture Due 1999 (1991
Debenture), issued to DBR, dated September 30, 1991. (vi)
4.5 Addendum to Shareholders' Agreement, between the Company
and DBR, dated September 30, 1991. (vi)
4.6 Common Stock Purchase Agreement, between the Company and
certain designated investors, dated March 29, 1993. (vii)
- ----------
(i) Incorporated by reference to Exhibit No. 3.3 to the Company's Annual
Report on Form 10-K for the year ended December 31, 1991, dated
March 25, 1992.
(ii) Incorporated by reference to Exhibit Nos. 3.4 and 3.6, respectively,
to the Company's Annual Report on Form 10-K for the year ended
December 31, 1993, dated March 26, 1994.
(iii) Incorporated by reference to Exhibit Nos. 1, 4 and 5, respectively,
to the Company's Current Report on Form 8-K dated April 28, 1989.
(iv) Incorporated by reference to Exhibit Nos. 1 and 3, respectively, to
the Company's Current Report on Form 8-K dated September 30, 1991.
(vii) Incorporated by reference to Exhibit No. 1 to the Company's Current
Report on Form 8-K dated March 31, 1993.
42
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
4.7 Form of Warrant for the purchase in the aggregate of up to
828,571 shares of the Company's common stock, issued to
certain designated investors, effective July 14, 1993. (i)
4.8 Voting Agreement, between Richard H. Graff, William L.
Hamilton, John A. McQuown, W. Philip Woodward, DBR,
Richard C. Hojel, and Summus Financial, Inc., dated March
29, 1993. ((3))
4.9 Common Stock Purchase Agreement, between the Company and
certain designated investors, dated April 22, 1994. (ii)
4.10 Form of Warrant for the purchase in the aggregate of up to
833,333 shares of the Company's common stock, issued to
certain designated investors, effective October 25, 1995. (iii)
4.11 Voting Agreement, between W. Philip Woodward, DBR,
and Summus Financial, Inc., dated October 25, 1995. (iii)
4.12 Voting Agreement, dated August 31, 2001, between DBR and SFI (vi)
Intermediate, Ltd.
10.1 Joint Venture Agreement between the Company and Paragon
Vineyard Co., Inc. ("Paragon"), effective January 1, 1991. (iv)
10.2 Revised Grape Purchase Agreement between Edna Valley Vineyard
Joint Venture and Paragon, effective January 1, 1991. (iv)
10.3 License Agreement between Edna Valley Vineyard Joint Venture
and Paragon, effective January 1, 1991. (iv)
10.4 Ground Lease between Edna Valley Vineyard Joint Venture and
Paragon, effective June 1, 1991. (iv)
10.5 Amended and Restated Commercial Winery and Agricultural
Lease, dated July 31, 1986, assigned by Assignment and
Assumption Agreement among the Company, Lakeside Winery
and Vista de Los Vinedos, dated August 5, 1986. (v)
- ----------
(i) Incorporated by reference to Exhibit Nos. 1 and 6, respectively, to
the Exhibit herein referenced as Exhibit 4.8.
(ii) Incorporated by reference to Exhibit No. 1 to the Company's Current
Report on Form 8-K dated April 27, 1994.
(iii) Incorporated by reference to Exhibit D to Appendix 1 to the
Company's Proxy Statement for a Special Meeting of Shareholders,
filed October 25, 1995.
(iv) Incorporated by reference to Exhibit Nos. 1, 3, 4 and 2,
respectively, to the Company's Current Report on Form 8-K dated May
30, 1991.
(v) Incorporated by reference to Exhibit No. 10.10 to the Company's
Registration Statement on Form S-1 (File No. 33-8666), filed
September 11, 1986.
(vi) Incorporated by reference to Exhibit No. 99.1 to the Company's
Current Report on Form 8-K Dated August 31, 2001.
43
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
10.6 Novation and Modification Agreement, between the Company
and Henry P. and Marina C. Wright, dated July 15, 1988,
Amending Agreement incorporated as Exhibit 10.5. (i)
10.7 Tenancy in Common Agreement, between the Company
and Henry P. and Marina C. Wright, dated July 15, 1988. ((3))
10.8 Vineyard Lease, between the Company and Henry P. and
Marina C. Wright, dated July 15, 1988. ((3))
10.9 1988 Qualified Profit-Sharing Plan, approved May 21, 1988. (ii)
10.11 Amendment No. 2 to Qualified Profit Sharing Plan,
incorporated as Exhibit 10.9, dated February 7, 1990. (iii)
10.12 Profit Sharing Trust Agreement ((3))
10.13 Easement Agreement between the Company and Stonewall
Canyon Ranches, dated August 19, 1988. ((3))
10.14 1987 Stock Option Plan, as amended effective May 16, 1991. (iv)
10.15 1988 Non-Discretionary Stock Option Plan, as amended
effective May 16, 1991. (iv)
10.16 Employee Stock Purchase Plan, as amended effective May 16,
1991. (iv)
10.17 Amendment/Extension of Employee Stock Purchase Plan,
effective July 13, 1993. (v)
10.18 Agreement of Joint Venture, between the Company and Canoe
Ridge Vineyard, Incorporated [CRVI], dated December 31, 1990. (vi)
- ----------
(i) Incorporated by reference to Exhibit Nos. 10.22, 10.20 and 10.21,
respectively, to the Company's Annual Report on Form 10-K for the
year ended December 31, 1988, dated March 11, 1989.
(ii) Incorporated by reference to Exhibit Nos. 10.16, 10.17 and 10.24,
respectively, to the Company's Annual Report on Form 10-K for the
year ended December 31, 1988, dated March 11, 1989.
(iii) Incorporated by reference to Exhibit Nos. 10.17 and 10.18,
respectively, to the Company's Annual Report on Form 10-K for the
year ended December 31, 1989, dated March 27, 1990.
(iv) Incorporated by reference to Exhibit Nos. 10.23, 10.24 and 10.25,
respectively, to the Company's Annual Report on Form 10-K for the
year ended December 31, 1991, dated March 25, 1992.
(v) Incorporated by reference to Exhibit Nos. 10.22 and 10.29,
respectively, to the Company's Annual Report on Form 10-K for the
year ended December 31, 1993, dated March 26, 1994.
(vi) Incorporated by reference to Exhibit No. 10.27 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1990,
dated March 26, 1991.
44
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
10.19 Credit Agreement between the Company and Wells Fargo Bank,
dated July 20, 1992. (i)
10.20 Industrial Real Estate Lease, dated February 19, 1993. ((3))
10.21 First Amendment to Credit Agreement between the Company
and Wells Fargo Bank incorporated as Exhibit 10.19, dated
March 18, 1993. ((3))
10.22 First Amendment to Industrial Real Estate Lease
incorporated as Exhibit 10.20, dated December 8, 1993. (ii)
10.23 Credit Agreement between the Company and Wells Fargo Bank,
dated August 30, 1993. (iii)
10.24 First Amendment to Credit Agreement between the Company and
Wells Fargo Bank, attached as Exhibit 10.22, dated March
24, 1994. (iii)
10.25 Credit Agreement between the Company and Wells Fargo Bank,
dated July 29, 1994. (iii)
10.26 Canoe Ridge Winery, Inc., Shareholders' Agreement, among the
Company and designated Washington State investors, dated
November 30, 1994. (iii)
10.27 Amendment to Employee Stock Purchase Plan, effective
January 1, 1995. (iii)
10.28 Omnibus Agreement between the Company, DBR,
and Summus Financial, dated August 22, 1995. (iv)
10.29 Credit Agreement between the Company and Wells Fargo Bank,
dated December 29, 1995. (v)
- ----------
(i) Incorporated by reference to Exhibit Nos. 10.24 through 10.27,
respectively, to the Company's Annual Report On Form 10-K for the
year ended December 31, 1992, dated March 29, 1993.
(ii) Incorporated by reference to Exhibit Nos. 10.22 and 10.29,
respectively, to the Company's Annual Report On Form 10-K for the
year ended December 31, 1993, dated March 26, 1994.
(iii) Incorporated by reference to Exhibit Nos. 10.23 through 10.27,
respectively, to the Company's Annual Report On Form 10-K for the
year ended December 31, 1994, dated March 27, 1995.
(iv) Incorporated by reference to Appendix I to the Company's Proxy
Statement for a Special Meeting of Shareholders, Filed October 25,
1995.
(v) Incorporated by reference to Exhibit No. 10.21 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
45
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
10.30 Credit Agreement between Edna Valley Vineyard and
Wells Fargo Bank, dated July 31, 1995. (i)
10.31 Purchase Agreement between the Company,
Richard H. Graff, Trustee, Graff 1993 Trust dated
June 10, 1993, a trust and Richard H. Graff an
individual, dated July 1, 1996. ((3))
10.32 Promissory Note between the Company and Richard H. Graff,
dated July 1, 1996. ((3))
10.33 Secured Purchase Money Promissory Note between the Company
and Richard H. Graff, Trustee, Graff 1993 Trust, dated
July 1, 1996. ((3))
10.34 Residential Lease between the Company and Richard H. Graff,
dated July 1, 1996. ((3))
10.35 Consulting and Non-Competition Agreement between the Company
and Richard H. Graff, date July 1, 1996. ((3))
10.36 Credit Agreement between the Canoe Ridge Vineyard, LLC,
and Wells Fargo Bank, dated August 15, 1996. ((3))
10.37 Credit Agreement between the Company and Wells Fargo Bank,
dated September 25, 1996. ((3))
10.38 Amendment to Joint Venture Agreement of Edna
Valley Vineyard between Paragon Vineyard Co., Inc.,
and the Company, dated December 23, 1996. ((3))
10.39 Credit Agreement between the Company and Wells Fargo Bank,
dated July 30, 1997. (ii)
10.40 Credit Agreement between Edna Valley Vineyard and
Wells Fargo Bank, dated July 30, 1997. (ii)
10.41 Credit Agreement between Canoe Ridge Vineyard, LLC,
and Wells Fargo Bank, dated July 30, 1997. (ii)
10.42 First Amendment to Credit Agreement between the Company
and Wells Fargo Bank incorporated as Exhibit 10.39, dated
January 5, 1998. (ii)
10.43 Second Amendment to Credit Agreement between the Company
and Wells Fargo Bank incorporated as Exhibit 10.39, dated
June 9, 1998. (ii)
- ----------
(i) Incorporated by reference to Exhibit nos. 10.30 through 10.38,
respectively, to the Company's Annual Report on Form 10-K for the
year ended December 31, 1996.
(ii) Incorporated by reference to Exhibit nos. 10.39 through 10.45,
respectively, to the Company's Annual Report on Form 10-K for the
year ended March 31, 1998.
46
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
10.44 First Amendment to Credit Agreement between Edna Valley
Vineyard and Wells Fargo Bank incorporated as Exhibit 10.40,
dated June 9, 1998. (i)
10.45 First Amendment to Credit Agreement between Canoe Ridge
Vineyard, LLC and Wells Fargo Bank incorporated as
Exhibit 10.41, dated June 9, 1998. ((3))
10.46 Lease-Purchase Agreement between the Company and Frances
Goodwin, Trustee of Lois Martinez Trust, dated December
30, 1999. (ii)
10.47 Credit Agreement by and between Cooperative Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland,"
New York Branch and the Company, dated March 31, 1999. (ii)
10.48 Term Loan Promissory Note between Cooperative Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland," New
York Branch and the Company, dated March 31, 1999. (ii)
10.49 Revolving Loan Promissory Note between Cooperative
Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
Nederland," New York Branch and the Company, dated March
31, 1999. (ii)
10.50 Purchase Agreement among Peter Ansdell, SHW Equity Co., and
the Company, and SHW Equity Co., dated June 15, 1999. (ii)
10.51 Senior unsecured notes (series A,B,C) between Agstar
Financial Services, Farm Credit Services of
America and the Company, dated September 15, 2000. (iii)
10.52 Amendment to agreement between Agstar Financial Services,
Farm Credit Services of America and the Company dated
February, 2001. (iv)
10.53 Revolving Loan Promissory Note renewal between Cooperative
Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank Nederland,"
New York Branch and the Company, dated March 31, 2001. (v)
10.54 Credit Agreement between Cooperative Centrale Raiffeisen-
Boerenleenbank B.A., "Rabobank International," New York
Branch and the Company, dated April 19, 2002.
- ----------
(i) Incorporated by reference to Exhibit Nos. 10.39 through 10.45,
respectively, to the Company's Annual Report on Form 10-K for the
year ended March 31, 1998.
(ii) Incorporated by reference to Exhibit Nos. 10.46 through 10.50,
respectively, to the Company's Annual Report on Form 10-K for the
year ended March 31, 1999.
(iii) Incorporated by reference to Exhibit Nos. 10.23 through 10.27,
respectively, to the Company's Annual Report on Form 10-K for the
year ended December 31, 1994, dated march 27, 1995.
(iv) Incorporated by reference to Appendix I to the Company's Proxy
Statement for a Special Meeting of Shareholders, Filed October 25,
1995.
(v) Incorporated by reference to Exhibit No. 10.21 to the Company's
Annual Report on Form 10-K for the year ended December 31, 1995.
47
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
10.55 Amended and Restated Note Purchase Agreement between Agstar
Financial Services, Farm Credit Services of America and the
Company, dated April 19, 2002.
10.56 Second Amendment to Joint Venture Agreement of Edna Valley
Vineyard between Paragon Vineyard Co., and the Company, dated
June 2002.
10.57 Second Amended and Restated Grape Purchase Agreement between
Paragon Vineyard Co., and Edna Valley Vineyard, dated June 2002.
10.58 First Amendment to Credit Agreement and Consent between
Cooperative Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
International," New York Branch and the Company, dated August
2002
10.59 First Amendment and Consent to Amended and Restated
Note Purchase Agreement between the Company and
AgStar Financial Services and Farm Credit Services of
America, dated August 23, 2002.
10.60 Convertible Note Purchase Agreement between the Company and SFI
Intermediate Limited and Les Domaines Baron de
Rothchild (Lafite), dated August 21, 2002.
10.61 Convertible Subordinated Promissory Note between the Company and
Les Domaines Baron, de Rothchild (Lafite), dated August 21, 2002.
10.62 Subordination Agreement between Les Domaines Baron de
Rothchild (Lafite) and each of the Senior Lenders,
dated August 21, 2002.
10.63 Convertible Subordinated Promissory Note between the Company and
SFI Intermediate Limited, dated August 2002.
10.64 Subordination Agreement between SFI Intermediate
Limited and each of the Senior Lenders, dated August
21, 2002.
10.65 Registration Rights Agreement between the Company and SFI
Intermediate Limited and Les Domaines Baron de Rothchild
(Lafite), dated August 21, 2002.
23 Consent of Deloitte & Touche LLP to incorporation by reference,
dated March 29, 2002.
23.1 Consent of Moss Adams LLP to incorporation by reference, dated
March 27, 2002.
23.2 Consent of Deloitte & Touche LLP to incorporation by
reference, dated March 31, 2003.
23.3 Consent of Moss Adams LLP to incorporation by reference, dated
March 27, 2003.
48
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
99.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
99.2 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted
Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
49
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
THE CHALONE WINE GROUP, LTD.
By /s/ THOMAS B. SELFRIDGE
-----------------------------------------------------
Thomas B. Selfridge
Chief Executive Officer
(Principal Executive Officer)
By /s/ SHAWN M. CONROY BLOM
-----------------------------------------------------
Shawn Conroy Blom
Vice President of Finance and Chief Financial Officer
Dated: March 31, 2003
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities and on the dates indicated.
/s/ THOMAS B. SELFRIDGE Director March 31, 2003
- -------------------------------------
Thomas B. Selfridge
/s/ CHRISTOPHE SALIN Chairman March 31, 2003
- -------------------------------------
Christophe Salin
/s/ W. PHILIP WOODWARD Director March 31, 2003
- -------------------------------------
W. Philip Woodward
/s/ CRISTINA G. BANKS Director March 31, 2003
- -------------------------------------
Cristina G. Banks
/s/ GEORGE E. MYERS Director March 31, 2003
- -------------------------------------
George E. Myers
/s/ JAMES H. NIVEN Director March 31, 2003
- -------------------------------------
James H. Niven
/s/ ERIC DE ROTHSCHILD Director March 31, 2003
- -------------------------------------
Eric de Rothschild
/s/ MARK HOJEL Director March 31, 2003
- -------------------------------------
Mark Hojel
50
/s/ YVES-ANDRE ISTEL Director March 31, 2003
- -------------------------------------
Yves-Andre Istel
/s/ PHILLIP M. PLANT Director March 31, 2003
- -------------------------------------
Phillip M. Plant
/s/ C. RICHARD KRAMLICH Director March 31, 2003
- -------------------------------------
C. Richard Kramlich
51
THE CHALONE WINE GROUP, LTD.
DIRECTORS, OFFICERS & WINERY LOCATIONS
BOARD OF DIRECTORS
Christophe Salin, CHAIRMAN
Thomas B. Selfridge, PRESIDENT & CHIEF EXECUTIVE OFFICER
W. Philip Woodward
Cristina G. Banks
Mark A. Hojel
Yves-Andre Istel
C. Richard Kramlich
George E. Myers
James H. Niven
Phillip M. Plant
Eric de Rothschild
OFFICERS
Christophe Salin, CHAIRMAN
Thomas B. Selfridge, PRESIDENT & CHIEF EXECUTIVE OFFICER
Shawn M. Conroy Blom, VICE PRESIDENT OF FINANCE AND CHIEF FINANCIAL OFFICER
Robert B. Farver, VICE PRESIDENT OF SALES AND DISTRIBUTION
Alan S. Drage-Lussier, VICE PRESIDENT OF HUMAN RESOURCES
ACACIA VINEYARD
2750 Las Amigas Road, Napa, California 94559
707.226.9991
www.acaciavineyard.com
CANOE RIDGE VINEYARD
1102 W. Cherry Street, Walla Walla, Washington 99362
509.527.0885
www.canoeridgevineyard.com
MOON MOUNTAIN VINEYARD
1700 Moon Mountain Drive, Sonoma, California 95476
707.996.5870
CHALONE VINEYARD
Stonewall Canyon Road & Highway 146, Soledad, California 93960
831.678.1717
www.chalonevineyard.com
ECHELON VINEYARDS
2425 Mission Street, San Miguel, California 93401
707.254.4200
www.echelonvineyards.com
EDNA VALLEY VINEYARD
2585 Biddle Ranch Road, San Luis Obispo, California 93401
805.544.5855www.endavalley.com
JADE MOUNTAIN
621 Airpark RoadCalifornia 94558
707.254-4200
www.jademountainvineyard.com
SAGELANDS WINERY
71 Gangl Road, Wapato, Washington 98951
509.877.2112
www.sagelandsvineyard.com
52
PROVENANCE VINEYARDS
1695 St. Helena Highway, Rutherford, California 94573
707.968-3633
www.provenancevineyards.com
Hewitt Vineyard
1695 St. Helena Highway, Rutherford, California 94573
707-968-3633
CORPORATE OFFICE
621 Airpark Road, Napa, California 94558-6272
707.254.4200
WWW.CHALONEWINEGROUP.COM
CHALONE WINE FOUNDATION
1000 Main Street, Suite 210
Napa, CA 94559
707.254.1160
COMMON STOCK
Chalone Wine Group, Ltd.
Common stock is currently traded over-the-counter in the NASDAQ National Market
System, under the symbol "CHLN."
STOCK TRANSFER AGENT
EquiServe
P.O. Box 8040
Boston, MA 02266-8040
Investor Relations Number 781.575.3120
Internet Address: HTTP://WWW.EQUISERVE.COM
INDEPENDENT AUDITORS
Moss Adams LLP
Santa Rosa, California
LEGAL COUNSEL
Farella Braun + Martel, LLP
San Francisco, California
ANNUAL MEETING
The Annual Meeting of Shareholders will be held on Thursday, May 29, 2003, at
2:00pm at Chalone Wine Group's corporate office, 621 Airpark Road, Napa,
California.
ANNUAL REPORT (FORM 10-K)
A copy of the Company's Annual Report, Form 10-K for the year ended December 31,
2002 is filed with the Securities & Exchange Commission and is available to
shareholders by written request to:
Chalone Wine Group
Attn: Investor Relations
621 Airpark Road
Napa, California 94558-6272
53
CHALONE WINE GROUP, LTD.
I, SHAWN M. CONROY BLOM, certify that:
1. I have reviewed this annual report on Form 10-K of The Chalone Wine Group;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "EVALUATION DATE"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls;
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
DATED: MARCH 31, 2003 THE CHALONE WINE GROUP, LTD.
- ----------------------- ----------------------------
(Registrant)
/s/ SHAWN M. CONROY BLOM
------------------------------------------
Shawn M. Conroy Blom
Vice President and Chief Financial Officer
54
CHALONE WINE GROUP, LTD.
I, THOMAS B. SELFRIDGE, certify that:
1. I have reviewed this annual report on Form 10-K of The Chalone Wine Group;
2. Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
3. Based on my knowledge, the financial statements, and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
(a) designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this annual report
is being prepared;
(b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "EVALUATION DATE"); and
(c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's auditors and the audit committee of registrant's
board of directors (or persons performing the equivalent function):
(a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and
(b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls;
6. The registrant's other certifying officers and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of our most recent evaluation, including
any corrective actions with regard to significant deficiencies and material
weaknesses.
DATED: MARCH 31, 2003 THE CHALONE WINE GROUP, LTD.
- ---------------------- ---------------------------
(Registrant)
/s/ THOMAS B. SELFRIDGE
-------------------------------------
Thomas B. Selfridge
President and Chief Executive Officer
55
EX-3.(I)
3
ex3-7.txt
EXHIBIT 3.7 - RESTATED ARTICLES OF INCORPORATION
EXHIBIT 3.7
CERTIFICATE OF AMENDMENT
OF
RESTATED ARTICLES OF INCORPORATION
OF
THE CHALONE WINE GROUP, LTD.,
a California corporation
The undersigned, Thomas B. Selfridge and Daniel E. Cohn,
hereby certify that:
ONE: They are the duly elected and acting President and Chief
Executive Officer and the Secretary, respectively, of The Chalone Wine Group,
Ltd. a California corporation.
TWO: Article THIRD of the Restated Articles of Incorporation
of this corporation is amended to read in its entirety as follows:
"THIRD. The Corporation is authorized to issue only one class
of stock; and the total number of shares which the Corporation
is authorized to issue is Twenty-Five Million (25,000,000)."
THREE: The foregoing amendment of the Restated Articles of
Incorporation of this corporation has been duly approved by the Board of
Directors of this corporation.
FOUR: The foregoing amendment of the Restated Articles of
Incorporation of this corporation has been duly approved by the required vote of
shareholders in accordance with Sections 902 and 903 of the California
Corporations Code. The total number of outstanding shares is 12,068,944. The
percentage vote required was fifty percent (50%) or more of the outstanding
shares and the number of shares voting in favor of the foregoing amendment
equaled or exceeded the vote required.
We further declare under penalty of perjury that the matters
set forth in the foregoing certificate are true and correct of our own
knowledge.
Executed at Napa, California, on June 18, 2002.
/s/ THOMAS B. SELFRIDGE
__________________________________
Thomas B. Selfridge, President and
Chief Executive Officer
/s/ DANIEL E. COHN
__________________________________
Daniel E. Cohn, Secretary
EX-10
4
ex10-54.txt
EXHIBIT 10.54 - CREDIT AGREEMENT
================================================================================
THE CHALONE WINE GROUP, LTD.
________________________________
CREDIT AGREEMENT
Dated as of April 19, 2002
________________________________
COOPERATIEVE CENTRALE RAIFFEISEN -
BOERENLEENBANK B.A.,
"RABOBANK INTERNATIONAL", NEW YORK BRANCH
ARRANGER, ADMINISTRATIVE AGENT SWINGLINE LENDER AND ISSUING LENDER
================================================================================
TABLE OF CONTENTS
PAGE
ARTICLE I DEFINITIONS ......................................................1
SECTION 1.01 Certain Defined Terms........................................1
SECTION 1.02 Accounting Principles.......................................24
(A) ACCOUNTING TERMS.....................................24
(B) GAAP CHANGES.........................................24
(c) "FISCAL YEAR" AND "FISCAL QUARTER"...................24
SECTION 1.03 Interpretation..............................................24
ARTICLE II THE LOANS.......................................................25
SECTION 2.01 The Loans...................................................25
(A) REVOLVING LOANS......................................25
(B) TERM LOANS...........................................26
(C) SWINGLINE LOANS......................................26
(D) ADDITIONAL TERM LOANS................................26
SECTION 2.02 Borrowing Procedure - Revolving Loans and Term Loans........26
(A) NOTICE TO THE AGENT..................................26
(B) NOTICE TO THE LENDERS................................27
(C) NON-RECEIPT OF FUNDS.................................27
SECTION 2.03 Borrowing Procedure--Swingline Loans........................27
(A) NOTICE TO THE AGENT..................................27
(b) PARTICIPATIONS IN SWINGLINE LOANS:...................28
SECTION 2.04 Lending Offices.............................................29
SECTION 2.05 Evidence of Indebtedness....................................29
SECTION 2.06 Minimum Amounts.............................................30
SECTION 2.07 Required Notice.............................................30
ARTICLE III THE LETTERS OF CREDIT..........................................30
SECTION 3.01 The Letter of Credit Subfacility............................30
(A) LETTERS OF CREDIT....................................30
(B) CONDITIONS TO ISSUANCE...............................31
SECTION 3.02 Issuance, Amendment and Renewal of Letters of Credit........32
(A) NOTICE TO ISSUING LENDER OF ISSUANCE REQUEST.........32
(B) ISSUANCE OF LETTERS OF CREDIT........................32
(C) NOTICE TO ISSUING LENDER OF AMENDMENT REQUEST........32
(D) NOTICE TO ISSUING LENDER OF RENEWAL REQUEST..........33
(E) EXPIRY OF LETTERS OF CREDIT..........................33
(F) CONFLICTS WITH L/C-RELATED DOCUMENTS.................33
(G) DELIVERY OF COPIES OF LETTERS OF CREDIT..............33
(H) NOTICES TO LENDERS...................................33
SECTION 3.03 Participations, Drawings and Reimbursements.................34
(A) PARTICIPATIONS OF LENDERS IN ADDITIONAL LETTERS
OF CREDIT..........................................34
(B) DRAWING AND REIMBURSEMENT............................34
(C) FUNDING BY LENDERS...................................34
i.
PAGE
(D) L/C UNREIMBURSED DRAWINGS............................35
(E) OBLIGATION OF LENDERS ABSOLUTE.......................35
SECTION 3.04 Repayment of Participations.................................35
SECTION 3.05 Role of the Issuing Lender..................................35
(A) NO RESPONSIBILITY OF ISSUING LENDER..................35
(B) NO LIABILITY OF AGENT/IB-RELATED PERSONS.............36
SECTION 3.06 Obligations of Borrower Absolute............................36
SECTION 3.07 Cash Collateral Pledge......................................37
SECTION 3.08 Letter of Credit Fees.......................................37
(A) CERTAIN LETTER OF CREDIT FEES........................37
(B) CERTAIN ADDITIONAL FEES AND CHARGES..................38
(C) FEES NONREFUNDABLE...................................38
SECTION 3.09 Applicability of ISP98......................................38
ARTICLE IV INTEREST AND FEES; CONVERSION OR CONTINUATION...................38
SECTION 4.01 Interest....................................................38
(A) INTEREST RATE........................................38
(B) INTEREST PERIODS.....................................39
(C) INTEREST PAYMENT DATES...............................39
(D) NOTICE TO THE BORROWER AND THE LENDERS...............40
SECTION 4.02 Default Rate of Interest....................................40
SECTION 4.03 Fees........................................................40
(A) COMMITMENT FEE.......................................40
(B) UPFRONT FEE..........................................40
(C) ANNUAL AGENCY FEE....................................40
(D) FEES NONREFUNDABLE...................................40
SECTION 4.04 Computations................................................40
SECTION 4.05 Conversion or Continuation..................................41
(A) ELECTION.............................................41
(B) AUTOMATIC CONVERSION.................................41
(C) NOTICE TO THE AGENT..................................41
(D) NOTICE TO THE LENDERS................................41
SECTION 4.06 Highest Lawful Rate.........................................42
ARTICLE V REDUCTION OF COMMITMENTS; REPAYMENT; PREPAYMENT..................42
SECTION 5.01 Reduction or Termination of the Commitments.................42
(A) OPTIONAL REDUCTION OR TERMINATION....................42
(B) MANDATORY TERMINATION................................42
(C) OTHER MANDATORY REDUCTIONS...........................42
(D) NOTICE...............................................43
(E) ADJUSTMENT OF COMMITMENT FEE; NO REINSTATEMENT.......43
SECTION 5.02 Repayment of the Loans......................................43
(A) REVOLVING LOANS......................................43
(B) TERM LOANS...........................................43
(C) SWINGLINE LOANS......................................43
ii.
PAGE
SECTION 5.03 Prepayments.................................................43
(A) OPTIONAL PREPAYMENTS.................................43
(B) MANDATORY PREPAYMENTS................................44
(C) ORDER OF APPLICATION.................................45
(D) NOTICE; APPLICATION..................................46
ARTICLE VI YIELD PROTECTION AND ILLEGALITY.................................46
SECTION 6.01 Inability to Determine Rates................................46
SECTION 6.02 Funding Losses..............................................47
SECTION 6.03 Regulatory Changes..........................................47
(A) INCREASED COSTS......................................47
(B) CAPITAL REQUIREMENTS.................................47
(C) REQUESTS.............................................48
SECTION 6.04 Illegality..................................................48
SECTION 6.05 Funding Assumptions.........................................48
SECTION 6.06 Obligation to Mitigate......................................48
SECTION 6.07 Substitution of Lenders.....................................48
ARTICLE VII PAYMENTS.......................................................49
SECTION 7.01 Pro Rata Treatment..........................................49
SECTION 7.02 Payments....................................................49
(A) PAYMENTS.............................................49
(B) APPLICATION..........................................49
(C) EXTENSION............................................49
SECTION 7.03 Taxes.......................................................50
(A) NO REDUCTION OF PAYMENTS.............................50
(B) DEDUCTION OR WITHHOLDING; TAX RECEIPTS...............50
(C) INDEMNITY............................................50
(D) FORMS................................................50
(E) MITIGATION...........................................51
SECTION 7.04 Non-Receipt of Funds........................................51
SECTION 7.05 Sharing of Payments.........................................51
ARTICLE VIII CONDITIONS PRECEDENT..........................................52
SECTION 8.01 Conditions Precedent to the Initial Credit Extensions.......52
(A) FEES AND EXPENSES....................................52
(B) LOAN DOCUMENTS.......................................52
(C) DOCUMENTS AND ACTIONS RELATING TO COLLATERAL.........52
(D) ADDITIONAL CLOSING DOCUMENTS AND ACTIONS.............53
(E) CORPORATE DOCUMENTS..................................54
(F) LEGAL OPINIONS.......................................54
(G) SENIOR SECURED NOTE DOCUMENTS........................55
(H) PRO-FORMA DEBT TO EBITDA RATIO.......................55
SECTION 8.02 Conditions Precedent to All Credit Extensions...............55
(A) NOTICE...............................................55
iii.
PAGE
(B) MATERIAL ADVERSE EFFECT..............................55
(C) REPRESENTATIONS AND WARRANTIES; NO DEFAULT...........55
(D) ADDITIONAL DOCUMENTS.................................56
ARTICLE IX REPRESENTATIONS AND WARRANTIES..................................56
SECTION 9.01 Representations and Warranties..............................56
(A) ORGANIZATION AND POWERS..............................56
(B) AUTHORIZATION; NO CONFLICT...........................56
(C) BINDING OBLIGATION...................................56
(D) CONSENTS.............................................56
(E) NO DEFAULTS..........................................57
(F) TITLE TO PROPERTIES; LIENS; USE......................57
(G) LITIGATION...........................................57
(H) COMPLIANCE WITH ENVIRONMENTAL LAWS...................57
(I) GOVERNMENTAL REGULATION..............................57
(J) ERISA................................................57
(K) SUBSIDIARIES.........................................58
(L) MARGIN REGULATIONS...................................58
(M) TAXES................................................58
(N) PATENTS AND OTHER RIGHTS.............................58
(O) INSURANCE............................................59
(P) FINANCIAL STATEMENTS.................................59
(Q) LIABILITIES..........................................59
(R) LABOR DISPUTES, ETC..................................59
(S) SOLVENCY.............................................59
(T) DISCLOSURE...........................................59
ARTICLE X COVENANTS........................................................59
SECTION 10.01 Reporting Covenants.........................................59
(A) FINANCIAL STATEMENTS AND OTHER REPORTS...............60
(B) ADDITIONAL INFORMATION...............................62
SECTION 10.02 Financial Covenants.........................................63
(A) LEVERAGE RATIO.......................................63
(B) MINIMUM CONSOLIDATED TANGIBLE NET WORTH..............63
(C) INTEREST COVERAGE RATIO..............................63
(D) FIXED CHARGE COVERAGE RATIO..........................64
(E) CAPITAL EXPENDITURES.................................64
SECTION 10.03 Additional Affirmative Covenants............................65
(A) PRESERVATION OF EXISTENCE, ETC.......................65
(B) PAYMENT OF OBLIGATIONS...............................65
(C) MAINTENANCE OF INSURANCE.............................65
(D) KEEPING OF RECORDS AND BOOKS OF ACCOUNT..............66
(E) INSPECTION RIGHTS....................................66
(F) COMPLIANCE WITH LAWS, ETC............................66
(G) MAINTENANCE OF PROPERTIES, ETC.......................66
iv.
PAGE
(H) LICENSES.............................................66
(I) ACTION UNDER ENVIRONMENTAL LAWS......................66
(J) USE OF PROCEEDS......................................67
(K) ADDITIONAL SUBSIDIARIES..............................67
(L) PROCEEDS OF EVENTS OF LOSS...........................67
(M) FURTHER ASSURANCES AND ADDITIONAL ACTS...............67
SECTION 10.04 Negative Covenants..........................................67
(A) INDEBTEDNESS.........................................67
(B) LIENS; NEGATIVE PLEDGES..............................69
(C) CHANGE IN NATURE OF BUSINESS.........................69
(D) RESTRICTIONS ON FUNDAMENTAL CHANGES..................69
(E) SALES OF ASSETS......................................69
(F) LOANS AND INVESTMENTS................................70
(G) SALES AND LEASEBACKS.................................71
(H) DISTRIBUTIONS. (i)..................................71
(I) AMENDMENTS OF CERTAIN DOCUMENTS......................72
(J) REDEMPTION OF SUBORDINATED DEBT......................72
(K) TRANSACTIONS WITH RELATED PARTIES....................72
(L) HAZARDOUS SUBSTANCES.................................73
(M) ACCOUNTING CHANGES...................................73
(N) FOREIGN SUBSIDIARIES.................................73
ARTICLE XI EVENTS OF DEFAULT...............................................73
SECTION 11.01 Events of Default...........................................73
(A) PAYMENTS.............................................73
(B) REPRESENTATIONS AND WARRANTIES.......................73
(C) FAILURE BY BORROWER TO PERFORM CERTAIN COVENANTS.....73
(D) FAILURE BY BORROWER TO PERFORM OTHER COVENANTS.......73
(E) INSOLVENCY; VOLUNTARY PROCEEDINGS....................74
(F) INVOLUNTARY PROCEEDINGS..............................74
(G) DEFAULT UNDER OTHER INDEBTEDNESS.....................74
(H) JUDGMENTS............................................75
(I) ERISA................................................75
(J) DISSOLUTION, ETC.....................................75
(K) MATERIAL ADVERSE EFFECT..............................75
(L) CHANGE IN OWNERSHIP OR CONTROL.......................75
(M) FAILURE BY GUARANTOR TO PERFORM COVENANTS;
INVALIDITY OF GUARANTY.............................75
(N) ENVIRONMENTAL INDEMNITY..............................76
(O) SUBORDINATION PROVISIONS.............................76
(P) COLLATERAL DOCUMENTS.................................76
SECTION 11.02 Effect of Event of Default..................................76
v.
PAGE
ARTICLE XII THE AGENT 77
SECTION 12.01 Authorization and Action....................................77
SECTION 12.02 Limitation on Liability of Agent; Notices; Closing..........77
(A) LIMITATION ON LIABILITY OF AGENT AND ISSUING
LENDER.............................................78
(B) NOTICES..............................................78
(C) CLOSING..............................................78
SECTION 12.03 Agent and Affiliates........................................79
SECTION 12.04 Notice of Defaults..........................................79
SECTION 12.05 Non-Reliance on Agent and Issuing Lender....................79
SECTION 12.06 Indemnification.............................................79
SECTION 12.07 Delegation of Duties........................................80
SECTION 12.08 Successor Agent.............................................80
SECTION 12.09 Collateral Matters..........................................80
(A) AUTHORIZATION........................................80
(B) COLLATERAL RELEASES..................................81
ARTICLE XIII MISCELLANEOUS.................................................81
SECTION 13.01 Amendments and Waivers......................................81
SECTION 13.02 Notices.....................................................82
(A) NOTICES..............................................82
(B) FACSIMILE AND TELEPHONIC NOTICE......................83
(C) ELECTRONIC MAIL......................................83
SECTION 13.03 No Waiver; Cumulative Remedies..............................83
SECTION 13.04 Costs and Expenses; Indemnification.........................83
(A) COSTS AND EXPENSES...................................83
(B) INDEMNIFICATION......................................84
(C) OTHER CHARGES........................................84
SECTION 13.05 Right of Set-Off............................................85
SECTION 13.06 Survival....................................................85
SECTION 13.07 Obligations Several.........................................85
SECTION 13.08 Benefits of Agreement.......................................85
SECTION 13.09 Binding Effect; Assignment..................................86
(A) BINDING EFFECT.......................................86
(B) ASSIGNMENT...........................................86
SECTION 13.10 Governing Law...............................................87
SECTION 13.11 Submission to Jurisdiction..................................87
(A) NO LIMITATION........................................88
vi.
PAGE
SECTION 13.12 Waiver of Jury Trial........................................88
SECTION 13.13 Limitation on Liability.....................................88
SECTION 13.14 Confidentiality.............................................88
SECTION 13.15 Entire Agreement............................................89
SECTION 13.16 Payments Set Aside..........................................89
SECTION 13.17 Severability................................................90
SECTION 13.18 Counterparts................................................90
vii.
ANNEXES
Annex 1 Pricing Grid
SCHEDULES
Schedule 1 Commitments and Pro Rata Shares
Schedule 2 Lending Offices; Addresses for Notices
Schedule 3 Existing Indebtedness
Schedule 4 Existing Liens
Schedule 5 Litigation
Schedule 6 Subsidiaries
Schedule 7 Specified Assets
Schedule 8 Description of Hewitt Ranch Property
Schedule 9 Affiliate Transactions
EXHIBITS
Exhibit A Form of Borrowing Base Certificate
Exhibit B Form of Compliance Certificate
Exhibit C Form of Deed of Trust
Exhibit D Form of Environmental Indemnity
Exhibit E-1 Form of Guaranty
Exhibit E-2 Form of Guaranty of Edna Valley Vineyard
Exhibit F Form of Patent and Trademark Security Agreement
Exhibit G Form of Revolving Note
Exhibit H-1 Form of Security Agreement
Exhibit H-2 Form of Security Agreement of Edna Valley Vineyard
Exhibit I Form of Swingline Note
Exhibit J Form of Term Note
Exhibit K Form of Notice of Borrowing
Exhibit L-1 Form of Opinion of Counsel to the Borrower and the
Guarantor
Exhibit L-2 Form of Opinion of Special Washington Counsel to the
Collateral Agent
Exhibit M Form of Assignment and Acceptance
Exhibit N Form of Update Certificate
Exhibit O Form of Intercreditor and Collateral Agency Agreement
viii.
CREDIT AGREEMENT
THIS CREDIT AGREEMENT (this "Agreement"), dated as of April 19
2002, is made among The Chalone Wine Group, Ltd., a California corporation (the
"Borrower"), the financial institutions listed on the signature pages of this
Agreement under the heading "LENDERS" (each a "Lender" and, collectively, the
"Lenders"), Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
International", New York Branch ("Rabobank") as letter of credit issuing bank
(in such capacity, the "Issuing Lender"), as swingline lender (in such capacity,
the "Swingline Lender") and as administrative agent for the Lenders hereunder
(in such capacity, the "Agent").
The Borrower has requested that the Lenders, and the Lenders
have agreed to, make certain credit facilities (including a letter of credit
subfacility) available to the Borrower, upon the terms and subject to the
conditions set forth in this Agreement.
Accordingly, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.01 CERTAIN DEFINED TERMS. As used in this Agreement
(including in the recitals hereof), the following terms shall have the following
meanings:
"ACQUISITION" means any transaction or series of related
transactions for the purpose of, or resulting, directly or indirectly, in (a)
the acquisition of all or substantially all of the assets of a Person, or any
line or segment of business or division of a Person, (b) the acquisition of in
excess of 50% of the capital stock, partnership interests, membership interests
or equity of any Person, or otherwise causing any Person to become a Subsidiary,
or (c) a merger or consolidation or any other combination with another Person
(other than a Person that is a Subsidiary) provided that (i) the Borrower or a
Subsidiary is the surviving entity or (ii) after giving effect to such merger or
consolidation, such other Person has become a Subsidiary of the Borrower.
"AFFECTED LENDER" has the meaning set forth in Section 6.07.
"AFFILIATE" means any Person which, directly or indirectly,
controls, is controlled by or is under common control with another Person. For
purposes of the foregoing, "control," "controlled by" and "under common control
with" with respect to any Person shall mean the possession, directly or
indirectly, of the power (i) to vote 10% or more of the securities having
ordinary voting power of the election of directors of such Person, or (ii) to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities or by contract or otherwise.
"AGENT" has the meaning set forth in the introduction to this
Agreement.
1.
"AGENT/IB-RELATED PERSONS" means Rabobank as Agent, Swingline
Lender and Issuing Lender, any successor Agent arising under Section 12.08,
together with their respective Affiliates, and the officers, directors,
employees, agents and attorneys-in-fact of such Persons and Affiliates.
"AGENT'S ACCOUNT" means the account of the Agent set forth on
Schedule 2 or such other account as the Agent from time to time shall designate
in a written notice to the Borrower and the Lenders.
"APPLICABLE FEE AMOUNT" means with respect to the commitment
fee and letter of credit fee payable hereunder, the amount set forth opposite
the indicated Level below the heading "Commitment Fee" and "Letter of Credit
Fee," respectively, in the pricing grid set forth on Annex I in accordance with
the parameters for calculations of such amount also set forth on Annex I.
"APPLICABLE MARGIN" means (i) with respect to Base Rate Loans,
the amount set forth opposite the indicated Level below the heading "Revolving
Loan Base Rate Spread" or "Term Loan Base Rate Spread", as applicable, in the
pricing grid set forth on Annex I in accordance with the parameters for
calculations of such amounts also set forth on Annex I, and (ii) with respect to
Eurodollar Rate Loans, the amount set forth opposite the indicated Level below
the heading "Revolving Loan Eurodollar Rate Spread" or "Term Loan Eurodollar
Rate Spread", as applicable, in the pricing grid set forth on Annex I in
accordance with the parameters for calculations of such amounts also set forth
on Annex I.
"ASSIGNMENT AND ACCEPTANCE" has the meaning set forth in
Section 12.02(a).
"ATTRIBUTABLE INDEBTEDNESS" means, on any date, (a) in respect
of any Capital Lease of any Person, the capitalized amount thereof that would
appear on a balance sheet of such Person prepared as of such date in accordance
with GAAP, and (b) in respect of any Synthetic Lease Obligation, the capitalized
amount of the remaining lease payments under the relevant lease that would
appear on a balance sheet of such Person prepared as of such date in accordance
with GAAP if such lease were accounted for as a Capital Lease.
"BANKRUPTCY CODE" means Title 11 of the United States Code
entitled "Bankruptcy."
"BASE RATE" means for any day the higher of: (a) 0.50% per
annum above the latest Federal Funds Rate; and (b) the rate of interest in
effect for such day as publicly announced from time to time by Rabobank as its
reference rate. (The reference rate is a rate set by Rabobank based upon various
factors including Rabobank's costs and desired return, general economic
conditions and other factors, and is used as a reference point for pricing some
loans, which may be priced at, above, or below such announced rate.) Any change
in the reference rate announced by Rabobank shall take effect at the opening of
business on the day specified in the public announcement of such change. Each
change in the interest rate on the Loans or other Obligations bearing interest
at the Base Rate based on a change in the Base Rate shall be effective as of the
effective date of such change in the Base Rate.
2.
"BASE RATE LOAN" means a Revolving Loan, a Term Loan or an L/C
Advance bearing interest based on the Base Rate.
"BORROWER" has the meaning set forth in the introduction to
this Agreement.
"BORROWER'S ACCOUNT" means the account of the Borrower set
forth on Schedule 2, or such other account as the Borrower from time to time
shall designate in a written notice to the Agent.
"BORROWING" means a borrowing consisting of a Revolving Loan,
a Swingline Loan or a Term Loan, or of simultaneous Revolving Loans, Swingline
Loans or Term Loans, as the case may be, made at any one time by the Borrower
from the Lenders pursuant to Article II or III.
"BORROWING BASE" means, in respect of the Borrower at any
time, the aggregate sum of (i) in the case of Eligible Inventory consisting of
bulk wine to be sold in the bulk wine market, 60% of (A) fair market value (as
reported in the most recently published quarterly Turrentine Collateral Value
Report or, if not available, an equivalent compilation selected in the Agent's
reasonable discretion) MINUS (B) Grower Payables, if any, incurred in connection
with such bulk wine, PLUS (ii) in the case of Eligible Inventory consisting of
other bulk wine, 70% of (A) book value at the date of determination MINUS (B)
Grower Payables, if any, incurred in connection with such bulk wine, PLUS (iii)
in the case of Eligible Inventory consisting of cased wine or separately bottled
wine, 65% of the posted F.O.B. selling price at the date of determination for
the immediately preceding calendar month, PLUS (iv) in the case of Eligible
Inventory consisting of Wine Bottling Inventory, 60% of book value at the date
of determination (in the case of each of the preceding clauses (i), (ii), (iii)
and (iv), net of depletion allowances), PLUS (v) 85% of Eligible Receivables at
such time.
"BORROWING BASE CERTIFICATE" means a certificate of a
Responsible Officer of the Borrower, in substantially the form of Exhibit A,
with such changes thereto as the Agent or any Lender may from time to time
reasonably request.
"BUSINESS DAY" means a day other than a Saturday, a Sunday, or
a day on which commercial banks in New York City, New York, are authorized to
close and, if the applicable day relates to any Eurodollar Rate Loan, means a
Eurodollar Business Day.
"CANOE RIDGE INTERCOMPANY LOAN AMOUNT" means the sum of (i)
$7,000,000 PLUS (ii) on each anniversary of the Closing Date, 10% of the Canoe
Ridge Intercompany Loan Amount in effect immediately prior to such anniversary.
"CAPITAL LEASE" means, for any Person, any lease of property
(whether real, personal or mixed) which, in accordance with GAAP, would, at the
time a determination is made, be required to be recorded as a capital lease in
respect of which such Person is liable as lessee.
"CHANGE OF CONTROL" means (a) any "person" (as such term is
used in subsections 13(d) and 14(d) of the Exchange Act) or group of persons on
or after the Closing Date other than members of the Board of Directors of the
Borrower and their "affiliates" (as such term is used in
3.
Rule 405 of the Securities Act of 1933), is or becomes the "beneficial owner"
(as defined in Rule 13d-3 under said Act), directly or indirectly, of securities
of the Company representing 51% or more of the combined voting power of the
Borrower's then-outstanding voting securities, or (b) the existing directors for
any reason cease to constitute a majority of the Borrower's board of directors.
"Existing directors" means (x) individuals constituting the Borrower's board of
directors on the Closing Date, and (y) any subsequent director whose election by
the board of directors or nomination for election by the Borrower's shareholders
was approved by a vote of at least a majority of the directors then in office,
which directors either were directors on the Closing Date or whose election or
nomination for election was previously so approved.
"CLOSING DATE" means the date on which all conditions
precedent set forth in Section 8.01, and in Section 8.02 with respect to any
Credit Extensions to be made on the Closing Date, are satisfied or waived by all
the Lenders (or, in the case of Section 8.01(a), waived by the Person entitled
to receive such payment).
"COLLATERAL" means the property described in the Collateral
Documents, and all other property now existing or hereafter acquired which may
at any time be or become subject to a Lien in favor of the Collateral Agent, the
Agent or the Lenders pursuant to the Collateral Documents or otherwise, securing
the payment and performance of the Obligations.
"COLLATERAL AGENT" means Rabobank in its capacity as
collateral agent for the Lenders and the holders of the Senior Secured Notes
pursuant to the Intercreditor and Collateral Agency Agreement, and any successor
collateral agent thereunder.
"COLLATERAL DOCUMENTS" means the Deeds of Trust, the Security
Agreement, the Patent and Trademark Security Agreement, any other agreement
pursuant to which the Borrower, the Guarantors or any other Person provides a
Lien on its assets in favor of the Lenders, or in favor of the Collateral Agent
or the Agent for the benefit of the Lenders, or in favor of the Collateral Agent
for the benefit of the Agent, the Lenders and the Senior Noteholders, and all
financing statements, fixture filings, patent, trademark and copyright filings,
assignments, acknowledgments and other filings, documents and agreements made or
delivered pursuant thereto.
"COMMITMENT" means, for each Lender, the sum of its Term
Commitment and its Revolving Commitment.
"COMPLIANCE CERTIFICATE" means a certificate of a Responsible
Officer of the Borrower, in substantially the form of Exhibit B, with such
changes thereto as the Agent or any Lender may from time to time reasonably
request.
"CONSOLIDATED EBIT" means, for any period, Consolidated Net
Income (computed without giving effect to any gains or losses from dispositions
of assets and other extraordinary items) PLUS Consolidated Interest Expense PLUS
income tax expense, in each case, which were deducted in determining
Consolidated Net Income of the Borrower and its Subsidiaries on a consolidated
basis as determined in accordance with GAAP.
"CONSOLIDATED EBITDA" means, for any period, Consolidated Net
Income (computed without giving effect to any gains or losses from dispositions
of assets and other
4.
extraordinary items) PLUS Consolidated Interest Expense PLUS income tax expense
PLUS depreciation expense, amortization expense and other non-cash expenses, in
each case, which were deducted in determining Consolidated Net Income of the
Borrower and its Subsidiaries on a consolidated basis as determined in
accordance with GAAP.
"CONSOLIDATED INDEBTEDNESS" means, as of any date of
determination, (a) the total Indebtedness of the Borrower and its Subsidiaries
on a consolidated basis MINUS (b) accounts payable to trade creditors for goods
and services and current operating liabilities (not the result of the borrowing
of money) incurred in the ordinary course of the Borrower's or the Subsidiaries'
business in accordance with customary terms and paid within the specified time
(unless contested in good faith by appropriate proceedings and reserved for in
accordance with GAAP) MINUS (c) until such time as the Indebtedness owing as of
the date hereof by the Borrower to the estate of Richard Graff is repaid in
full, Indebtedness owing by the Borrower to the estate of Richard Graff in a
principal amount not to exceed $1,000,000.
"CONSOLIDATED INTEREST EXPENSE" means, for any period,
interest expense (including that attributable to Capital Leases) of the Borrower
and its Subsidiaries on a consolidated basis, including all commissions,
discounts and other fees and charges owed with respect to standby letters of
credit, as determined in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the net
income of the Borrower and its Subsidiaries on a consolidated basis for such
period taken as a single accounting period, as determined in accordance with
GAAP.
"CONSOLIDATED RENT EXPENSE" means, for any period, operating
lease expense of the Borrower and its Subsidiaries on a consolidated basis, as
determined in accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" means, as of any date of
determination, Consolidated Total Assets PLUS Subordinated Debt MINUS
Consolidated Total Liabilities; PROVIDED, HOWEVER, that there shall be excluded
from Consolidated Total Assets all assets which would be classified as
intangible assets in accordance with GAAP, including goodwill, organizational
expense, research and development expense, patent applications, patents,
trademarks, trade names, brands, copyrights, trade secrets, customer lists,
licenses, franchises and covenants not to compete.
"CONSOLIDATED TOTAL ASSETS" means, as of any date of
determination, the total assets of the Borrower and its Subsidiaries on a
consolidated basis, as determined in accordance with GAAP.
"CONSOLIDATED TOTAL LIABILITIES" means, as of any date of
determination, the total liabilities of the Borrower and its Subsidiaries on a
consolidated basis, as determined in accordance with GAAP.
"CREDIT EXTENSION" means each of (a) the making of any Term
Loans, Revolving Loans or Swingline Loans hereunder; (b) the continuation of any
Eurodollar Rate Loan or conversion of any Loan pursuant to Section 4.05; (c) the
issuance of any Letters of Credit hereunder; and (d) the amendment or renewal of
any Letters of Credit hereunder.
5.
"DEEDS OF TRUST" means each deed of trust or mortgage entered
into by the Borrower, any Guarantor or any other Person, as trustor or
mortgagor, for the benefit of the Collateral Agent or the Agent, as beneficiary
or mortgagee on behalf of the Lenders and the Senior Noteholders, in
substantially the form of Exhibit C.
"DEFAULT" means an Event of Default or an event or condition
which with notice or lapse of time or both would constitute an Event of Default.
"DOLLARS" and the sign "$" each means lawful money of the
United States.
"EDNA VALLEY INTERCOMPANY LOAN AMOUNT" means the sum of (i)
$20,000,000 PLUS (ii) on each anniversary of the Closing Date, 10% of the Edna
Valley Intercompany Loan Amount in effect immediately prior to such anniversary.
"EFFECTIVE AMOUNT" means (i) with respect to any Revolving
Loans, Swingline Loans and Term Loans on any date, the aggregate outstanding
principal amount thereof after giving effect to any Borrowings and prepayments
or repayments of Term Loans, Revolving Loans and Swingline Loans, as the case
may be, occurring on such date; and (ii) with respect to any outstanding L/C
Obligations on any date, the amount of such L/C Obligations on such date after
giving effect to any issuances of Letters of Credit occurring on such date and
any other changes in the aggregate amount of the L/C Obligations as of such
date, including as a result of any reimbursements of outstanding unpaid drawings
under any Letters of Credit or any reductions in the maximum amount available
for drawing under Letters of Credit taking effect on such date; PROVIDED that
for purposes of subsection 5.03(b), the Effective Amount shall be determined
without giving effect to any mandatory prepayments to be made under subsection
5.03(b).
"ELIGIBLE ASSIGNEE" means (i) a commercial bank organized
under the laws of the United States, or any state thereof, and having a combined
capital and surplus of at least $100,000,000; (ii) a commercial bank organized
under the laws of any other country which is a member of the OECD, or a
political subdivision of any such country, and having a combined capital and
surplus of at least $100,000,000, PROVIDED that such bank is acting through a
branch or agency located in the United States and licensed by the United States
or any state thereof; (iii) a Person that is primarily engaged in the business
of commercial banking and that is (A) a Subsidiary of a Lender, (B) a Subsidiary
of a Person of which a Lender is a Subsidiary, or (C) a Person of which a Lender
is a Subsidiary, or (iv) any other Person (other than an individual) which is an
"accredited investor" (as defined in Regulation D under the Securities Exchange
Act of 1934) which extends credit or buys loans as one of its businesses,
including insurance companies, mutual funds and lease financing companies.
"ELIGIBLE INVENTORY" means, in respect of the Borrower at any
time, the aggregate amount of the Borrower's and each Subsidiary Guarantor's
Inventory consisting of bulk wine, cased wine, separately bottled wine, Wine
Bottling Inventory, which is of marketable quality and held for sale or use in
the ordinary and usual course of business, net of applicable allowances and
reserves (including allowances or reserves for shrinkage or obsolescence),
excluding the following:
6.
(i) Inventory (other than bulk wine and Wine Bottling
Inventory) consisting of raw materials, supplies or work in process;
(ii) Inventory which is not owned by the Borrower or a
Subsidiary Guarantor free and clear of all Liens and rights of others (other
than the Liens in favor of the Agent on behalf of the Lenders, Growers' Liens or
Production Liens);
(iii) Inventory in which the Agent on behalf of the Lenders
shall not have a valid and perfected first priority Lien, other than Growers'
Liens or Production Liens;
(iv) Inventory which is located in any location other than
California, Washington, the locations listed on Schedule 1 to the Security
Agreement, or any other locations agreed to in writing after the Closing Date by
the Agent;
(v) Inventory which is not in the direct possession of the
Borrower or a Subsidiary Guarantor at one of the locations set forth in Part 1
of Schedule 1 to the Security Agreement or at a location set forth in a notice
from the Borrower to the Agent pursuant to Section 5(e) of the Security
Agreement;
(vi) Inventory on lease or consignment or subject to
warehousing arrangements, except for Inventory subject to warehousing
arrangements (1) in form and substance acceptable to the Agent and approved in
writing by the Agent and (2) which contain, or as to which the Agent has
received, a subordination and/or waiver by the warehouseman in form and
substance satisfactory to the Agent;
(vii) Inventory which is used or intended to be used in
research and development;
(viii) Inventory which is obsolete, unmerchantable, spoiled,
damaged or unfit for sale or further processing;
(ix) Inventory which is packaging, shipping, or advertising
materials (other than the Wine Bottling Inventory); and
(x) Inventory which is, in the exercise of the Agent's
reasonable credit judgment, exercised in good faith, unacceptable due to age,
type, category or quantity or is otherwise ineligible.
Any Inventory which is at any time Eligible Inventory, but
which subsequently fails to meet any of the foregoing requirements, shall
forthwith cease to be Eligible Inventory until such time as such Inventory shall
meet all of the foregoing requirements.
"ELIGIBLE RECEIVABLE DEBTOR" means, for purposes of clause
(xi) of the definition of "Eligible Receivables," a Receivable Debtor for which
the Borrower has provided or caused to be provided to the Agent financial
statements of such Receivable Debtor which are satisfactory in form and
substance to the Agent and the Majority Lenders and who the Agent and the
Majority Lenders deem creditworthy in their reasonable credit judgment.
7.
"ELIGIBLE RECEIVABLES" means, in respect of the Borrower at
any time, the aggregate amount of the Borrower's and each Subsidiary Guarantor's
Receivables, payable in cash in Dollars, net of applicable allowances, reserves,
discounts, returns, credits or offsets (including allowances or reserves for
doubtful accounts), excluding the following:
(i) Receivables for which the Borrower's or a Subsidiary
Guarantor's right to receive payment has not been fully earned by performance or
is contingent upon the fulfillment of any condition whatsoever or which
otherwise do not arise from a bona fide completed transaction;
(ii) Receivables against which there are asserted any
defenses, counterclaims, discounts (other than normal trade discounts) or
offsets of any nature, whether well-founded or otherwise (but only to the extent
of such asserted defenses, counterclaims, discounts or offsets) to the extent
not already deducted as an allowance for doubtful accounts;
(iii) Receivables that do not comply in all material
respects with all applicable legal requirements, including all laws, rules,
regulations and orders of any Governmental Authority;
(iv) Receivables which represent a prepayment or progress
payment or arising out of the placement of goods on consignment, guaranteed sale
or other arrangement by reason of which the payment by the Receivable Debtor may
be conditional or contingent;
(v) Receivables which are not owned by the Borrower or a
Subsidiary Guarantor free and clear of all Liens and rights of others (other
than the Liens in favor of the Collateral Agent or the Agent on behalf of
Lenders, Growers' Liens or Production Liens);
(vi) Receivables in which the Collateral Agent or the
Agent, on behalf of the Lenders, shall not have a valid and perfected
first-priority Lien (other than Growers' Liens or Production Liens);
(vii) Receivables owing (A) by the United States or any
department, agency or instrumentality thereof or (B) by a State or any
department, agency, instrumentality or political subdivision thereof (other than
State owned stores or other equivalent alcohol beverage control Receivable
Debtors to the extent that there are no statutory, regulatory or other
governmental restrictions on the grant of security interests in Receivables due
from such Receivable Debtors), unless, in the case of Receivables described in
sub-clause (A), the Agent has agreed to the contrary in writing and the Borrower
has complied with the Federal Assignment of Claims Act with respect to such
Receivables;
(viii)Receivables owing by any Receivable Debtor who is not a
resident of or located in the United States or the Dominion of Canada;
(ix) Receivables not paid in full within 90 days from the
date of invoice (to the extent not already deducted as an allowance for doubtful
accounts;
8.
(x) Receivables owing by any Receivable Debtor who has
failed to make full payment within 90 days from the date of invoice on more than
20% of the aggregate amount of Receivables owing to the Borrower and the
Subsidiary Guarantors by such Receivable Debtor;
(xi) that portion of Receivables owing by any single
Receivable Debtor (other than an Eligible Receivable Debtor) which exceeds 20%
of the aggregate amount of Eligible Receivables owing to the Borrower and the
Subsidiary Guarantors by all Receivable Debtors (to the extent not already
deducted as an allowance for doubtful accounts);
(xii) Receivables which constitute the proceeds of Inventory
which Inventory is at the same time included in the Borrowing Base;
(xiii)Receivables owing by any Receivable Debtor who is the
subject of an Insolvency Proceeding;
(xiv) Receivables owing by any Affiliate of the Borrower or of
a Subsidiary Guarantor; and
(xv) Receivables with respect to which the Agent, in its
reasonable discretion, deems the creditworthiness or financial condition of the
Receivable Debtor to be unsatisfactory or the prospect of payment or performance
to be impaired, and other Receivables which, in the exercise of the Agent's good
faith reasonable credit judgment, are otherwise ineligible.
Any Receivable which is at any time an Eligible Receivable,
but which subsequently fails to meet any of the foregoing eligibility
requirements, shall forthwith cease to be an Eligible Receivable until such time
as such Receivable shall meet all of the foregoing requirements.
"ENVIRONMENTAL INDEMNITY" means the Environmental Indemnity of
the Borrower and the Subsidiary Guarantors, in substantially the form of Exhibit
D.
"ENVIRONMENTAL LAWS" means all federal, state or local laws,
statutes, common law duties, rules, regulations, ordinances and codes, together
with all administrative orders, directives, requests, licenses, authorizations
and permits of, and agreements with (including consent decrees), any
Governmental Authorities, in each case relating to or imposing liability or
standards of conduct concerning public health, safety and environmental
protection matters, including the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, the Clean Air Act, the Federal Water
Pollution Control Act of 1972, the Solid Waste Disposal Act, the Federal
Resource Conservation and Recovery Act, the Toxic Substances Control Act, the
Emergency Planning and Community Right-to-Know Act, the California Hazardous
Waste Control Law, the California Solid Waste Management, Resource Recovery and
Recycling Act, the California Water Code and the California Health and Safety
Code.
"ERISA" means the Employee Retirement Income Security Act of
1974, including (unless the context otherwise requires) any rules or regulations
promulgated thereunder.
9.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) which is under common control with the Borrower or any Guarantor
within the meaning of Section 4001(a)(14) of ERISA and Sections 414(b), (c) and
(m) of the Internal Revenue Code.
"EURODOLLAR BUSINESS DAY" means a Business Day on which
dealings in Dollar deposits are carried on in the interbank eurodollar market
where the eurodollar funding operations of Rabobank are customarily conducted.
"EURODOLLAR RATE" means for each Interest Period for each
Eurodollar Rate Loan the rate per annum (rounded upward, if necessary, to the
nearest 1/100 of 1%) determined by the Agent pursuant to the following formula:
Eurodollar Rate = Interbank Rate
------------------------------------
100% - Eurodollar Reserve Percentage
The Eurodollar Rate shall be adjusted automatically as of the effective date of
any change in the Eurodollar Reserve Percentage.
"EURODOLLAR RATE LOAN" means a Revolving Loan or a Term Loan
bearing interest based on the Eurodollar Rate.
"EURODOLLAR RESERVE PERCENTAGE" means the maximum reserve
requirement percentage (including any ordinary, supplemental, marginal and
emergency reserves), if any, as determined by the Agent, then applicable under
Regulation D in respect of Eurocurrency funding (currently referred to as
"Eurocurrency Liabilities") of a member bank in the Federal Reserve System with
deposits exceeding $1,000,000,000.
"EVENT OF DEFAULT" has the meaning set forth in Section 11.01.
"EVENT OF LOSS" means with respect to any asset of the
Borrower or its Subsidiaries any of the following: (i) any loss, destruction or
damage of such asset; (ii) any pending or threatened institution of any
proceedings for the condemnation or seizure of such asset or of any right of
eminent domain; or (iii) any actual condemnation, seizure or taking, by exercise
of the power of eminent domain or otherwise, of such asset, or confiscation of
such asset or requisition of the use of such asset.
"EXISTING CREDIT FACILITY" means the Credit Agreement dated
March 31, 1999, between the Borrower and Rabobank, as amended.
"FEE LETTER" means that certain letter agreement dated March
__, 2002, between the Borrower and Rabobank.
"FEDERAL FUNDS RATE" means, for any day, the rate per annum
(rounded upward, if necessary, to the nearest 1/100 of 1%), as determined by the
Agent, equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers, as published for any day of determination (or if such day of
determination is not a Business Day, for the next preceding Business Day) by the
Federal Reserve Bank of New York, or, if such rate is not so published for any
day which is a
10.
Business Day, the average of the quotations for such day on such transactions
received by the Agent from three Federal funds brokers of recognized standing
selected by it.
"FINAL MATURITY DATE" means April 19, 2009.
"FOREIGN SUBSIDIARY" means each Subsidiary of the Borrower
organized under the laws of any jurisdiction outside of the United States or
which is domiciled outside of the United States.
"FRB" means the Board of Governors of the Federal Reserve
System, and any Governmental Authority succeeding to any of its principal
functions.
"GAAP" means generally accepted accounting principles in the
U.S. as in effect from time to time.
"GOVERNMENTAL AUTHORITY" means any federal, state, local or
other governmental department, commission, board, bureau, agency, central bank,
court, tribunal or other instrumentality or authority, domestic or foreign,
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"GROWER PAYABLES" means, in respect of the Borrower or any
Subsidiary Guarantor, the aggregate amount due from the Borrower or such
Subsidiary Guarantor to any other Person on account of any crops, produce, or
other farm products supplied by such Person to the Borrower or such Subsidiary
Guarantor as to which crops, produce or other farm products such Person has
statutory lien rights.
"GROWERS' LIENS" means statutory Liens securing the payment of
amounts due from the Borrower or any Subsidiary Guarantor to any other Person on
account of any crops, produce or other farm products supplied by such Person to
the Borrower or such Subsidiary Guarantor, including but not limited to, Liens
in favor of growers arising pursuant to Article 9 (commencing with Section
55631), Chapter 6, Division 20 of the California Food and Agricultural Code, as
now in effect or hereafter amended.
"GUARANTOR" means each Subsidiary Guarantor and each other
Person party to a Guaranty in its capacity as a guarantor hereunder.
"GUARANTOR DOCUMENTS" means each Guaranty and all other
certificates, documents, agreements and instruments delivered to the Agent, the
Issuing Lender and the Lenders under or in connection with a Guaranty.
"GUARANTY" means the Guaranty of each Guarantor, in
substantially the form of Exhibit E-1 (or in substantially the form of Exhibit
E-2, in the case of Edna Valley Vineyard), and any other guaranty under any
separate agreement executed by any Guarantor pursuant to which it guarantees the
Obligations.
"GUARANTY OBLIGATION" means, as applied to any Person, any
direct or indirect liability, contingent or otherwise, of that Person with
respect to any Indebtedness, lease, dividend, letter of credit or other
obligation (the "primary obligations") of another Person (the
11.
"primary obligor"), including any obligation of that Person (i) to purchase,
repurchase or otherwise acquire such primary obligations or any property
constituting direct or indirect security therefor, or (ii) to advance or provide
funds (A) for the payment or discharge of any such primary obligation, or (B) to
maintain working capital or equity capital of the primary obligor or otherwise
to maintain the net worth or solvency or any balance sheet item, level of income
or financial condition of the primary obligor, or (iii) to purchase property,
securities or services primarily for the purpose of assuring the owner of any
such primary obligation of the ability of the primary obligor to make payment of
such primary obligation, (iv) in connection with any synthetic lease or other
similar off balance sheet lease transaction, or (v) otherwise to assure or hold
harmless the holder of any such primary obligation against loss in respect
thereof.
"HAZARDOUS SUBSTANCES" means any toxic or hazardous
substances, materials, wastes, contaminants or pollutants, including asbestos,
PCBs, petroleum products and byproducts, and any substances defined or listed as
"hazardous substances," "hazardous materials," "hazardous wastes" or "toxic
substances" (or similarly identified), regulated under or forming the basis for
liability under any applicable Environmental Law.
"HEWITT APPRAISAL" has the meaning set forth in subsection
2.01(d).
"HEWITT RANCH PROPERTY" means the Borrower's real property and
improvements located in Rutherford, California, and further described on
Schedule 8 hereto.
"INDEBTEDNESS" means, for any Person: (i) all indebtedness or
other obligations of such Person for borrowed money or for the deferred purchase
price of property or services; (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations so evidenced incurred
in connection with the acquisition of property, assets or businesses; (iii) all
indebtedness created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property); (iv)
all obligations under Capital Leases and Synthetic Lease Obligations; (v) all
reimbursement or other obligations of such Person under or in respect of letters
of credit and bankers acceptances, and all net obligations in respect of Rate
Contracts in an amount equal to the Swap Termination Values thereof; (vi) all
reimbursement or other obligations of such Person in respect of any bank
guaranties, shipside bonds, surety bonds and similar instruments issued for the
account of such Person or as to which such Person is otherwise liable for
reimbursement of drawings or payments; (vii) all Guaranty Obligations; and
(viii) all indebtedness of another Person secured by any Lien upon or in
property owned by the Person for whom Indebtedness is being determined, whether
or not such Person has assumed or become liable for the payment of such
indebtedness of such other Person. For all purposes hereof, the Indebtedness of
any Person shall include the Indebtedness of any partnership or joint venture
(other than a joint venture that is itself a corporation or limited liability
company) in which such Person is a general partner or a joint venturer, unless
such Indebtedness is expressly made non-recourse to such Person (subject only to
customary recourse exceptions acceptable to the Agent in its reasonable
discretion). The amount of any Capital Lease or Synthetic Lease Obligation as of
any date shall be deemed to be the amount of Attributable Indebtedness in
respect thereof as of such date.
12.
"INSOLVENCY PROCEEDING" means, with respect to any Person, (i)
any case, action or proceeding before any court or other Governmental Authority
relating to the bankruptcy, reorganization, insolvency, liquidation,
receivership, dissolution, winding-up or relief from debt of such Person, or
(ii) any general assignment by such Person for the benefit of creditors,
composition, marshalling of assets for creditors, or other, similar arrangement
in respect of its creditors generally or any substantial portion of its
creditors, in each case undertaken under U.S. Federal, state or foreign law,
including the Bankruptcy Code.
"INTERBANK RATE" means the rate per annum determined by the
Agent to be the average (rounded upward, if necessary, to the nearest 1/16 of
1%) of the rates at which deposits in Dollars are offered to Rabobank by prime
banks in the interbank eurodollar market where the eurodollar funding operations
of Rabobank are customarily conducted, at approximately 11:00 (London time), two
Eurodollar Business Days before the first day of such Interest Period, in an
amount substantially equal to the proposed Eurodollar Rate Loan to be made,
continued or converted by Rabobank and for a period of time comparable to such
Interest Period.
"INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT" means the
Intercreditor and Collateral Agency Agreement among the Lenders, the holders of
the Senior Secured Notes, the Collateral Agent and the other parties thereto, in
substantially the form of Exhibit O.
"INTEREST PAYMENT DATE" means a date specified for the payment
of interest pursuant to Section 4.01(c).
"INTEREST PERIOD" means, with respect to any Eurodollar Rate
Loan, the period determined in accordance with Section 4.01(b) applicable
thereto.
"INTERNAL REVENUE CODE" means the Internal Revenue Code of
1986, including (unless the context otherwise requires) any rules or regulations
promulgated thereunder.
"INVENTORY" means all "inventory" (as such term is defined in
the UCC). For purposes of this Agreement, bulk wine shall be deemed Inventory
regardless of whether bulk wine is properly classified as "inventory" under the
UCC.
"IRS" means the Internal Revenue Service, or any successor
thereto.
"ISSUING LENDER" has the meaning set forth in the introduction
to this Agreement.
"L/C ADVANCE" means each Lender's participation in any L/C
Unreimbursed Draw in accordance with its Pro Rata Share.
"L/C AMENDMENT APPLICATION" means (i) an application form for
amendments of outstanding standby letters of credit as shall at any time be in
use at the Issuing Lender, as the Issuing Lender shall request and as shall be
satisfactory to the Agent.
"L/C APPLICATION" means such application form for issuances of
standby letters of credit as shall at any time be in use at the Issuing Lender,
as the Issuing Lender shall request and as shall be satisfactory to the Agent.
13.
"L/C COMMITMENT" has the meaning specified in subsection
3.01(a).
"L/C OBLIGATIONS" means at any time the sum of (a) the
aggregate undrawn amount of all Letters of Credit, PLUS (b) the amount of all
unreimbursed drawings under all Letters of Credit, including all L/C
Unreimbursed Draws.
"L/C-RELATED DOCUMENTS" means the Letters of Credit, the L/C
Applications, the L/C Amendment Applications and any other document, agreement
and instrument relating to any Letter of Credit, including any of the Issuing
Lender's standard form documents for letter of credit issuances.
"L/C UNREIMBURSED DRAW" means an extension of credit resulting
from a drawing under any Letter of Credit which shall not have been reimbursed
on the date when made nor converted into a Borrowing of Revolving Loans under
Section 2.01(a).
"LENDERS" has the meaning specified in the introductory clause
hereto. References to the Lenders shall include references to Rabobank in its
capacity as the Issuing Lender and the Swingline Lender; for purposes of
clarification only, to the extent that Rabobank may have any rights or
obligations in addition to those of the Lenders due to its status as the Issuing
Lender or the Swingline Lender, its status as such will be specifically
referenced. Unless the context otherwise clearly requires, the Lenders shall
include any such Person in its capacity as Swap Provider. Unless the context
otherwise clearly requires, references to any such Person as a Lender shall also
include any of such Person's Affiliates that may at any time of determination be
Swap Providers.
"LENDING OFFICE" has the meaning set forth in Section 2.04.
"LETTERS OF CREDIT" means any standby letter of credit issued
by the Issuing Lender pursuant to Article III.
"LEVERAGE RATIO" has the meaning specified in subsection
10.02(a).
"LIEN" means any mortgage, deed of trust, pledge, security
interest, assignment, deposit arrangement, charge or encumbrance, lien
(statutory or other), or other preferential arrangement (including any
conditional sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing or any agreement
to give any security interest).
"LOAN" means an extension of credit, in the form of a Term
Loan, Revolving Loan, Swingline Loan or L/C Advance, by a Lender to the Borrower
pursuant to Article II or III.
"LOAN DOCUMENTS" means this Agreement, the Notes, the
Collateral Documents, the Intercreditor and Collateral Agency Agreement, the Fee
Letter, each Guaranty, the Guarantor Documents, the Environmental Indemnity, any
documents evidencing or relating to Specified Swap Contracts and all other
certificates, documents, agreements and instruments delivered to the Agent, the
Issuing Lender and the Lenders under or in connection with this Agreement, and
all L/C-Related Documents.
14.
"MAJORITY LENDERS" means as at any time of determination
Lenders then holding in excess of 60% of the then aggregate sum of (i) the
unused Commitments at such time (for so long as the Commitments are in effect)
PLUS (ii) the unpaid principal amount of the Loans and participations in the L/C
Obligations and Swingline Loans at such time; PROVIDED, however , that if any
Lender has failed to fund any portion of the Loans or participations in the L/C
Obligations or the Swingline Loans required to be funded by it hereunder, then
such Lender's unused Commitments, Loans and participations shall be excluded
from the calculation of the "Majority Lenders".
"MATERIAL ADVERSE EFFECT" means any event, matter, condition
or circumstance which (i) has or would reasonably be expected to have a material
adverse effect on the business, properties, results of operations or condition
(financial or otherwise) of the Borrower and its Subsidiaries taken as a whole;
(ii) would materially impair the ability of the Borrower, or any other Person to
perform or observe its obligations under or in respect of the Loan Documents, or
(iii) affects the legality, validity, binding effect or enforceability of any of
the Loan Documents or the perfection or priority of any Lien granted to the
Lenders, or the Collateral Agent or the Agent for the benefit of the Lenders,
under any of the Collateral Documents.
"MAXIMUM INTERCOMPANY LOAN AMOUNT" means the sum of (i)
$35,000,000 PLUS (ii) on each anniversary of the Closing Date, 10% of the
Maximum Intercompany Loan Amount in effect immediately prior to such
anniversary.
"MINIMUM AMOUNT" has the meaning set forth in Section 2.06.
"MULTIEMPLOYER PLAN" means a "multiemployer plan" as defined
in Sections 3(37) and 4001(a)(3) of ERISA.
"NET ISSUANCE PROCEEDS" means, as to any issuance or other
incurrence of debt or any issuance of equity by any Person, cash proceeds
received or receivable by such Person in connection therewith, net of
out-of-pocket costs and expenses paid or incurred in connection therewith in
favor of any Person not an Affiliate of such Person.
"NET PROCEEDS" means, as to any sale, transfer or other
disposition of assets ("Disposition") by a Person, proceeds in cash, checks or
other cash equivalent financial instruments as and when received by such Person,
net of: (a) the direct costs relating to such Disposition excluding amounts
payable to such Person or any Affiliate of such Person, (b) sale, use or other
transaction taxes, and income taxes, paid or reasonably expected to be payable
by such Person as a direct result thereof, and (c) amounts required to be
applied to repay principal, interest and prepayment premiums and penalties on
Indebtedness secured by a Lien on the asset which is the subject of such
Disposition. "NET PROCEEDS" shall also include proceeds paid on account of any
Event of Loss, net of (i) all money actually applied or set aside within six
months after the receipt of such proceeds to repair, replace or reconstruct the
damaged property or property affected by the condemnation or taking, (ii) all of
the costs and expenses reasonably incurred in connection with the collection of
such proceeds, award or other payments, and (iii) any amounts retained by or
paid to parties having superior rights to such proceeds, awards or other
payments.
15.
"NOTES" means the Revolving Notes, the Swingline Note and the
Term Notes.
"NOTICE" means a Notice of Borrowing, a Notice of Conversion
or Continuation or a Notice of Prepayment.
"NOTICE OF BORROWING" has the meaning set forth in Section
2.02(a).
"NOTICE OF CONVERSION OR CONTINUATION" has the meaning set
forth in Section 4.05(c).
"NOTICE OF PREPAYMENT" has the meaning set forth in Section
5.03(d).
"OBLIGATIONS" means the indebtedness, liabilities and other
obligations of the Borrower and the Guarantors to the Collateral Agent, the
Agent or any Lender under or in connection with the Loan Documents, including
all Loans, all interest accrued thereon, all fees due under this Agreement and
all other amounts payable by the Borrower to the Collateral Agent, the Agent or
any Lender thereunder or in connection therewith, whether now or hereafter
existing or arising, and whether due or to become due, absolute or contingent,
liquidated or unliquidated, determined or undetermined.
"OECD" means the Organization for Economic Cooperation and
Development.
"OPERATING LEASE" means, for any Person, any lease of any
property of any kind by that Person as lessee which is not a Capital Lease.
"ORGANIZATION DOCUMENTS" means, (a) with respect to any
corporation, the certificate or articles of incorporation and the bylaws (or
equivalent or comparable constitutional documents with respect to any non-U.S.
jurisdiction); (b) with respect to any limited liability company, the articles
of formation and operating agreement; and (c) with respect to any partnership,
joint venture, trust or other form of business entity, the partnership, joint
venture or other applicable agreement of formation and any agreement,
instrument, filing or notice with respect thereto filed in connection with its
formation with the applicable Governmental Authority in the jurisdiction of its
formation, in each case as amended from time to time.
"PARTICIPATION DATE" has the meaning set forth in Section
3.03(c).
"PATENT AND TRADEMARK SECURITY AGREEMENT" means each Patent
and Trademark Security Agreement between the Borrower or a Subsidiary Guarantor
and the Collateral Agent, in substantially the form of Exhibit F.
"PBGC" means the Pension Benefit Guaranty Corporation, or any
successor thereto.
"PENSION PLAN" means any employee pension benefit plan covered
by Title IV of ERISA (other than a Multiemployer Plan) that is maintained for
employees of the Borrower, any Guarantor or any ERISA Affiliate or with regard
to which the Borrower, any Guarantor or an ERISA Affiliate is a contributing
sponsor within the meaning of Sections 4001(a)(13) or 4069 of ERISA.
16.
"PERMITTED INVESTMENTS" means any of the following Dollar
denominated investments, maturing within one year from the date of acquisition,
selected by the Borrower:
(i) marketable direct obligations issued or
unconditionally guaranteed by the United States government or issued by any
agency thereof and backed by the full faith and credit of the United States;
(ii) marketable direct obligations issued by any state of
the United States or any political subdivision of any such state or any public
instrumentality thereof and, at the time of acquisition, having the highest
credit rating obtainable from either S&P or Moody's;
(iii) commercial paper or corporate promissory notes
bearing at the time of acquisition the highest credit rating either of S&P or
Moody's issued by United States, Australian, Canadian, European or Japanese bank
holding companies or industrial or financial companies (other than an Affiliate
of the Borrower or any Guarantor);
(iv) certificates of deposit issued by and bankers
acceptances of and interest bearing deposits with any Lender, or with any United
States, Australian, Canadian, European or Japanese commercial banks having
capital and surplus of at least $500,000,000 or the equivalent and which issues
(or the parent of which issues) commercial paper or other short term securities
bearing the highest credit rating obtainable from either S&P or Moody's; and
(v) money market funds organized under the laws of the
United States or any state thereof that invest solely in any of the foregoing
investments permitted under clauses (i), (ii), (iii) and (iv).
"PERMITTED LIENS" means:
(i) Liens in favor of the Lenders,or the Collateral Agent or
the Agent for the benefit of the Lenders, to secure the Obligations;
(ii) the existing Liens listed in Schedule 4 or incurred in
connection with the extension, renewal or refinancing of the Indebtedness
secured by such existing Liens, PROVIDED that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase;
(iii) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and which are adequately reserved for in accordance with
GAAP;
(iv) Liens of materialmen, mechanics, warehousemen, artisans,
carriers or employees or other like Liens (including Growers' Liens and
Production Liens) arising in the ordinary course of business and securing
obligations either not delinquent or being contested in good faith by
appropriate proceedings which are adequately reserved for in accordance with
GAAP;
17.
(v) Liens consisting of deposits or pledges to secure the
payment of worker's compensation, unemployment insurance or other social
security benefits or obligations, or to secure the performance of bids, trade
contracts, leases (other than Capital Leases), public or statutory obligations,
surety or appeal bonds or other obligations of a like nature incurred in the
ordinary course of business (other than for Indebtedness or any Liens arising
under ERISA);
(vi) easements, rights of way, servitudes or zoning or
building restrictions and other minor encumbrances on real property and
irregularities in the title to such property which do not in the aggregate
materially impair the use or value of such property or risk the loss or
forfeiture of title thereto;
(vii) statutory landlord's Liens under leases to which the
Borrower or any of its Subsidiaries is a party;
(viii) Liens arising solely by virtue of any statutory or
common law provision relating to banker's liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained with a
creditor depository institution; PROVIDED that (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Borrower in excess of those set forth by regulations promulgated
by the FRB, and (ii) such deposit account is not intended by the Borrower or any
Subsidiary to provide collateral to the depository institution;
(ix) Liens securing Indebtedness incurred by the Borrower or
any Subsidiary which is permitted under Section 10.04(a)(x); provided that (i)
such Liens do not at any time encumber any property other than the property
financed by such Indebtedness and (ii) the Indebtedness secured thereby does not
exceed the cost or fair market value, whichever is lower, of the property being
acquired on the date of acquisition;
(x) Liens on specific tangible assets of Persons which
become Subsidiaries after the date of this Agreement; PROVIDED, HOWEVER, that
(A) such Liens existed at the time the respective Persons became Subsidiaries
and were not created in anticipation thereof, (B) any such Lien does not by its
terms cover any assets after the time such Person becomes a Subsidiary which
were not covered immediately prior thereto, (C) any such Lien does not by its
terms secure any Indebtedness other than Indebtedness existing immediately prior
to the time such Person becomes a Subsidiary, and (D) such Indebtedness is
permitted by Section 10.04(a)(x); and
(xi) Liens securing the Senior Secured Notes and Senior
Secured Notes Guaranties, subject to the Intercreditor and Collateral Agency
Agreement.
"PERMITTED PREFERRED STOCK" means preferred stock of the
Borrower, subject to the following: such preferred stock shall not (a) have
mandatory redemption rights, or redemption at the option of the holder, sinking
fund payments, guaranteed return or exchange ability or conversions into debt
instruments or any other "debt-like" features other than any mandatory rights of
redemption effective not earlier than six months after the Final Maturity Date,
and (b) require the payment of any dividends thereon while any Event of Default
exists hereunder.
18.
"PERSON" means an individual, corporation, partnership,
limited liability company, joint venture, trust, unincorporated organization or
any other entity of whatever nature or any Governmental Authority.
"PLAN" means any employee pension benefit plan as defined in
Section 3(2) of ERISA (including any Multiemployer Plan) and any employee
welfare benefit plan, as defined in Section 3(1) of ERISA (including any plan
providing benefits to former employees or their survivors).
"PREMISES" means any and all real property, including all
buildings and improvements now or hereafter located thereon and all
appurtenances thereto, now or hereafter owned, leased, occupied or used by the
Borrower or any of its Subsidiaries.
"PRIMARY TRADEMARKS" means the following trademarks: ACACIA,
CHALONE VINEYARD, GAVILAN, SAGELANDS, STATON HILLS, MISTY RIDGE and PHOENIX.
"PRINCIPAL PAYMENT DATE" means a day on which the Borrower is
required to make a payment of principal pursuant to Section 5.02(b).
"PRODUCTION LIENS" means statutory Liens securing the right of
Persons who have rendered services for the storage, protection, improvement,
safekeeping, carriage, alteration, repair, harvest or crushing of any grapes or
Inventory, including without limitation, artisans and service liens under
California Civil Code Section 3051, thresher's liens under California Civil Code
Section 3061, and harvesters liens under California Civil Code Section 3061.5.
"PRO RATA SHARE" means, as to any Lender at any time, the
percentage equivalent (expressed as a decimal, rounded to the ninth decimal
place) at such time of (a) in the case of the Revolving Commitments or the
Revolving Loans, such Lender's Revolving Commitment divided by the combined
Revolving Commitments of all Lenders (or, if all Revolving Commitments have been
terminated, the aggregate principal amount of such Lender's Revolving Loans PLUS
the its participations in the L/C Obligations and Swingline Loans divided by the
aggregate principal amount of the Revolving Loans and the participations in L/C
Obligations and Swingline Loans then held by all Lenders), (b) in the case of
the Term Commitments or the Term Loans, such Lender's Term Commitment divided by
the combined Term Commitments of all Lenders (or, if all Term Commitments have
been terminated, the aggregate principal amount of such Lender's Term Loans
divided by the aggregate principal amount of Term Loans then held by all
Lenders), and (c) in all other cases, such Lender's unused Commitment PLUS its
outstanding Loans and participations in the L/C Obligations and Swingline Loans
divided by the combined unused Commitments and the outstanding Loans and
participations in L/C Obligations and Swingline Loans of all Lenders (or, if all
Commitments have been terminated, the aggregate principal amount of such
Lender's Loans and participations in L/C Obligations and Swingline Loans divided
by the aggregate principal amount of Loans and participations in L/C Obligations
and Swingline Loans then held by all Lenders). The initial Pro Rata Shares of
each Lender are set forth opposite such Lender's name in SCHEDULE 1.
"RABOBANK" has the meaning set forth in the introduction to
this Agreement.
19.
"RATE CONTRACTS" means interest rate swaps, caps, floors and
collars, currency swaps, or other similar financial products designed to provide
protection against fluctuations in interest, currency or exchange rates.
"RECEIVABLE DEBTOR" means any Person obligated on a
Receivable.
"RECEIVABLES" means all rights to payment arising out of the
sale or lease of goods or the performance of services in the ordinary and usual
course of business, however evidenced.
"REGULATION D" means Regulation D of the FRB.
"REGULATORY CHANGE" has the meaning set forth in Section 6.03.
"RELATED PARTY" has the meaning set forth in Section 10.04(k).
"RELATED PERSON" has the meaning set forth in Section
13.04(b).
"REPLACEMENT LENDER" has the meaning set forth in Section
6.07.
"REQUIRED NOTICE DATE" has the meaning set forth in Section
2.07.
"REQUIREMENT OF LAW" means, as to any Person, any law
(statutory or common), treaty, code, decree, order, rule or regulation or
determination of an arbitrator or of a Governmental Authority, in each case
applicable to or binding upon the Person or any of its property or to which the
Person or any of its property is subject.
"RESPONSIBLE OFFICER" means, with respect to any Person, the
chief executive officer, the president, the chief financial officer or the
treasurer of such Person, or any other senior officer of such Person having
substantially the same authority and responsibility; or, with respect to
compliance with financial covenants, the chief executive officer, the chief
financial officer or the treasurer of any such Person, or any other senior
officer of such Person involved principally in the financial administration or
controllership function of such Person and having substantially the same
authority and responsibility.
"REVOLVING COMMITMENT" means, when used with reference to any
Lender at the time any determination thereof is to be made, the amount set forth
opposite the name of such Lender as its "Revolving Commitment" on Schedule 1, as
from time to time reduced pursuant to Section 5.01, or, where the context so
requires, the obligation of such Lender to make Revolving Loans up to such
amount on the terms and conditions set forth in this Agreement. The initial
aggregate Revolving Commitments of all the Lenders shall be $55,000,000, as the
same may from time to time be reduced pursuant to Section 5.01.
"REVOLVING EXPIRY DATE" means April 19, 2005.
"REVOLVING LOAN" has the meaning set forth in Section 2.01(a).
"REVOLVING NOTE" means a Promissory Note of the Borrower
payable to the order of a Lender, in substantially the form of Exhibit G.
20.
"SEC" means the Securities and Exchange Commission, or any
successor thereto.
"SECURITY AGREEMENT" means the Security Agreement among the
Borrower and the Subsidiaries party thereto in favor of the Collateral Agent for
the benefit of the Agent, the Lenders and the Senior Noteholders, in
substantially the form of Exhibit H-1 (or in substantially the form of Exhibit
H-2, in the case of Edna Valley Vineyard).
"SENIOR NOTEHOLDERS" means the noteholders from time to time
holding one or more of the Senior Secured Notes and in whose name such Senior
Secured Note(s) are registered in the register maintained by the Borrower
pursuant to the Senior Secured Note Documents.
"SENIOR SECURED NOTE DOCUMENTS" means the note purchase
agreement, documents and agreements evidencing the Senior Secured Notes,
including all deeds of trust, mortgages, security agreements and other documents
and agreements purporting to grant a Lien on the assets of the Borrower or any
Subsidiary or any other Person to secure the obligations owing by the Borrower
or any other Person under the Senior Secured Notes and Senior Secured Notes
Guaranties.
"SENIOR SECURED NOTES" means (a) the Borrower's $5,000,000
Adjustable Rate Senior Guaranteed Notes, Series A, Due September 15, 2010; (b)
the Borrower's $10,000,000 Adjustable Rate Senior Guaranteed Notes, Series B,
Due September 15, 2010; and (c) the Borrower's $15,000,000 Adjustable Rate
Senior Guaranteed Notes, Series C, Due September 15, 2010, as amended and
restated concurrently herewith.
"SENIOR SECURED NOTES GUARANTIES" means the Subsidiary
Guarantee Agreements entered into by the Subsidiary Guarantors in favor of the
Senior Noteholders to guaranty the Borrower's obligations under the Senior
Secured Notes and the other Senior Secured Note Documents.
"SHW INTERCOMPANY LOAN AMOUNT" means the sum of (i) $8,000,000
plus (ii) on each anniversary of the Closing Date, 10% of the SHW Intercompany
Loan Amount in effect immediately prior to such anniversary.
"SOLVENT" means, as to any Person at any time, that (i) the
fair value of the property of such Person is greater than the amount of such
Person's liabilities (including disputed, contingent and unliquidated
liabilities) as such value is established and liabilities evaluated for purposes
of Section 101(32) of the Bankruptcy Code; (ii) the present fair saleable value
of the property of such Person is not less than the amount that will be required
to pay the probable liability of such Person on its debts as they become
absolute and matured; (iii) such Person is able to realize upon its property and
pay its debts and other liabilities (including disputed, contingent and
unliquidated liabilities) as they mature in the normal course of business; (iv)
such Person does not intend to, and does not believe that it will, incur debts
or liabilities beyond such Person's ability to pay as such debts and liabilities
mature; and (v) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
"SPECIFIED ASSETS" means the assets of the Borrower and its
Subsidiaries identified on Schedule 7 hereto which are being held for sale.
21.
"SPECIFIED SWAP CONTRACT" means any Rate Contract made or
entered into at any time, or in effect at any time (whether heretofore or
hereafter), whether directly or indirectly, and whether as a result of
assignment or transfer or otherwise, between the Borrower and any Swap Provider
which Rate Contract is or was intended by the Borrower to have been entered
into, in part or entirely, for purposes of mitigating interest rate or currency
exchange risk relating to any Loan (which intent shall conclusively be deemed to
exist if the Borrower so represents to the Swap Provider in writing).
"SUBORDINATED DEBT" means any Indebtedness of the Borrower or
any Subsidiary incurred after the date hereof in accordance with Section
10.04(a)(xi).
"SUBSIDIARY" means any corporation, association, partnership,
joint venture or other business entity of which more than 50% of the voting
stock or other equity interest is owned directly or indirectly by any Person or
one or more of the other Subsidiaries of such Person or a combination thereof.
"SUBSIDIARY GUARANTOR" means each of Edna Valley Vineyard,
Canoe Ridge Vineyard L.L.C., Canoe Ridge Winery, Inc., SHW Equity Co., Staton
Hills Winery Company Limited and each other Subsidiary that becomes party to a
Guaranty.
"SWAP PROVIDER" means any Lender, or any Affiliate of any
Lender, that is at the time of determination party to a Rate Contract with the
Borrower.
"SWAP TERMINATION VALUE" means, in respect of any one or more
Rate Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Rate Contracts, (i) for any date on or after
the date such Rate Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s), and (ii) for any
date prior to the date referenced in clause (a) the amount(s) determined as the
mark-to-market value(s) for such Rate Contracts, as determined by the Borrower
based upon one or more mid-market or other readily available quotations provided
by any recognized dealer in such Rate Contracts (which may include any Lender).
"SWINGLINE COMMITMENT" has the meaning specified in subsection
2.01(c).
"SWINGLINE LENDER" has the meaning specified in the
introduction to this Agreement.
"SWINGLINE LOAN" has the meaning specified in subsection
2.01(c).
"SWINGLINE NOTE" means a Promissory Note of the Borrower
payable to the order of the Swingline Lender, in substantially the form of
Exhibit I.
"SYNTHETIC LEASE OBLIGATION" means the monetary obligation of
a Person under (a) a so-called synthetic, off-balance sheet or tax retention
lease, or (b) an agreement for the use or possession of property creating
obligations that do not appear on the balance sheet of such Person but which,
upon the insolvency or bankruptcy of such Person, would be characterized as the
indebtedness of such Person (without regard to accounting treatment).
22.
"TAXES" has the meaning set forth in Section 7.03(a).
"TERM COMMITMENT" means, when used with reference to any
Lender at the time any determination thereof is to be made, the amount set forth
opposite the name of such Lender as its "Term Commitment" on Schedule 1 or,
where the context so requires, the obligation of such Lender to make a Term Loan
up to such amount on the terms and conditions set forth in this Agreement. The
initial aggregate Term Commitments of all the Lenders shall be $17,500,000.
"TERMINATION EVENT" means any of the following:
(i) with respect to a Pension Plan, a reportable event
described in Section 4043 of ERISA and the regulations issued thereunder (other
than a reportable event not subject to the provisions for 30-day notice to the
PBGC under such regulations);
(ii) the withdrawal of the Borrower,any Guarantor or an ERISA
Affiliate from a Pension Plan during a plan year in which the withdrawing
employer was a "substantial employer" as defined in Section 4001(a)(2) or
4062(e) of ERISA;
(iii) the taking of any actions (including the filing of a
notice of intent to terminate) by the Borrower, any Guarantor, an ERISA
Affiliate, the PBGC, a Plan Administrator, or any other Person to terminate a
Pension Plan or the treatment of a Plan amendment as a termination of a Pension
Plan under Section 4041 of ERISA;
(iv) any other event or condition which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Pension Plan; or
(v) the complete or partial withdrawal of the Borrower, any
Guarantor or an ERISA Affiliate from a Multiemployer Plan.
"TERM LOAN" has the meaning set forth in Section 2.01(b), and
shall include the additional Term Loans, if any, made pursuant to Section
2.01(d).
"TERM NOTE" means a Promissory Note of the Borrower payable to
the order of a Lender, in substantially the form of Exhibit J.
"UCC" means the Uniform Commercial Code of the jurisdiction
the law of which governs the Loan Document in which such term is used or the
attachment, perfection or priority of the Lien on any Collateral.
"UNFUNDED ACCRUED BENEFITS" means the excess of a Pension
Plan's accrued benefits, as defined in Section 3(23) of ERISA, over the current
value of that Plan's assets, as defined in Section 3(26) of ERISA.
"UPDATE CERTIFICATE" means a certificate of a Responsible
Officer of the Borrower in substantially the form of Exhibit N, with such
changes thereto as the Agent or any Lender may from time to time reasonably
request.
23.
"WINE BOTTLING INVENTORY" means Borrower's bottles, capsules,
corks and other supplies used in its wine production, bottling and packaging.
"WINE DIVIDEND CREDITS" means annual credits provided by the
Borrower to shareholders owning 100 or more shares of the Borrower's common
stock, which credits may be applied by each such shareholder, for a period not
to exceed one year following such shareholder's receipt of such credits, towards
up to 50% of the purchase price of mail-order or other direct purchases of wine
from the Borrower.
SECTION 1.02 ACCOUNTING PRINCIPLES.
(a) ACCOUNTING TERMS. Unless otherwise defined or the
context otherwise requires, all accounting terms not expressly defined herein
shall be construed, and all accounting determinations and computations required
under the Loan Documents shall be made, in accordance with GAAP, consistently
applied.
(b) GAAP CHANGES. If GAAP shall have been modified after the
Closing Date and the application of such modified GAAP shall have a material
effect on any financial computations hereunder (including the computations
required for the purpose of determining compliance with the covenants set forth
in Section 10.02), then, at the request of the Agent or the Majority Lenders,
such computations shall be made and the financial statements, certificates and
reports due hereunder shall be prepared, and all accounting terms not otherwise
defined herein shall be construed, in accordance with GAAP as in effect prior to
such modification, unless and until the Majority Lenders and the Borrower shall
have agreed upon the terms of the application of such modified GAAP.
(c) "FISCAL YEAR" AND "FISCAL QUARTER". References herein to
"fiscal year" and "fiscal quarter" refer to such fiscal periods of the Borrower.
SECTION 1.03 INTERPRETATION. In the Loan Documents, except to
the extent the context otherwise requires:
(i) Any reference to an Article, a Section, a Schedule or an
Exhibit is a reference to an article or section thereof, or a schedule or an
exhibit thereto, respectively, and to a subsection or a clause is, unless
otherwise stated, a reference to a subsection or a clause of the Section or
subsection in which the reference appears.
(ii) The words "hereof," "herein," "hereto," "hereunder" and
the like mean and refer to this Agreement or any other Loan Document as a whole
and not merely to the specific Article, Section, subsection, paragraph or clause
in which the respective word appears.
(iii) The meaning of defined terms shall be equally applicable
to both the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include" shall be
deemed to be followed by the words "without limitation."
24.
(v) References to agreements and other contractual
instruments shall be deemed to include all subsequent amendments and other
modifications thereto, but only to the extent such amendments and other
modifications are not prohibited by the terms of the Loan Documents.
(vi) References to statutes or regulations are to be
construed as including all statutory and regulatory provisions consolidating,
amending or replacing the statute or regulation referred to.
(vii) Any table of contents, captions and headings are for
convenience of reference only and shall not affect the construction of this
Agreement or any other Loan Document.
(viii) In the computation of periods of time from a specified
date to a later specified date, the word "from" means "from and including"; the
words "to" and "until" each mean "to but excluding"; and the word "through"
means "to and including."
(ix) The use of a word of any gender shall include each of
the masculine, feminine and neuter genders.
(x) This Agreement and the other Loan Documents are the
result of negotiations among the Agent, the Borrower and the other parties, have
been reviewed by counsel to the Agent, the Borrower and such other parties, and
are the products of all parties. Accordingly, they shall not be construed
against the Lenders or the Agent merely because of the Agent's or Lenders'
involvement in their preparation.
ARTICLE II
THE LOANS
SECTION 2.01 THE LOANS.
(a) REVOLVING LOANS. Each Lender severally agrees, on the
terms and conditions set forth in this Agreement, to make revolving loans (each
a "Revolving Loan" and, collectively, the "Revolving Loans") to the Borrower
from time to time on any Business Day during the period from the Closing Date
until the Revolving Expiry Date, in an aggregate principal amount up to but not
exceeding at any time outstanding such Lender's Revolving Commitment; PROVIDED,
that (i) the Effective Amount of all Revolving Loans PLUS the Effective Amount
of all Swingline Loans PLUS the Effective Amount of all L/C Obligations shall
not exceed the aggregate Revolving Commitments and (ii) the Effective Amount of
all Revolving Loans PLUS the Effective Amount of all Swingline Loans PLUS the
Effective Amount of all L/C Obligations shall not exceed the Borrowing Base then
in effect; and PROVIDED FURTHER, that the Effective Amount of the Revolving
Loans of any Lender PLUS the participation of such Lender in the Effective
Amount of all Swingline Loans and L/C Obligations shall not exceed such Lender's
Revolving Commitment. Within the foregoing limits and subject to the other terms
and conditions hereof, during such period the Borrower may borrow, repay the
Revolving Loans in whole or in part, and reborrow, all in accordance with the
terms and conditions hereof.
25.
(b) TERM LOANS. Each Lender severally agrees, on the terms
and conditions set forth in this Agreement, to make a term loan (each a "Term
Loan" and, collectively, the "Term Loans") to the Borrower on the Closing Date,
in a principal amount up to but not exceeding such Lender's Term Commitment. Any
amount of the Term Loans repaid may not be reborrowed.
(c) SWINGLINE LOANS. The Swingline Lender agrees, on the
terms and conditions set forth in this Agreement, to make a portion of the
Revolving Commitment available to the Borrower by making swingline loans
denominated in Dollars (individually, a "Swingline Loan", and, collectively, the
"Swingline Loans") to the Borrower on any Business Day during the period from
the Closing Date to the Revolving Expiry Date in an aggregate principal amount
at any one time outstanding not to exceed $5,000,000, notwithstanding the fact
that such Swingline Loans, when aggregated with any other Credit Extensions made
by or participated in by the Swingline Lender, may exceed the Swingline Lender's
Revolving Commitment (the amount of such commitment of the Swingline Lender to
make Swingline Loans to the Company pursuant to this subsection 2.01(c), as the
same shall be reduced pursuant to Section 5.01, the Swingline Lender's
"Swingline Commitment"); PROVIDED that at no time shall (i) the sum of the
Effective Amount of all Swingline Loans PLUS the Effective Amount of all
Revolving Loans PLUS the Effective Amount of all L/C Obligations exceed the
combined Revolving Commitments, or (ii) the Effective Amount of all Swingline
Loans exceed the Swingline Commitment. Additionally, no more than one Swingline
Loan may be outstanding at any one time, and all Swingline Loans shall at all
times be Base Rate Loans or accrue interest at such other rate as may be agreed
to by the Swingline Lender and the Borrower. Within the foregoing limits, and
subject to the other terms and conditions hereof, the Borrower may borrow, repay
the Swingline Loans in whole or in part, and reborrow, all in accordance with
the terms and conditions hereof.
(d) ADDITIONAL TERM LOANS. Each Lender severally agrees, on
the terms and conditions set forth in this Agreement, to make an additional Term
Loan to the Borrower on or prior to April 30, 2002. The obligation of each
Lender to make such additional Term Loan shall be within its sole and absolute
discretion and shall be subject to the following: (i) the Agent shall have
received by no later than April 15, 2002, a written appraisal report in respect
of the fair market value of the Hewitt Ranch Property prepared by an ARA or MAI
certified appraiser (the "Hewitt Appraisal"); and (ii) the appraised fair market
value of the Hewitt Ranch Property set forth in the Hewitt Appraisal shall be
greater than $11,600,000. If the conditions set forth in the preceding clauses
(i) and (ii) are satisfied, then the Borrower may request additional Term Loans
in an aggregate amount not to exceed the lesser of (A) 70% of the difference
between the appraised fair market value of the Hewitt Ranch Property set forth
in the Appraisal MINUS $11,600,000 and (B) $2,500,000. Any amount of the
additional Term Loans repaid may not be reborrowed.
SECTION 2.02 BORROWING PROCEDURE - REVOLVING LOANS AND TERM
LOANS.
(a) NOTICE TO THE AGENT. Each Borrowing of Revolving Loans
or Term Loans shall be made on a Business Day upon written or telephonic notice
(in the latter case to be confirmed promptly in writing) from the Borrower to
the Agent, which notice shall be received by the Agent not later than 1:00 p.m.
(New York time) on the Required Notice Date. Each such
26.
notice, except as provided in Sections 6.01 and 6.04, shall be irrevocable and
binding on the Borrower, shall be in substantially the form of Exhibit K (a
"Notice of Borrowing") and shall specify whether the Borrowing consists of Base
Rate Loans or Eurodollar Rate Loans and the other information required thereby.
Notwithstanding the foregoing, the Borrower may give the Agent standing
instructions in writing to make a Swingline Loan on the date any interest is due
hereunder, in the amount of such interest, PROVIDED that the making of the
Swingline Loan would otherwise be permissible under Section 2.01(c) and Section
8.02, and prior to the rescission in writing by the Borrower of such standing
instructions, no further notice shall be necessary under this Section 2.02 with
respect to Borrowings of Swingline Loans to pay accrued and unpaid interest
owing hereunder.
(b) NOTICE TO THE LENDERS. The Agent shall give each Lender
prompt notice by telephone (confirmed promptly in writing) or by facsimile of
each Borrowing of Revolving Loans or Term Loans, specifying the information
contained in the Borrower's Notice and such Lender's Pro Rata Share of the
Borrowing. On the date of each such Borrowing, each Lender shall make available
such Lender's Pro Rata Share of such Borrowing, in same day or immediately
available funds, to the Agent for the Agent's Account, not later than 3:00 p.m.
(New York time). Upon fulfillment of the applicable conditions set forth in
Article VIII and after receipt by the Agent of any such funds, and unless other
payment instructions are provided by the Borrower, the Agent shall make such
funds available to the Borrower by crediting the Borrower's Account with same
day or immediately available funds on such Borrowing date.
(c) NON-RECEIPT OF FUNDS. Unless the Agent shall have
received notice from a Lender prior to the date of any Borrowing of Revolving
Loans or Term Loans that such Lender shall not make available to the Agent such
Lender's Pro Rata Share of such Borrowing, the Agent may assume that such Lender
has made such portion available to the Agent on the date of such Borrowing in
accordance with Section 2.02(b) and the Agent may, in reliance upon such
assumption, make available to the Borrower on such date a corresponding amount.
If and to the extent such Lender shall not have so made such Pro Rata Share
available to the Agent, and the Agent in such circumstances shall have made
available to the Borrower such amount, such Lender agrees to repay to the Agent
forthwith on demand such corresponding amount together with interest thereon,
for each day from the date such amount is made available to the Borrower until
the date such amount is repaid to the Agent, at the Federal Funds Rate. If such
Lender shall repay to the Agent such corresponding amount, such amount so repaid
shall constitute such Lender's Loan as part of such Borrowing for purposes of
this Agreement. If such amount is not made available by such Lender to the Agent
on the Business Day following the Borrowing date, the Agent shall notify the
Borrower of such failure to fund and, upon demand by the Agent, the Borrower
shall pay such amount to the Agent for the Agent's Account, together with
interest thereon for each day elapsed since the date of such Borrowing, at a
rate per annum equal to the interest rate applicable at the time to the Loans
comprising such Borrowing.
SECTION 2.03 BORROWING PROCEDURE--SWINGLINE LOANS.
(a) NOTICE TO THE AGENT. The Borrower shall provide the
Agent irrevocable written notice (including notice via facsimile confirmed
immediately by a telephone call) in the form of a Notice of Borrowing of any
Swingline Loan requested hereunder (which notice must be received by the Agent
prior to 1:00 p.m. (New York time) on the requested Borrowing date)
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specifying (i) the amount to be borrowed, which shall be in a Minimum Amount
(unless otherwise agreed by the Swingline Lender), and (ii) the requested
Borrowing date, which shall be a Business Day. Unless the Swingline Lender has
received notice prior to 2:00 p.m. (New York time) on such Borrowing date from
the Agent (including at the request of any Lender) (A) directing the Swingline
Lender not to make the requested Swingline Loan as a result of the limitations
set forth in the proviso set forth in the first sentence of subsection 2.01(a);
or (B) that one or more conditions specified in Article VIII are not then
satisfied; then, subject to the terms and conditions hereof, the Swingline
Lender will, not later than 3:00 p.m. (New York time) on the Borrowing date
specified in such Notice of Borrowing, make the amount of its Swingline Loan
available to the Borrower by crediting the Borrower's Account with same day or
immediately available funds on such Borrowing date.
(b) PARTICIPATIONS IN SWINGLINE LOANS.If:
(1) any Swingline Loan shall remain outstanding at 4:00 p.m.
(New York time) on the Business Day immediately prior to the date on which such
Swingline Loan is due and by such time on such Business Day the Agent shall have
received neither: (A) a Notice of Borrowing delivered pursuant to Section 2.02
requesting that Revolving Loans be made pursuant to subsection 2.01 on such due
date in an amount at least equal to the aggregate principal amount of such
Swingline Loan; nor (B) any other notice indicating the Borrower's intent to
repay such Swingline Loan with funds obtained from other sources; or
(2) any Swingline Loans shall remain outstanding during the
existence of a Default or Event of Default and the Swingline Lender shall in its
sole discretion notify the Agent that the Swingline Lender desires that such
Swingline Loans be converted into Revolving Loans;
THEN the Agent shall be deemed to have received a Notice of Borrowing from the
Borrower pursuant to Section 2.02 requesting that Base Rate Loans be made
pursuant to subsection 2.01(a) on such due date (in the case of the
circumstances described in clause (1) above) or on the first Business Day
subsequent to the date of such notice from the Swingline Lender (in the case of
the circumstances described in clause (2) above) in an amount equal to the
aggregate amount of such Swingline Loans, and the procedures set forth in
subsections 2.02(b) shall be followed in making such Base Rate Loans; PROVIDED,
that such Base Rate Loans shall be made notwithstanding the Borrower's failure
to comply with Section 8.02; and PROVIDED, FURTHER, that if a Borrowing of
Revolving Loans becomes legally impracticable and if so required by the
Swingline Lender at the time such Revolving Loans are required to be made by the
Lenders in accordance with this subsection 2.03(c), each Lender agrees that in
lieu of making Revolving Loans as described in this subsection 2.03(c), such
Lender shall purchase a participation from the Swingline Lender in the
applicable Swingline Loans in an amount equal to such Lender's Pro Rata Share of
such Swingline Loans, and the procedures set forth in subsections 2.02(b) shall
be followed in connection with the purchases of such participations. Upon such
purchases of participations the prepayment requirements of this subsection
2.03(c) shall be deemed waived with respect to such Swingline Loans. If any
Swingline Loan shall remain outstanding in lieu of a Borrowing of Revolving
Loans as provided above, interest on such Swingline Loan shall be due and
payable on demand and shall accrue at the rate then applicable to Base Rate
Loans. The proceeds of such Base Rate Loans, or participations purchased, shall
be applied to repay such Swingline Loans. A
28.
copy of each notice given by the Agent to the Lenders pursuant to this
subsection 2.03(c) with respect to the making of Revolving Loans, or the
purchases of participations, shall be promptly delivered by the Agent to the
Borrower. Each Lender's obligation in accordance with this Agreement to make the
Revolving Loans, or purchase the participations, as contemplated by this
subsection 2.03(c), shall be absolute and unconditional and shall not be
affected by any circumstance, including (1) any set-off, counterclaim,
recoupment, defense or other right which such Lender may have against the
Swingline Lender, the Borrower or any other Person for any reason whatsoever;
(2) the occurrence or continuance of a Default, an Event of Default or a
Material Adverse Effect; or (3) any other circumstance, happening or event
whatsoever, whether or not similar to any of the foregoing.
SECTION 2.04 LENDING OFFICES. The Loans made by each Lender
may be made from and maintained at such offices of such Lender (each a "Lending
Office") as such Lender may from time to time designate (whether or not such
office is specified on Schedule 2). A Lender shall not elect a Lending Office
(other than that set forth on Schedule 2) that, at the time of making such
election, increases the amounts which would have been payable by the Borrower to
such Lender under this Agreement in the absence of such election. With respect
to Eurodollar Rate Loans made from and maintained at any Lender's non-U.S.
offices, the obligation of the Borrower to repay such Eurodollar Rate Loans
shall nevertheless be to such Lender and shall, for all purposes of this
Agreement (including for purposes of the definition of the term "Majority
Lenders") be deemed made or maintained by it, for the account of any such
office; PROVIDED that Borrower shall not be required to pay any increased
amounts that would not have been payable to any such Lender absent such
election.
SECTION 2.05 EVIDENCE OF INDEBTEDNESS. The Loans made by each
Lender shall be evidenced by one or more loan accounts maintained by such Lender
in accordance with its usual practices. The loan accounts maintained by the
Agent and each such Lender shall be rebuttable presumptive evidence of the
amount of the Loans made by such Lender to the Borrower and the interest and
payments thereon. Any failure so to record or any error in doing so shall not,
however, limit or otherwise affect the obligation of the Borrower hereunder to
pay any amount owing with respect to the Loans. At the request of any Lender,
(i) as additional evidence of the Indebtedness of the Borrower to such Lender
resulting from the Revolving Loans made by such Lender, the Borrower shall
execute and deliver for account of such Lender pursuant to Article VIII a
Revolving Note, dated the Closing Date, setting forth such Lender's Revolving
Commitment as the maximum principal amount thereof, and (ii) as additional
evidence of the Indebtedness of the Borrower to such Lender resulting from the
Term Loan made by such Lender, the Borrower shall execute and deliver for
account of such Lender pursuant to Article VIII a Term Note, dated the Closing
Date, in the principal amount of the Term Loan made by such Lender on the
Closing Date. At the request of the Swingline Lender, as additional evidence of
the Indebtedness of the Borrower to the Swingline Lender resulting from the
Swingline Loans made by the Swingline Lender, the Borrower shall execute and
deliver for the account of the Swingline Lender pursuant to Article VIII a
Swingline Note, dated the Closing Date, setting forth the Swingline Lender's
Swingline Commitment as the maximum principal amount thereof. At the request of
any Lender that makes an additional Term Loan pursuant to Section 2.01(d), as
additional evidence of the Indebtedness of the Borrower to such Lender resulting
from the additional Term Loan made by such Lender, the Borrower shall execute
and deliver for the account of such Lender an additional Term Note, dated the
date of
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such additional Term Loan, in the principal amount of the additional Term Loan
made by such Lender.
SECTION 2.06 MINIMUM AMOUNTS. Any Borrowing, conversion,
continuation, Commitment reduction or prepayment of Revolving Loans or Term
Loans hereunder shall be in an aggregate amount determined as follows (each such
specified amount a "Minimum Amount"): (i) any Borrowing or partial prepayment of
Base Rate Loans (other than Swingline Loans) shall be in the amount of
$1,000,000 or a greater amount which is an integral multiple of $100,000; (ii)
any Borrowing, continuation or partial prepayment of, or conversion into,
Eurodollar Rate Loans shall be in the amount of $1,000,000 or a greater amount
which is an integral multiple of $100,000; (iii) any Borrowing or partial
prepayment of Swingline Loans shall be in the minimum amount of $100,000 or a
greater amount which is an integral multiple of $10,000; and (iv) any partial
Commitment reduction under Section 5.01(a) shall be in the amount of $1,000,000
or a greater amount which is an integral multiple of $100,000.
SECTION 2.07 REQUIRED NOTICE. Any Notice hereunder shall be
given not later than the date determined as follows (each such specified date a
"Required Notice Date"): (i) any Notice with respect to a Borrowing of, or
conversion into, Base Rate Loans (other than Swingline Loans) shall be given at
least one Business Day prior to the date of the proposed Borrowing or
conversion; (ii) any Notice with respect to any Borrowing or continuation of, or
conversion into, Eurodollar Rate Loans shall be given at least three Eurodollar
Business Days prior to the date of the proposed Borrowing, conversion or
continuation; (iii) any Notice with respect to a Borrowing or full or partial
prepayment of Swingline Loans shall be given not later than the date of the
proposed Borrowing or prepayment; (iv) any Notice with respect to any prepayment
under Section 5.03(a) (other than with respect to Swingline Loans) or Commitment
reduction under Section 5.01(a) shall, except as otherwise provided in Section
5.03(b), be given at least three Business Days prior to the proposed prepayment
or reduction date; (v) any notice with respect to the issuance of any Letter of
Credit shall, except to the extent the Issuing Lender may agree in a particular
instance to a shorter notice period in its sole and absolute discretion, be
given at least two Business Days prior to the proposed issuance date; and (vi)
any notice with respect to the amendment or renewal of any Letter of Credit
shall, except to the extent the Issuing Lender may agree in a particular
instance to a shorter notice period in its sole and absolute discretion, be
given at least two Business Days prior to the proposed amendment or renewal
date.
ARTICLE III
THE LETTERS OF CREDIT
SECTION 3.01 THE LETTER OF CREDIT SUBFACILITY.
(a) LETTERS OF CREDIT. On the terms and conditions
hereinafter set forth, (i) the Issuing Lender hereby agrees (A) from time to
time on any Business Day during the period from the Closing Date to the
Revolving Expiry Date to issue Letters of Credit for the account of the Borrower
in accordance with Section 3.02(a), and to amend or renew Letters of Credit
previously issued by it, in accordance with subsections 3.02(c) and 3.02(d), in
an aggregate amount not to exceed at any time $5,000,000 (the "L/C Commitment"),
and (B) to honor drafts under the
30.
Letters of Credit; and (ii) the Lenders severally agree to participate in
Letters of Credit issued for the account of the Borrower; PROVIDED, that the
Issuing Lender shall not be obligated to issue any Letter of Credit if (1) the
Effective Amount of all L/C Obligations PLUS the Effective Amount of all
Revolving Loans PLUS the Effective Amount of all Swingline Loans shall exceed
the aggregate Revolving Commitments, (2) the participation of any Lender in the
Effective Amount of all L/C Obligations PLUS the participation of such Lender in
the Effective Amount of all Swingline Loans PLUS the Effective Amount of the
Revolving Loans of such Lender shall exceed such Lender's Revolving Commitment,
(3) the Effective Amount of L/C Obligations shall exceed the L/C Commitment or
(4) the Effective Amount of all L/C Obligations PLUS the Effective Amount of all
Revolving Loans PLUS the Effective Amount of all Swingline Loans shall exceed
the Borrowing Base then in effect. Within the foregoing limits, and subject to
the other terms and conditions hereof, the Borrower's ability to obtain Letters
of Credit shall be fully revolving, and, accordingly, the Borrower may, during
the foregoing period, obtain Letters of Credit to replace Letters of Credit
which have expired or which have been drawn upon and reimbursed.
(b) CONDITIONS TO ISSUANCE. The Issuing Lender shall be
under no obligation to issue, amend or reinstate any Letter of Credit if:
(i) any order, judgment or decree of any Governmental
Authority or arbitrator shall by its terms purport to enjoin or restrain the
Issuing Lender from issuing, amending or reinstating such Letter of Credit, or
any law, rule or regulation applicable to the Issuing Lender or any request,
guideline or directive (whether or not having the force of law) from any
Governmental Authority with jurisdiction over the Issuing Lender shall prohibit,
or request that the Issuing Lender refrain from, the issuance, amendment or
reinstatement of letters of credit generally or such Letter of Credit in
particular or shall impose upon the Issuing Lender with respect to such Letter
of Credit any restriction, reserve or capital requirement (for which the Issuing
Lender is not otherwise compensated) not in effect on the Closing Date, or shall
impose upon the Issuing Lender any unreimbursed loss, cost or expense which was
not applicable on the Closing Date and which the Issuing Lender in good faith
deems material to it;
(ii) the Issuing Lender has received written notice from any
Lender, the Agent or the Borrower, at least one Business Day prior to the
requested date of issuance, amendment or reinstatement of such Letter of Credit,
that one or more of the applicable conditions contained in Article VIII is not
then satisfied;
(iii) the expiry date of any requested Letter of Credit is (A)
more than one year after the date of issuance, unless the Majority Lenders have
approved such expiry date in writing, PROVIDED that a Letter of Credit may state
that the expiry date thereof may be extended for an additional term as shall be
satisfactory to the Issuing Lender (either upon prior notice or automatically)
so long as the next succeeding additional term at any time is not more than one
year; or (B) after the Revolving Expiry Date, unless all of the Lenders have
approved such expiry date in writing and such Letter of Credit is fully cash
collateralized;
(iv) any requested Letter of Credit does not provide for
drafts, or is not otherwise in form and substance acceptable to the Issuing
Lender, or the issuance, amendment or renewal of a Letter of Credit shall
violate any applicable policies of the Issuing Lender; or
31.
(v) such Letter of Credit is denominated in a currency other
than dollars.
SECTION 3.02 ISSUANCE, AMENDMENT AND RENEWAL OF LETTERS OF
CREDIT.
(a) NOTICE TO ISSUING LENDER OF ISSUANCE REQUEST. Each
Letter of Credit shall be issued upon the irrevocable written request of the
Borrower received by the Issuing Lender (with a copy sent by the Borrower to the
Agent) not later than the Required Notice Date. Each such request for issuance
of a Letter of Credit shall be in writing, in the form of an L/C Application,
and shall specify in form and detail satisfactory to the Issuing Lender: (i) the
proposed date of issuance of the Letter of Credit (which shall be a Business
Day); (ii) the face amount of the Letter of Credit; (iii) the expiry date of the
Letter of Credit; (iv) the name and address of the beneficiary thereof; (v) the
documents to be presented by the beneficiary of the Letter of Credit in case of
any drawing thereunder; (vi) the full text of any certificate to be presented by
the beneficiary in case of any drawing thereunder; and (vii) such other matters
as the Issuing Lender may require.
(b) ISSUANCE OF LETTERS OF CREDIT. At least two Business
Days prior to the issuance of any Letter of Credit or any amendment or renewal
of any Letter of Credit, the Issuing Lender shall confirm with the Agent (by
telephone or in writing) that the Agent has received a copy of the L/C
Application or L/C Amendment Application from the Borrower and, if not, the
Issuing Lender will provide the Agent with a copy thereof. Unless the Issuing
Lender has received notice on or before the Business Day immediately preceding
the date the Issuing Lender is to issue, amend or renew a requested Letter of
Credit from the Agent (i) directing the Issuing Lender not to issue, amend or
renew such Letter of Credit because such issuance, amendment or renewal is not
then permitted under Section 3.01(a) as a result of the limitations set forth in
clauses (1) through (4) thereof or Section 3.01(b); or (ii) that one or more
conditions specified in Article VIII are not then satisfied; then, subject to
the terms and conditions hereof, the Issuing Lender shall, on the requested
date, issue a Letter of Credit for the account of the Borrower or amend or renew
a Letter of Credit, as the case may be, in accordance with the Issuing Lender's
usual and customary business practices.
(c) NOTICE TO ISSUING LENDER OF AMENDMENT REQUEST. >From time
to time while a Letter of Credit is outstanding and prior to the Revolving
Expiry Date, the Issuing Lender shall, upon the written request of the Borrower
received by the Issuing Lender (with a copy sent by the Borrower to the Agent)
not later than the Required Notice Date, amend any Letter of Credit issued by
it. Each such request for amendment of a Letter of Credit shall be made in
writing, in the form of an L/C Amendment Application, and shall specify in form
and detail satisfactory to the Issuing Lender: (i) the Letter of Credit to be
amended; (ii) the proposed date of amendment of the Letter of Credit (which
shall be a Business Day); (iii) the nature of the proposed amendment; and (iv)
such other matters as the Issuing Lender may require. The Issuing Lender shall
be under no obligation to amend any Letter of Credit, and shall not permit the
amendment of a Letter of Credit, if: (A) the Issuing Lender would have no
obligation at such time to issue such Letter of Credit in its amended form under
the terms of this Agreement; or (B) the beneficiary of any such Letter of Credit
does not accept the proposed amendment to the Letter of Credit.
32.
(d) NOTICE TO ISSUING LENDER OF RENEWAL REQUEST. The Issuing
Lender and the Lenders agree that, while a Letter of Credit is outstanding and
prior to the Revolving Expiry Date, at the option of the Borrower and upon the
written request of the Borrower received by the Issuing Lender (with a copy sent
by the Borrower to the Agent) not later than the Required Notice Date, the
Issuing Lender shall be entitled to authorize the automatic renewal of any
Letter of Credit issued by it. Each such request for renewal of a Letter of
Credit shall be made in writing, in the form of an L/C Amendment Application,
and shall specify in form and detail satisfactory to the Issuing Lender: (i) the
Letter of Credit to be renewed; (ii) the proposed date of notification of
renewal of the Letter of Credit (which shall be a Business Day); (iii) the
revised expiry date of the Letter of Credit; and (iv) such other matters as the
Issuing Lender may require. The Issuing Lender shall be under no obligation so
to renew any Letter of Credit, and shall not permit any renewal (including any
automatic renewal of a Letter of Credit), if: (A) the Issuing Lender would have
no obligation at such time to issue or amend such Letter of Credit in its
renewed form under the terms of this Agreement; or (B) the beneficiary of any
such Letter of Credit does not accept the proposed renewal of the Letter of
Credit. If any outstanding Letter of Credit shall provide that it shall be
automatically renewed unless the beneficiary thereof receives notice from the
Issuing Lender that such Letter of Credit shall not be renewed, and if at the
time of renewal the Issuing Lender would be entitled to authorize the automatic
renewal of such Letter of Credit in accordance with this subsection (d) upon the
request of the Borrower but the Issuing Lender shall not have received any L/C
Amendment Application from the Borrower with respect to such renewal or other
written direction by the Borrower with respect thereto, the Issuing Lender shall
nonetheless be permitted to allow such Letter of Credit to renew, and the
Borrower and the Lenders hereby authorize such renewal, and, accordingly, the
Issuing Lender shall be deemed to have received an L/C Amendment Application
from the Borrower requesting such renewal.
(e) EXPIRY OF LETTERS OF CREDIT. The Issuing Lender may, at
its election (or shall, when required by the Agent at the direction of the
Majority Lenders), deliver any notices of termination or other communications to
any Letter of Credit beneficiary or transferee, or take any other action as
necessary or appropriate, at any time and from time to time, in order to cause
the expiry date of such Letter of Credit to be a date not later than the
Revolving Expiry Date, unless such later date has been previously approved by
the Agent and all the Lenders in writing and such Letter of Credit is fully cash
collateralized.
(f) CONFLICTS WITH L/C-RELATED DOCUMENTS. This Agreement
shall control in the event of any conflict with any L/C-Related Document (other
than any Letter of Credit).
(g) DELIVERY OF COPIES OF LETTERS OF CREDIT. The Issuing
Lender shall also deliver to the Agent, concurrently with or promptly following
its delivery of a Letter of Credit, or amendment to or renewal of a Letter of
Credit, to an advising bank or a beneficiary, a true and complete copy of each
such Letter of Credit or amendment to or renewal of a Letter of Credit.
(h) NOTICES TO LENDERS. The Agent shall promptly notify the
Lenders of the issuance, amendment or renewal of a Letter of Credit hereunder
(including the date thereof and the amount, expiry and reference number of such
Letter of Credit).
33.
SECTION 3.03 PARTICIPATIONS, DRAWINGS AND REIMBURSEMENTS.
(a) PARTICIPATIONS OF LENDERS IN ADDITIONAL LETTERS OF
CREDIT. Immediately upon the issuance of each Letter of Credit, the Issuing
Lender shall be deemed irrevocably to have sold and transferred to each Lender
without recourse or warranty, and each Lender shall be deemed to, and hereby
irrevocably and unconditionally agrees to, purchase and accept from the Issuing
Lender, for such Lender's own account and risk, an undivided interest and a
participation in such Letter of Credit and each drawing thereunder in an amount
equal to the product of (i) the Pro Rata Share of such Lender, times (ii) the
maximum amount available to be drawn under such Letter of Credit and the amount
of such drawing, respectively. For purposes of Section 3.01(a), each issuance of
a Letter of Credit shall be deemed to utilize the Revolving Commitment of each
Lender by an amount equal to the amount of such participation.
(b) DRAWING AND REIMBURSEMENT. In the event of any request
for a drawing under a Letter of Credit by the beneficiary thereof, the Issuing
Lender shall immediately notify the Borrower and the Agent. The Borrower shall
reimburse the Issuing Lender prior to 1:00 p.m. (New York time), on each date
that any amount is paid by the Issuing Lender under any Letter of Credit, in an
amount equal to the amount paid by the Issuing Lender on such date under such
Letter of Credit. In the event the Borrower shall fail to reimburse the Issuing
Lender for the full amount of any drawing under any Letter of Credit by 1:00
p.m. (New York time) on the same date such drawing is honored by the Issuing
Lender, the Issuing Lender shall promptly notify the Agent and the Agent shall
promptly notify each Lender thereof (including the amount of the drawing and
such Lender's Pro Rata Share thereof), and the Borrower shall be deemed to have
requested that Base Rate Loans be made by the Lenders to be disbursed on the
date of payment by the Issuing Lender under such Letter of Credit, subject to
the amount of the unutilized portion of the Revolving Commitment of each Lender
and subject to the conditions set forth in clauses (b) and (c) of Section 8.02.
The Borrower hereby directs that the proceeds of any such Loans deemed to be
made by it shall be used to pay its reimbursement obligations in respect of any
such drawing. Solely for the purposes of making such Loans, the Minimum Amount
limitations set forth in Section 2.06 shall not be applicable. Any notice given
by the Issuing Lender or the Agent pursuant hereto may be telephonic if
immediately confirmed in writing; PROVIDED that the lack of such an immediate
confirmation shall not affect the conclusiveness or binding effect of such
notice.
(c) FUNDING BY LENDERS. Each Lender shall upon receipt of
any notice pursuant to subsection (b) make available to the Agent for the
account of the Issuing Lender an amount in Dollars and in same day or
immediately available funds equal to its Pro Rata Share of the amount of the
drawing, whereupon the participating Lenders shall (subject to subsection(b))
each be deemed to have made a Revolving Loan consisting of a Base Rate Loan to
the Borrower in that amount. If any Lender so notified shall fail to make
available to the Agent for the account of the Issuing Lender the amount of such
Lender's Pro Rata Share of the amount of the drawing by no later than 3:00 p.m.
(New York time) on the date such drawing was honored by the Issuing Lender (the
"Participation Date"), then interest shall accrue on such Lender's obligation to
make such payment, from the Participation Date to the date such Lender makes
such payment, at a rate per annum equal to (i) the Federal Funds Rate in effect
from time to time during the period commencing on the Participation Date and
ending on the date three Business Days thereafter, and (ii) thereafter at the
Base Rate as in effect from time to time. The Agent shall promptly give
34.
notice of the occurrence of the Participation Date, but failure of the Agent to
give any such notice on the Participation Date or in sufficient time to enable
any Lender to effect such payment on such date shall not relieve such Lender
from its obligations under this Section 3.03.
(d) L/C UNREIMBURSED DRAWINGS. With respect to any
unreimbursed drawing that is not converted into Revolving Loans consisting of
Base Rate Loans to the Borrower in whole or in part, because of the Borrower's
failure to satisfy the conditions set forth in clauses (b) and (c) of Section
8.02 or for any other reason, the Borrower shall be obligated to the Issuing
Lender for an L/C Unreimbursed Draw in the amount of such drawing, which L/C
Unreimbursed Draw shall be due and payable on demand, together with interest,
and shall bear interest at a rate per annum equal to the Base Rate PLUS the
Applicable Margin PLUS 2% per annum, and each Lender's payment to the Issuing
Lender pursuant to subsection (c) shall be deemed payment in respect of its
participation in such L/C Unreimbursed Draw and shall constitute an L/C Advance
from such Lender in satisfaction of its participation obligation under this
Section 3.03.
(e) OBLIGATION OF LENDERS ABSOLUTE. Each Lender's obligation
in accordance with this Agreement to make the Revolving Loans or L/C Advances,
as contemplated by this Section 3.03, as a result of a drawing under a Letter of
Credit shall be absolute and unconditional and shall not be affected by any
circumstance, including (i) any set-off, counterclaim, recoupment, defense or
other right which such Lender may have against the Issuing Lender, the Borrower
or any other Person for any reason whatsoever; (ii) the occurrence or
continuance of a Default, an Event of Default or a Material Adverse Effect; or
(iii) any other circumstance, happening or event whatsoever, whether or not
similar to any of the foregoing.
SECTION 3.04 REPAYMENT OF PARTICIPATIONS. Upon(and only upon)
receipt by the Agent for the account of the Issuing Lender of funds from the
Borrower (i) in reimbursement of any payment made by the Issuing Lender under
the Letter of Credit with respect to which any Lender has theretofore paid the
Agent for the account of the Issuing Lender for such Lender's participation in
the Letter of Credit pursuant to Section 3.03, or (ii) in payment of interest
thereon, the Agent shall pay to each Lender, in the same funds as those received
by the Agent for the account of the Issuing Lender, the amount of such Lender's
Pro Rata Share of such funds, and the Issuing Lender shall receive the amount of
the Pro Rata Share of such funds of any Lender that did not so pay the Agent for
the account of the Issuing Lender. If the Agent or the Issuing Lender is
required at any time to return to the Borrower or to a trustee, receiver,
liquidator, custodian, or any official in any Insolvency Proceeding, any portion
of the payments made by the Borrower to the Agent for the account of the Issuing
Lender in reimbursement of a payment made under the Letter of Credit or interest
thereon, each Lender shall, on demand of the Agent, forthwith return to the
Agent or the Issuing Lender the amount of its Pro Rata Share of any amounts so
returned by the Agent or the Issuing Lender PLUS interest thereon from the date
such demand is made to the date such amounts are returned by such Lender to the
Agent or the Issuing Lender, at a rate per annum equal to the Federal Funds Rate
in effect from time to time.
SECTION 3.05 ROLE OF THE ISSUING LENDER.
(a) NO RESPONSIBILITY OF ISSUING LENDER. Each Lender and the
Borrower agrees that, in paying any drawing under a Letter of Credit, the
Issuing Lender shall not have any
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responsibility to obtain any document (other than any sight draft and
certificates expressly required by the Letter of Credit) or to ascertain or
inquire as to the validity or accuracy of any such document or the authority of
the Person executing or delivering any such document. The Borrower hereby
assumes all risks of the acts or omissions of any beneficiary or transferee with
respect to its use of any Letter of Credit; PROVIDED, HOWEVER, that this
assumption is not intended to, and shall not, preclude the Borrower's pursuing
such rights and remedies as it may have against the beneficiary or transferee at
law or under any other agreement. No Agent/IB-Related Person, nor any of the
respective correspondents, participants or assignees of the Issuing Lender,
shall be liable or responsible for any of the matters described in clauses (i)
through (vii) of Section 3.06; PROVIDED, HOWEVER, anything in such clauses to
the contrary notwithstanding, that the Borrower may have a claim against the
Issuing Lender, and the Issuing Lender may be liable to the Borrower, to the
extent, but only to the extent, of any direct, as opposed to consequential or
exemplary, damages suffered by the Borrower which the Borrower proves were
caused by the Issuing Lender's willful misconduct or gross negligence or the
Issuing Lender's willful failure to pay under any Letter of Credit after the
presentation to it by the beneficiary of a sight draft and certificate(s)
strictly complying with the terms and conditions of a Letter of Credit. In
furtherance and not in limitation of the foregoing: (i) the Issuing Lender may
accept documents that appear on their face to be in order, without
responsibility for further investigation, regardless of any notice or
information to the contrary; and (ii) the Issuing Lender shall not be
responsible for the validity or sufficiency of any instrument transferring or
assigning or purporting to transfer or assign a Letter of Credit or the rights
or benefits thereunder or proceeds thereof, in whole or in part, which may prove
to be invalid or ineffective for any reason.
(b) NO LIABILITY OF AGENT/IB-RELATED PERSONS. No
Agent/IB-Related Person nor any of the respective correspondents, participants
or assignees of the Issuing Lender shall be liable to any Lender for: (i) any
action taken or omitted in connection herewith at the request or with the
approval of the Lenders (including the Majority Lenders, as applicable); (ii)
any action taken or omitted in the absence of gross negligence or willful
misconduct; or (iii) the due execution, effectiveness, validity or
enforceability of any L/C-Related Document.
SECTION 3.06 OBLIGATIONS OF BORROWER ABSOLUTE.The obligations
of the Borrower under this Agreement and any L/C-Related Document to reimburse
the Issuing Lender for a drawing under a Letter of Credit, and to repay any L/C
Unreimbursed Draw and any drawing under a Letter of Credit converted into
Revolving Loans, shall be unconditional and irrevocable, and shall be paid
strictly in accordance with the terms of this Agreement and each such other
L/C-Related Document under all circumstances, including the following:
(i) any lack of validity or enforceability of this Agreement
or any L/C-Related Document;
(ii) any change in the time, manner or place of payment of,or
in any other term of, all or any of the obligations of the Borrower in respect
of any Letter of Credit or any other amendment or waiver of or any consent to
departure from all or any of the L/C-Related Documents;
(iii) the existence of any claim, set-off, defense or other
right that the Borrower may have at any time against any beneficiary or any
transferee of any Letter of Credit (or any
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Person for whom any such beneficiary or any such transferee may be acting), the
Issuing Lender or any other Person, whether in connection with this Agreement,
the transactions contemplated hereby or by the L/C-Related Documents or any
unrelated transaction;
(iv) any draft, demand, certificate or other document
presented under any Letter of Credit proving to be forged, fraudulent, invalid
or insufficient in any respect or any statement therein being untrue or
inaccurate in any respect;
(v) any payment by the Issuing Lender under any Letter of
Credit against presentation of a draft or certificate that does not strictly
comply with the terms of any Letter of Credit; or any payment made by the
Issuing Lender under any Letter of Credit to any Person purporting to be a
trustee in bankruptcy, debtor-in-possession, assignee for the benefit of
creditors, liquidator, receiver or other representative of or successor to any
beneficiary or any transferee of any Letter of Credit, including any arising in
connection with any bankruptcy, reorganization or other insolvency proceeding;
(vi) any exchange, release or non-perfection of any
collateral, or any release or amendment or waiver of or consent to departure
from any other guarantee, for all or any of the obligations of the Borrower in
respect of any Letter of Credit; or
(vii) any other circumstance or happening whatsoever, whether
or not similar to any of the foregoing, including any other circumstance that
might otherwise constitute a defense available to, or a discharge of, the
Borrower or a guarantor.
SECTION 3.07 CASH COLLATERAL PLEDGE. Upon (i) the request of
the Agent, (A) if the Issuing Lender has honored any full or partial drawing
request on any Letter of Credit and such drawing has resulted in an L/C
Unreimbursed Draw hereunder, or (B) if, as of the Revolving Expiry Date, any
Letters of Credit may for any reason remain outstanding and partially or wholly
undrawn, or (ii) the occurrence of the circumstances described in Sections
5.03(b) or 11.02 requiring the Borrower to cash collateralize Letters of Credit,
the Borrower shall immediately pay over cash in an amount equal to the L/C
Obligations to the Collateral Agent for the benefit of the Lenders, to be held
by the Collateral Agent as cash collateral subject to the terms of this Section
3.07. Such amount, together with any amount received by the Collateral Agent in
respect of outstanding Letters of Credit pursuant to Section 11.02, when
received by the Collateral Agent, shall be held by the Collateral Agent as part
of the Collateral pursuant to the terms of the Security Agreement as cash
collateral for the reimbursement obligations of the Borrower under this
Agreement in respect of the L/C Obligations and for the other Obligations. Such
cash collateral shall bear interest for the benefit of the Borrower, PROVIDED
that all such accrued interest shall be held as additional cash collateral
hereunder and under the Security Agreement. All cash collateral shall be held by
the Collateral Agent until the release thereof shall be permitted pursuant to
the terms of the Security Agreement.
SECTION 3.08 LETTER OF CREDIT FEES.
(a) CERTAIN LETTER OF CREDIT FEES.The Borrower shall pay (i)
to the Agent for the account of each of the Lenders a letter of credit fee with
respect to the Letters of Credit equal
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to the Applicable Fee Amount multiplied by the average daily maximum amount
available to be drawn on the outstanding Letters of Credit, and (ii) to the
Issuing Lender a letter of credit fronting fee with respect to the Letters of
Credit equal to 0.125% per annum of the average daily maximum amount available
to be drawn of the outstanding Letters of Credit, computed in each case on a
quarterly basis in arrears on the last Business Day of each calendar quarter
based upon Letters of Credit outstanding for that quarter as calculated by the
Agent. Such letter of credit fees shall be due and payable quarterly in arrears
on the last Business Day of each calendar quarter during which Letters of Credit
are outstanding, commencing on the first such quarterly date to occur after the
Closing Date, through the Revolving Expiry Date (or such later date upon which
the outstanding Letters of Credit shall expire), with the final payment to be
made on the Revolving Expiry Date (or such expiration date).
(b) CERTAIN ADDITIONAL FEES AND CHARGES. The Borrower shall
pay to the Issuing Lender from time to time on demand the normal issuance,
presentation, amendment and other processing fees, and other standard costs and
charges, of the Issuing Lender relating to standby letters of credit as from
time to time in effect.
(c) FEES NONREFUNDABLE. All fees and charges payable under
this Section 3.08 shall be nonrefundable.
SECTION 3.09 APPLICABILITY OF ISP98. Unless otherwise
expressly agreed by the Issuing Lender and the Borrower when a Letter of Credit
is issued and subject to applicable laws, performance under Letters of Credit by
the Issuing Lender, its correspondents, and beneficiaries will be governed by
the rules of the "International Standby Practices 1998" (ISP98) or such later
revision as may be published by the Institute of International Banking Law &
Practice on any date any standby Letter of Credit may be issued.
ARTICLE IV
INTEREST AND FEES; CONVERSION OR CONTINUATION
SECTION 4.01 INTEREST.
(a) INTEREST RATE. The Borrower shall pay interest on the
unpaid principal amount of each Loan from the date of such Loan until such
principal amount shall be paid in full, at the following rates:
(i) during such periods as such Loan is a Base Rate Loan
(other than a Swingline Loan), at a rate per annum equal at all times to the
Base Rate plus the Applicable Margin;
(ii) during such periods as such Loan is a Eurodollar Rate
Loan, at a rate per annum equal at all times during each Interest Period for
such Eurodollar Rate Loan to the Eurodollar Rate for such Interest Period plus
the Applicable Margin.
(iii) during such periods as such Loan is a Swingline Loan, at
a rate per annum equal to a quoted rate as shall from time to time be mutually
agreed upon by the Borrower and the Swingline Lender.
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(b) INTEREST PERIODS. The initial and each subsequent
Interest Period for the Eurodollar Rate Loans shall be a period of one, two,
three or six months, or such other period as requested by the Borrower and
acceptable to all the Lenders. The determination of Interest Periods shall be
subject to the following provisions:
(A) in the case of immediately successive Interest Periods,
each successive Interest Period shall commence on the day on which the next
preceding Interest Period expires;
(B) if any Interest Period would otherwise end on a day
which is not a Business Day, that Interest Period shall be extended to the next
succeeding Business Day unless the result of such extension would be to carry
such Interest Period into another calendar month, in which event such Interest
Period shall end on the immediately preceding Business Day;
(C) the Borrower may select Interest Periods with respect to
Term Loans which commence before and end after a Principal Payment Date only to
the extent that the Base Rate Loans to be outstanding on such Principal Payment
Date PLUS the Eurodollar Rate Loans with Interest Periods ending on such
Principal Payment Date at least equal in principal amount the required principal
payment on such Principal Payment Date;
(D) no Interest Period shall extend beyond (1) the Revolving
Expiry Date with respect to any Revolving Loan, and (2) the Final Maturity Date
with respect to any Term Loan;
(E) any Interest Period that begins on the last Eurodollar
Business Day of a calendar month (or on a day for which there is no numerically
corresponding day in the ending calendar month of such Interest Period) shall
end on the last Eurodollar Business Day of the ending calendar month of such
Interest Period;
(F) there shall be no more than five Interest Periods in
effect at any one time.
(c) INTEREST PAYMENT DATES. Subject to Section 4.02,interest
on the Loans shall be payable in arrears at the following times:
(i) interest on each Base Rate Loan (other than Swingline
Loans) shall be payable quarterly on the last Business Day in each calendar
quarter, on the date of any prepayment or conversion of any such Base Rate Loan,
and at maturity;
(ii) interest on each Eurodollar Rate Loan shall be payable
on the last day of each Interest Period for such Eurodollar Rate Loan, PROVIDED
that (A) in the case of any such Interest Period which is greater than three
months, interest on such Eurodollar Rate Loan shall be payable on each date that
is three months, or any integral multiple thereof, after the beginning of such
Interest Period, and on the last day of such Interest Period, and (B) if any
prepayment, conversion, or continuation is effected other than on the last day
of such Interest Period, accrued interest on such Eurodollar Rate Loan shall be
due on such prepayment, conversion or continuation date as to the principal
amount of such Eurodollar Rate Loan prepaid, converted or continued; and
(iii) interest on each Swingline Loan shall be payable monthly
on the last Business Day in each calendar month and at maturity.
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(d) NOTICE TO THE BORROWER AND THE LENDERS. Each
determination by the Agent hereunder of a rate of interest and of any change
therein, including any changes in (i) the Applicable Margin, (ii) the Base Rate
during any periods in which Base Rate Loans shall be outstanding, (iii) the
Federal Funds Rate during any periods in which Swingline Loans are outstanding
and (iv) the Eurodollar Reserve Percentage (if any) during any periods in which
Eurodollar Rate Loans shall be outstanding, in the absence of manifest error
shall be conclusive and binding on the parties hereto and shall be promptly
notified by the Agent to the Borrower and the Lenders (or to the Swingline
Lender, as applicable). Such notice shall set forth in reasonable detail the
basis for any such determination or change. The failure of the Agent to give any
such notice specified in this subsection shall not affect the Borrower's
obligation to pay such interest or fees.
SECTION 4.02 DEFAULT RATE OF INTEREST.Notwithstanding Section
4.01, in the event that any amount of principal of or interest on any Loan is
not paid in full when due, or any other amount payable hereunder or under the
Loan Documents is not paid in full within three (3) Business Days of when due
(in each case, whether at stated maturity, by acceleration or otherwise), the
Borrower shall pay interest on such unpaid principal, interest or other amount,
from the date such amount becomes due until the date such amount is paid in
full, and after as well as before any entry of judgment to the extent permitted
by law, payable on demand, at a rate per annum equal at all times to the Base
Rate PLUS the Applicable Margin PLUS 2%.
SECTION 4.03 FEES.
(a) COMMITMENT FEE. The Borrower agrees to pay to the Agent
for the account of each Lender a commitment fee on the average daily unused
portion of such Lender's Revolving Commitment as in effect from time to time
from the Closing Date until the Revolving Expiry Date at a rate per annum equal
to the Applicable Fee Amount, payable quarterly in arrears on the last Business
Day of each calendar quarter in each year, commencing on the first such date
after the Closing Date, and on the earlier of the date such Revolving Commitment
is terminated hereunder or the Revolving Expiry Date. For purposes of
calculation of such unused portion of a Lender's Revolving Commitment, each
Lender's Revolving Commitment shall be considered used on any date to the extent
of its participation on such date in any Letter of Credit or Swingline Loan and
any L/C Advance made by it.
(b) UPFRONT FEE. The Borrower agrees to pay to the Agent for
the account of each Lender an upfront fee payable on the Closing Date as
specified in the Fee Letter.
(c) ANNUAL AGENCY FEE. The Borrower agrees to pay to the
Agent for its own account on the Closing Date and on each anniversary of the
Closing Date such fee for agency services as specified in the Fee Letter.
(d) FEES NONREFUNDABLE. All fees payable under this Section
4.03 shall be nonrefundable.
SECTION 4.04 COMPUTATIONS. All computations of interest,
commitment fees and letter of credit fees hereunder shall be made on the basis
of a year of 360 days for the actual number of days occurring in the period for
which such fee or interest is payable, which
40.
results in more interest being paid than if computed on the basis of a 365-day
year. Notwithstanding the foregoing, if any Loan is repaid on the same day on
which it is made, such day shall be included in computing interest on such Loan.
SECTION 4.05 CONVERSION OR CONTINUATION.
(a) ELECTION. The Borrower may elect (i) to convert all or
any part of (A) outstanding Base Rate Loans into Eurodollar Rate Loans, or (B)
outstanding Eurodollar Rate Loans into Base Rate Loans; or (ii) to continue all
or any part of a Loan with one type of interest rate as such; PROVIDED, HOWEVER,
that if the aggregate amount of Eurodollar Rate Loans in respect of any
Borrowing shall have been reduced, by payment, prepayment, or conversion of part
thereof to be less than $1,000,000, such Eurodollar Rate Loans shall
automatically convert into Base Rate Loans, and on and after such date the right
of the Borrower to continue such Loans as, and convert such Loans into,
Eurodollar Rate Loans shall terminate. The continued or converted Base Rate and
Eurodollar Rate Loans shall be allocated to the Lenders ratably in accordance
with their Pro Rata Shares. Any conversion or continuation of Eurodollar Rate
Loans shall be made on the last day of the current Interest Period for such
Eurodollar Rate Loans. No outstanding Loan may be converted into or continued as
a Eurodollar Rate Loan if any Event of Default has occurred and is continuing.
(b) AUTOMATIC CONVERSION. On the last day of any Interest
Period for any Eurodollar Rate Loans, such Eurodollar Rate Loans shall, if not
repaid, automatically convert into Base Rate Loans unless the Borrower shall
have made a timely election to continue such Eurodollar Rate Loans as such for
an additional Interest Period or to convert such Eurodollar Rate Loans, in each
case as provided in subsection (a) .
(c) NOTICE TO THE AGENT. The conversion or continuation of
any Loans contemplated by subsection (a) shall be made upon written or
telephonic notice (in the latter case to be confirmed promptly in writing) from
the Borrower to the Agent, which notice shall be received by the Agent not later
than 1:00 p.m. (New York time) on the Required Notice Date. Each such notice (a
"Notice of Conversion or Continuation") shall, except as provided in Sections
6.01 and 6.04, be irrevocable and binding on the Borrower, shall refer to this
Agreement and shall specify: (i) the proposed date of the conversion or
continuation, which shall be a Business Day (or a Eurodollar Business Day, for
conversions into or continuations of Eurodollar Rate Loans); (ii) the
outstanding Loans (or parts thereof) to be converted into or continued as Base
Rate or Eurodollar Rate Loans; (iii) the aggregate amount of the Loans which are
the subject of such continuation or conversion, which shall be in a Minimum
Amount; (iv) if the conversion or continuation consists of any Eurodollar Rate
Loans, the duration of the Interest Period with respect thereto; and (v) that no
Event of Default exists hereunder.
(d) NOTICE TO THE LENDERS. The Agent shall give each Lender
prompt notice by telephone (confirmed promptly in writing) or by facsimile of
(i) the proposed conversion or continuation of any Loans, specifying the
information contained in the Borrower's Notice and such Lender's Pro Rata Share
thereof or (ii), if timely notice was not received from the Borrower, the
details of any automatic conversion under subsection 4.05(b).
41.
SECTION 4.06 HIGHEST LAWFUL RATE. Anything herein to the
contrary notwithstanding, if during any period for which interest is computed
hereunder, the applicable interest rate, together with all fees, charges and
other payments which are treated as interest under applicable law, as provided
for herein or in any other Loan Document, would exceed the maximum rate of
interest which may be charged, contracted for, reserved, received or collected
by any Lender in connection with this Agreement under applicable law (the
"Maximum Rate"), the Borrower shall not be obligated to pay, and such Lender
shall not be entitled to charge, collect, receive, reserve or take, interest in
excess of the Maximum Rate, and during any such period the interest payable
hereunder shall be limited to the Maximum Rate.
ARTICLE V
REDUCTION OF COMMITMENTS;
REPAYMENT; PREPAYMENT
SECTION 5.01 REDUCTION OR TERMINATION OF THE COMMITMENTS.
(a) OPTIONAL REDUCTION OR TERMINATION. The Borrower may,
upon prior notice to the Agent as provided herein, terminate in whole or reduce
ratably in part, as of the date specified by the Borrower in such notice, any
then unused portion of the Revolving Commitments (including the L/C Commitment);
PROVIDED, HOWEVER, that each partial reduction shall be in a Minimum Amount; and
PROVIDED FURTHER, HOWEVER, that no such reduction or termination shall be
permitted if the Effective Amount of Revolving Loans, Swingline Loans and L/C
Obligations would exceed the amount of the aggregate Revolving Commitments
thereafter in effect; and PROVIDED FURTHER, HOWEVER, that once reduced in
accordance with this Section 5.01, the Revolving Commitment of any Lender may
not be increased. The amount of any such Revolving Commitment reductions shall
not be applied to the L/C Commitment unless otherwise specified by the Borrower
or unless the Revolving Commitments as so reduced would be less than the L/C
Commitment. All accrued commitment fees to, but not including, the effective
date of any termination of the Revolving Commitments shall be payable on the
effective date of such termination.
(b) MANDATORY TERMINATION.
(i) If on the Closing Date the Term Commitments of the
Lenders shall exceed the aggregate outstanding principal amount of the Term
Loans, such unused portion of the Term Commitments shall terminate on the
Closing Date. The parties agree and acknowledge that the termination of the Term
Commitments shall not affect the operation of subsection 2.01(d).
(ii) The Revolving Commitments shall terminate on the
Revolving Expiry Date.
(c) OTHER MANDATORY REDUCTIONS.
(i) Upon the making of any mandatory prepayment under clause
(ii), (iii) or (iv) of Section 5.03(b) on or prior to the Revolving Expiry Date,
the Revolving Commitment of each Lender shall automatically reduce by an amount
equal to such Lender's Pro Rata Share of the aggregate amount of principal of
Revolving Loans, Swingline Loans and L/C Advances
42.
prepaid and Letters of Credit cash collateralized, effective as of the date of
receipt by the Borrower or its Subsidiary of the Net Proceeds or Net Issuance
Proceeds, as the case may be, arising from the applicable disposition of assets,
incurrence of debt for borrowed money or Event of Loss.
(ii) If prior to the Revolving Expiry Date the amount
required to be paid on account of the Revolving Loans, Swingline Loans or L/C
Advances, or applied to cash collateralize the Letters of Credit, pursuant to
clause (ii), (iii) or (iv) of Section 5.03(b) shall exceed the outstanding
principal amount of the Revolving Loans, Swingline Loans and L/C Advances or the
amount of the L/C Obligations then outstanding, such automatic reduction shall
nonetheless occur and shall be determined on the basis of the amount of
Revolving Loans, Swingline Loans and L/C Advances that would be required to be
prepaid and Letters of Credit that would be required to be cash collateralized
assuming the Revolving Commitments were fully utilized.
(d) NOTICE. The Agent shall give each Lender prompt notice
of any termination or reduction of its Revolving Commitment under this Section
5.01.
(e) ADJUSTMENT OF COMMITMENT FEE; NO REINSTATEMENT. >From the
effective date of any reduction or termination prior to the Revolving Expiry
Date, the commitment fee payable under Section 4.03(a) shall be computed on the
basis of the Revolving Commitments as so reduced or terminated. Once reduced or
terminated, the Revolving Commitments may not be increased or otherwise
reinstated.
SECTION 5.02 REPAYMENT OF THE LOANS.
(a) REVOLVING LOANS. The Borrower shall repay to the Lenders
in full on the Revolving Expiry Date the aggregate principal amount of the
Revolving Loans outstanding on such date.
(b) TERM LOANS. The Borrower shall repay to the Lenders the
aggregate principal amount of the Term Loans in substantially equal consecutive
quarterly installments, commencing June 30, 2003, with subsequent installments
payable on the last day of each calendar quarter thereafter, to and including
the Final Maturity Date; PROVIDED, HOWEVER, that the last such installment shall
be in the amount necessary to repay in full the aggregate unpaid principal
amount of the Term Loans.
(c) SWINGLINE LOANS. The Borrower shall repay to the
Swingline Lender on each date as shall from time to time be mutually agreed upon
by the Swingline Lender and the Borrower the aggregate principal amount of the
Swingline Loans outstanding on such date; PROVIDED, HOWEVER, the aggregate
principal amount of the Swingline Loans outstanding on the Revolving Expiry Date
shall be due and payable on such date.
SECTION 5.03 PREPAYMENTS.
(a) OPTIONAL PREPAYMENTS. Subject to Section 6.02, the
Borrower may, upon prior notice to the Agent not later than the Required Notice
Date, prepay the outstanding amount
43.
of the Loans in whole or ratably in part, without premium or penalty. Partial
prepayments shall be in Minimum Amounts.
(b) MANDATORY PREPAYMENTS.
(i) Subject to Section 6.02, if on any date the Effective
Amount of all Revolving Loans PLUS the Effective Amount of all Swingline Loans
PLUS the Effective Amount of all L/C Obligations shall exceed the lesser of (A)
the aggregate Revolving Commitments then in effect and (B) the Borrowing Base
then in effect, the Borrower shall immediately, and without notice or demand,
prepay the outstanding principal amount of the Revolving Loans, L/C Advances and
Swingline Loans and/or cash collateralize the Letters of Credit by an amount
equal to the applicable excess. Additionally, if on any date the aggregate
outstanding amount of L/C Obligations shall exceed the L/C Commitment, the
Borrower shall cash collateralize on such date the outstanding Letters of Credit
in an amount equal to the excess of the maximum amount then available to be
drawn under the Letters of Credit over the L/C Commitment.
(ii) Upon the sale, transfer or other disposition of any
assets (or group of related assets), other than the Specified Assets, by the
Borrower or any Subsidiary under subsection 10.04(e)(iii) (to the extent the Net
Proceeds from the sale, transfer or other disposition of worn out or obsolete
assets are not promptly applied to replace such assets) or 10.04(e)(vi), the
Borrower shall, within one Business Day of the Borrower's or such Subsidiary's
receipt of the proceeds thereof, prepay the outstanding principal amount of the
Loans, in an amount equal to 100% of the Net Proceeds therefrom by depositing
such amount with the Collateral Agent for application by the Collateral Agent
under and pursuant to Section 6.10 of the Intercreditor Agreement to the Secured
Obligations; PROVIDED, HOWEVER, that in the case of prepayments of any Revolving
Loans, Swingline Loans and L/C Advances, the required prepayment shall be in an
amount equal to the excess, if any (after giving effect to the related mandatory
Commitment reduction under Section 5.01(c)), of the Effective Amount of the
Revolving Loans, Swingline Loans and L/C Obligations over the aggregate
RevolvingCommittments. If on the date of the foregoing required prepayment the
amount of any such required prepayment (after giving effect to the related
mandatory Commitment reduction under Section 5.01(c)) shall exceed the
outstanding principal amount of the Loans and there shall be any Letters of
Credit outstanding, then the Borrower shall apply such funds to cash
collateralize any such outstanding Letters of Credit.
(iii) Upon the incurrence of Indebtedness for borrowed money
other than Subordinated Debt by the Borrower or any Subsidiary, the Borrower
shall, within one Business Day of the Borrower's or such Subsidiary's receipt of
the proceeds thereof, prepay the outstanding principal amount of the Loans in an
amount equal to 100% of the Net Issuance Proceeds therefrom by depositing such
amount with the Collateral Agent for application by the Collateral Agent under
and pursuant to Section 6.10 of the Intercreditor Agreement to the Secured
Obligations; PROVIDED that in the case of prepayments of any Revolving Loans,
Swingline Loans and L/C Advances, the required prepayment shall be in an amount
equal to the excess (after giving effect to the related
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mandatory Commitment reduction under Section 5.01(c)) of the Effective Amount of
the Revolving Loans, Swingline Loans and L/C Obligations over the aggregate
Revolving Commitments. If on the date of the foregoing required prepayment the
amount of any such required prepayment (after giving effect to the related
mandatory Commitment reduction under Section 5.01(c)) shall exceed the
outstanding principal amount of the Loans and there shall be any Letters of
Credit outstanding, then the Borrower shall apply such funds to cash
collateralize any such outstanding Letters of Credit.
(iv) If any Event of Loss shall occur with respect to any
assets of the Borrower or any Subsidiary, the Borrower shall prepay the
outstanding principal amount of the Loans in an amount equal to the Net Proceeds
(after giving effect to repair or replacement as provided in the definition of
"Net Proceeds") therefrom by depositing such amount with the Collateral Agent
for application by the Collateral Agent under and pursuant to Section 6.10 of
the Intercreditor Agreement to the Secured Obligations, PROVIDED, HOWEVER, that,
(A) such prepayment shall not be required if such amount is less than $1,500,000
and (B) in the case of prepayments of any Revolving Loans, Swingline Loans and
L/C Advances, the required prepayment (subject to sub-clause (A) of this
proviso) shall be in an amount equal to the excess (after giving effect to the
related mandatory Commitment reduction under Section 5.01(c)) of the Effective
Amount of the Revolving Loans, Swingline Loans and L/C Obligations over the
aggregate Revolving Commitments. If on the date of the foregoing required
prepayment the amount of any such required prepayment (after giving effect to
the related mandatory Commitment reduction under Section 5.01(c)) shall exceed
the outstanding principal amount of the Loans and there shall be any Letters of
Credit outstanding, then the Borrower shall apply such funds to cash
collateralize any such outstanding Letters of Credit.
(v) If the appraised fair market value of the Hewitt Ranch
Property set forth in the Hewitt Appraisal shall be less than $11,600,000, the
Borrower shall prepay the outstanding principal amount of the Loans in an amount
equal to 70% of the difference between (A) $11,600,000 MINUS (B) the appraised
fair market value of the Hewitt Ranch Property set forth in the Hewitt
Appraisal.
(c) ORDER OF APPLICATION.
(i) Any prepayments pursuant to clause (i) of subsection
5.03(b) above shall be applied, first, to any Swingline Loans then outstanding,
second, to any L/C Advances then outstanding, third, to any Revolving Loans then
outstanding and, fourth, to cash collateralize any L/C Obligations then
outstanding;
(ii) Any prepayments pursuant to clauses (ii), (iii),(iv) and
(v) of subsection 5.03(b) above shall be applied, first, to any Term Loans then
outstanding, second, to any Swingline Loans then outstanding, third, to any L/C
Advances then outstanding, fourth, to any Revolving Loans then outstanding and,
fifth, to cash collateralize any L/C Obligations then outstanding; PROVIDED,
HOWEVER, that to the extent the Net Proceeds to be applied to prepay the Loans
pursuant to clauses (ii) and (iv) of subsection 5.03(b) above arise as a result
of the sale, transfer or other disposition of Inventory or as a result of an
Event of Loss with respect to Inventory, then such Net Proceeds shall be
applied, first, to any Swingline Loans then outstanding, second, to any L/C
Advances then outstanding, third, to any Revolving Loans then outstanding,
fourth, to cash collateralize any L/C Obligations then outstanding and, fifth,
to any Term Loans then outstanding.
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(iii) Subject to clauses (i) and (ii) of this subsection
5.03(c), any prepayments pursuant to subsection 5.03(b) above shall be applied,
first, to any Base Rate Loans then outstanding and, second, to Eurodollar Rate
Loans with the shortest Interest Periods remaining; PROVIDED, HOWEVER, that if
the amount of Base Rate Loans then outstanding is not sufficient to satisfy the
entire prepayment requirement, the Borrower may, at its option so long as no
Default or Event of Default has occurred and is continuing, place any amounts
which it would otherwise be required to use to prepay Eurodollar Rate Loans on a
day other than the last day of the Interest Period therefor in an
interest-bearing account pledged to the Collateral Agent for the benefit of the
Lenders under the Security Agreement until the end of such Interest Period, at
which time such pledged amounts will be applied to prepay such Eurodollar Rate
Loans. The Borrower shall pay, together with each prepayment under subsections
5.03(a) or 5.03(b), accrued interest on the amount of any Loans prepaid and any
amounts required pursuant to Section 6.02. Any voluntary prepayments of Term
Loans pursuant to subsection 5.03(a) shall be applied pro rata across each
remaining installment of principal. Any mandatory prepayments of Term Loans
pursuant to subsection 5.03(b) shall be applied to the remaining principal
installments in inverse order of maturity.
(d) NOTICE; APPLICATION. The notice given of any prepayment
(a "Notice of Prepayment") shall specify the date and amount of the prepayment
and whether the prepayment is of Base Rate Loans, Eurodollar Rate Loans or
Swingline Loans or a combination thereof, and if of a combination thereof the
amount of the prepayment allocable to each. Such Notice of Prepayment shall also
specify whether the prepayment is of L/C Advances, Revolving Loans, Term Loans,
Swingline Loans or a combination thereof. Upon receipt of the Notice of
Prepayment of L/C Advances, Revolving Loans or Term Loans, the Agent shall
promptly notify each Lender thereof. Upon receipt of the Notice of Prepayment of
Swingline Loans, the Agent shall promptly notify the Swingline Lender thereof.
If a Notice of Prepayment is given, the Borrower shall make such prepayment and
the prepayment amount specified in such Notice shall be due and payable on the
date specified therein, with accrued interest to such date on the amount
prepaid.
ARTICLE VI
YIELD PROTECTION AND ILLEGALITY
SECTION 6.01 INABILITY TO DETERMINE RATES. If the Agent shall
determine that adequate and reasonable means do not exist to ascertain the
Eurodollar Rate, or the Majority Lenders shall determine that the Eurodollar
Rate does not accurately reflect the cost to the Lenders of making or
maintaining Eurodollar Rate Loans, then the Agent shall give telephonic notice
(promptly confirmed in writing) to the Borrower and each Lender of such
determination. Such notice shall specify the basis for such determination and
shall, in the absence of manifest error, be conclusive and binding for all
purposes. Thereafter, the obligation of the Lenders to make or maintain
Eurodollar Rate Loans hereunder shall be suspended until the Agent (upon the
instructions of the Majority Lenders) revokes such notice. Upon receipt of such
notice, the Borrower may revoke any Notice then submitted by it. If the Borrower
does not revoke such Notice, the Lenders shall make, convert or continue Loans,
as proposed by the Borrower, in the amount specified in the Notice submitted by
the Borrower, but such Loans shall be made, converted or continued as Base Rate
Loans instead of Eurodollar Rate Loans.
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SECTION 6.02 FUNDING LOSSES. In addition to such amounts as
are required to be paid by the Borrower pursuant to Section 6.03, the Borrower
shall compensate each Lender, promptly upon receipt of such Lender's written
request made to the Borrower (with a copy to the Agent), for all losses, costs
and expenses (including any loss or expense incurred by such Lender in
obtaining, liquidating or re-employing deposits or other funds to fund or
maintain its Eurodollar Rate Loans), if any, which such Lender sustains: (i) if
the Borrower repays, converts or prepays any Eurodollar Rate Loan on a date
other than the last day of an Interest Period for such Eurodollar Rate Loan
(whether as a result of an optional prepayment, mandatory prepayment, a payment
as a result of acceleration or otherwise); (ii) if the Borrower fails to borrow
a Eurodollar Rate Loan after giving its Notice (other than as a result of the
operation of Section 6.01 or 6.04); (iii) if the Borrower fails to convert into
or continue a Eurodollar Rate Loan after giving its Notice (other than as a
result of the operation of Section 6.01 or 6.04); or (iv) if the Borrower fails
to prepay a Eurodollar Rate Loan after giving its Notice. Any such request for
compensation shall set forth the basis for requesting such compensation in
reasonable detail and shall, in the absence of manifest error, be conclusive and
binding for all purposes.
SECTION 6.03 REGULATORY CHANGES.
(a) INCREASED COSTS. If after the date hereof, the adoption
of, or any change in, any applicable law, rule or regulation, or any change
therein, or any change in the interpretation or administration thereof by any
Governmental Authority charged with the interpretation or administration thereof
(a "Regulatory Change"), or compliance by any Lender (or its Lending Office)
with any request, guideline or directive (whether or not having the force of
law) of any Governmental Authority, shall impose, modify or deem applicable any
reserve, special deposit or similar requirement (including any such requirement
imposed by the FRB, but excluding with respect to any Eurodollar Rate Loan any
such requirement included in the calculation of the Eurodollar Rate) against
assets of, deposits with or for the account of, or credit extended by, any
Lender's Lending Office or shall impose on any Lender (or its Lending Office) or
on the interbank eurodollar market any other condition affecting any Lender's
Eurodollar Rate Loans or its obligation to make Eurodollar Rate Loans or its
other obligations hereunder, and the result of any of the foregoing is to
increase the cost to such Lender (or its Lending Office) of agreeing to make or
making, funding or maintaining any Loan or participating in any L/C Obligations,
or increase the cost to the Issuing Lender of agreeing to issue or issuing or
maintaining any Letter of Credit or of agreeing to make or making, funding or
maintaining any unpaid drawing under any Letter of Credit, or to reduce the
amount of any sum received or receivable by such Lender (or its Lending Office)
or the Issuing Lender under this Agreement with respect thereto, by an amount
deemed by such Lender to be material, then from time to time, within 15 days
after demand by such Lender (with a copy to the Agent), the Borrower shall pay
to such Lender such additional amounts as shall compensate such Lender for such
increased cost or reduction.
(b) CAPITAL REQUIREMENTS.If any Lender shall have determined
that any Regulatory Change regarding capital adequacy, or compliance by such
Lender (or any corporation controlling such Lender) with any request, guideline
or directive regarding capital adequacy (whether or not having the force of law)
of any Governmental Authority issued or taking effect after the Closing Date,
has or shall have the effect of reducing the rate of return on such Lender's,
the Issuing Lender's or such corporation's capital as a consequence of such
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Lender's obligations hereunder to a level below that which such Lender, the
Issuing Lender or such corporation would have achieved but for such adoption,
change or compliance (taking into consideration such Lender's, the Issuing
Lender's or corporation's policies with respect to capital adequacy), by an
amount deemed by such Lender to be material, then from time to time, within 15
days after demand by such Lender (with a copy to the Agent), the Borrower shall
pay to such Lender such additional amounts as shall compensate such Lender for
such reduction.
(c) REQUESTS. Any such request for compensation by a Lender
under this Section 6.03 shall set forth the basis of calculation thereof and
shall, in the absence of manifest error, be conclusive and binding for all
purposes.
SECTION 6.04 ILLEGALITY.If any Lender shall determine that it
has become unlawful, as a result of any Regulatory Change, for such Lender to
make, convert into or maintain Eurodollar Rate Loans as contemplated by this
Agreement, such Lender shall promptly give notice of such determination to the
Borrower (through the Agent), and (i) the obligation of such Lender to make or
convert into Eurodollar Rate Loans, as the case may be, shall be suspended until
such Lender gives notice that the circumstances causing such suspension no
longer exist; and (ii) each of such Lender's outstanding Eurodollar Rate Loans,
as the case may be, shall, if requested by such Lender, be converted into a Base
Rate Loan not later than upon expiration of the Interest Period related to such
Eurodollar Rate Loan, or, if earlier, on such date as may be required by the
applicable Regulatory Change, as shall be specified in such request. Any such
determination shall, in the absence of manifest error, be conclusive and binding
for all purposes.
SECTION 6.05 FUNDING ASSUMPTIONS. Solely for purposes of
calculating amounts payable by the Borrower to the Lenders under this Article
VI, each Eurodollar Rate Loan made by a Lender (and any related reserve, special
deposit or similar requirement) shall be conclusively deemed to have been funded
at the Interbank Rate used in determining the Eurodollar Rate for such
Eurodollar Rate Loan by a matching deposit or other borrowing in the interbank
eurodollar market for a comparable amount and for a comparable period, whether
or not such Eurodollar Rate Loan is in fact so funded.
SECTION 6.06 OBLIGATION TO MITIGATE. Each Lender agrees that
as promptly as practicable after it becomes aware of the occurrence of an event
that would entitle it to give notice pursuant to Section 6.03(a) or 6.04, and in
any event if so requested by the Borrower, each Lender shall use reasonable
efforts to make, fund or maintain its affected Eurodollar Rate Loans through
another Lending Office if as a result thereof the increased costs would be
avoided or materially reduced or the illegality would thereby cease to exist and
if, in the reasonable opinion of such Lender, the making, funding or maintaining
of such Eurodollar Rate Loans through such other Lending Office would not in any
material respect be disadvantageous to such Lender or contrary in any material
respect to such Lender's normal banking practices.
SECTION 6.07 SUBSTITUTION OF LENDERS. Without limiting the
Borrower's obligations under Sections 6.03 and 7.03, upon the receipt by the
Borrower from any Lender (an "Affected Lender") of a request for compensation
under Section 6.03 or under Section 7.03, the Borrower may (i) request one or
more of the other Lenders to acquire and assume all or part of
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such Affected Lender's Loans and Commitment; or (ii) designate a replacement
commercial bank (which shall be an Eligible Assignee) satisfactory to the
Borrower to acquire and assume all or a ratable part of such Affected Lender's
Loans and Commitment (a "Replacement Lender"); PROVIDED, HOWEVER, that the
Borrower shall be liable for the payment upon demand of all costs and other
amounts arising under Section 6.02 that result from the acquisition of any
Affected Lender's Loan and/or Commitment (or any portion thereof) by a Lender or
Replacement Lender, as the case may be, on a date other than the last day of the
applicable Interest Period with respect to any Eurodollar Rate Loan then
outstanding. Any such designation of a Replacement Lender under clause (ii)
shall be effected in accordance with, and subject to the terms and conditions
of, the assignment provisions contained in Section 13.09, and shall in any event
be subject to the prior written consent of the Agent (which consent shall not be
unreasonably withheld).
ARTICLE VII
PAYMENTS
SECTION 7.01 PRO RATA TREATMENT. Except as otherwise provided
in this Agreement, each Borrowing hereunder, each Commitment reduction, each
payment (including each prepayment) by the Borrower on account of the principal,
interest, drawings under Letters of Credit, fees and other amounts required
hereunder shall be made without set-off or counterclaim and, except as otherwise
expressly provided with respect to drawings under Letters of Credit, shall be
made ratably in accordance with the Pro Rata Shares. Each conversion or
continuation of Loans shall also be made ratably in accordance with the
respective Pro Rata Shares of the Lenders. Notwithstanding the foregoing, if one
or more Lenders elects in its sole discretion not to make an additional Term
Loan pursuant to subsection 2.01(d), then any Borrowing of additional Term Loans
pursuant to subsection 2.01(d) shall be made ratably in accordance with the
relative Pro Rata Shares of the Lenders electing in their sole discretion to
make such additional Term Loans.
SECTION 7.02 PAYMENTS.
(a) PAYMENTS. The Borrower shall make each payment under the
Loan Documents, unconditionally in full without set-off, counterclaim or other
defense, not later than 3:00 p.m. (New York time) on the day when due to the
Agent in Dollars and in same day or immediately available funds, to the Agent's
Account. The Agent shall promptly thereafter distribute like funds relating to
the payment on account of principal, interest, drawings under Letters of Credit,
commitment fee or any other amounts payable to the Lenders or to the Issuing
Lender, as the case may be, ratably (except as a result of the operation of
Article V) to the Lenders in accordance with their Pro Rata Shares, or to the
Issuing Lender, as the case may be.
(b) APPLICATION. Unless the Agent shall receive a timely
election by the Borrower with respect to the application of any principal
payments or as otherwise provided herein, each payment of principal by the
Borrower shall be applied (A) first, to the Base Rate Loans then outstanding,
and (B) second, to the Eurodollar Rate Loans then outstanding (in such manner as
the Agent shall determine in its sole discretion).
(c) EXTENSION.Whenever any payment hereunder shall be stated
to be due, or whenever any Interest Payment Date or any other date specified
hereunder would otherwise
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occur, on a day other than a Business Day, then, except as otherwise provided
herein, such payment shall be made, and such Interest Payment Date or other date
shall occur, on the next succeeding Business Day, and such extension of time
shall in such case be included in the computation of payment of interest,
commitment fee or letter of credit fee hereunder.
SECTION 7.03 TAXES.
(a) NO REDUCTION OF PAYMENTS. The Borrower shall pay all
amounts of principal, interest, fees and other amounts due under the Loan
Documents free and clear of, and without reduction for or on account of, any
present and future taxes, levies, imposts, duties, fees, assessments, charges,
deductions or withholdings and all liabilities with respect thereto excluding,
in the case of each Lender and the Agent, income and franchise taxes imposed on
it by the jurisdiction under the laws of which such Lender or the Agent is
organized or in which its principal executive offices may be located or any
political subdivision or taxing authority thereof or therein, and by the
jurisdiction of such Lender's Lending Office and any political subdivision or
taxing authority thereof or therein (all such nonexcluded taxes, levies,
imposts, duties, fees, assessments, charges, deductions, withholdings and
liabilities being hereinafter referred to as "Taxes"). If any Taxes shall be
required by law to be deducted or withheld from any payment, the Borrower shall
increase the amount paid so that the respective Lender or the Agent receives
when due (and is entitled to retain), after deduction or withholding for or on
account of such Taxes (including deductions or withholdings applicable to
additional sums payable under this Section 7.03), the full amount of the payment
provided for in the Loan Documents.
(b) DEDUCTION OR WITHHOLDING; TAX RECEIPTS. If the Borrower
makes any payment hereunder in respect of which it is required by law to make
any deduction or withholding, it shall pay the full amount to be deducted or
withheld to the relevant taxation or other authority within the time allowed for
such payment under applicable law and promptly thereafter shall furnish to the
Agent (for itself or for redelivery to the Lender to or for the account of which
such payment was made) an original or certified copy of a receipt evidencing
payment thereof, together with such other information and documents as the Agent
or any Lender (through the Agent) may reasonably request.
(c) INDEMNITY. If any Lender or the Agent is required by law
to make any payment on account of Taxes, or any liability in respect of any Tax
is imposed, levied or assessed against any Lender or the Agent, the Borrower
shall indemnify the Agent and the Lenders for and against such payment or
liability, together with any incremental taxes, interest or penalties, and all
costs and expenses, payable or incurred in connection therewith, including Taxes
imposed on amounts payable under this Section 7.03, whether or not such payment
or liability was correctly or legally asserted. A certificate of the Agent or
any Lender as to the amount of any such payment shall, in the absence of
manifest error, be conclusive and binding for all purposes.
(d) FORMS. Each Lender that is incorporated under the laws
of any jurisdiction outside the United States agrees to deliver to the Agent and
the Borrower on or prior to the Closing Date, and in a timely fashion
thereafter, IRS Form W-8BEN, IRS Form W-8ECI or such other documents and forms
of the IRS, duly executed and completed by such Lender, as
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are required under United States law to establish such Lender's status for
United States withholding tax purposes.
(e) MITIGATION. Each Lender agrees that as promptly as
practicable after it becomes aware of the occurrence of an event that would
cause the Borrower to make any payment in respect of Taxes to such Lender or a
payment in indemnification with respect to any Taxes, and in any event if so
requested by the Borrower following such occurrence, such Lender shall promptly
notify the Borrower in writing and use reasonable efforts to make, fund or
maintain its affected Loan (or relevant part thereof) through another Lending
Office if as a result thereof the additional amounts so payable by the Borrower
would be avoided or materially reduced and if, in the reasonable opinion of such
Lender, the making, funding or maintaining of such Loan (or relevant part
thereof) through such other Lending Office would not in any material respect be
disadvantageous to such Lender or contrary to such Lender's normal banking
practices. Upon receipt by the Borrower from any Lender of such notice, Borrower
may request a Replacement Lender pursuant to Section 6.07.
(f) SPECIFIED SWAP CONTRACTS. Nothing contained in this
Section 7.03 shall override any term or provision of any Specified Swap Contract
regarding withholding taxes relating to Rate Contracts.
SECTION 7.04 NON-RECEIPT OF FUNDS.Unless the Agent shall have
received notice from the Borrower prior to the date on which any payment is due
to any of the Lenders hereunder that the Borrower shall not make such payment in
full, the Agent may assume that the Borrower has made such payment in full to
the Agent on such date and the Agent may, in reliance upon such assumption,
cause to be distributed to each Lender on such due date an amount equal to the
amount then due such Lender. If and to the extent the Borrower shall not have so
made such payment in full to the Agent, each Lender shall repay to the Agent
forthwith on demand such amount distributed to such Lender together with
interest thereon, for each day from the date such amount is distributed to such
Lender until the date such Lender repays such amount to the Agent, at the
Federal Funds Rate.
SECTION 7.05 SHARING OF PAYMENTS. If any Lender shall obtain
any payment (whether voluntary, involuntary, through the exercise of any right
of set-off, or otherwise) on account of the Loans made by it (other than
pursuant to a provision hereof providing for non-pro rata treatment) in excess
of its Pro Rata Share of payments on account of the Loans obtained by all the
Lenders, such Lender shall forthwith advise the Agent of the receipt of such
payment, and within five Business Days of such receipt purchase from the other
Lenders (through the Agent), without recourse, such participations in the Loans
made by them as shall be necessary to cause such purchasing Lender to share the
excess payment ratably with each of them in accordance with the respective Pro
Rata Shares of the Lenders; PROVIDED, HOWEVER, that if all or any portion of
such excess payment is thereafter recovered by or on behalf of the Borrower from
such purchasing Lender, the purchase shall be rescinded and the purchase price
restored to the extent of such recovery, but without interest. The Borrower
agrees that any Lender so purchasing a participation from another Lender
pursuant to this Section 7.05 may exercise all its rights of payment (including
the right of set-off) with respect to such participation as fully as if such
Lender were the direct creditor of the Borrower in the amount of such
participation. No documentation other than notices and the like referred to in
this Section 7.05
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shall be required to implement the terms of this Section 7.05. The Agent shall
keep records (which shall be conclusive and binding in the absence of manifest
error) of participations purchased pursuant to this Section 7.05 and shall in
each case notify the Lenders following any such purchases.
ARTICLE VIII
CONDITIONS PRECEDENT
SECTION 8.01 CONDITIONS PRECEDENT TO THE INITIAL CREDIT
EXTENSIONS. The obligation of each Lender to make its initial Credit Extension
shall be subject to the satisfaction of each of the following conditions
precedent on or before the Closing Date:
(a) FEES AND EXPENSES. The Borrower shall have paid (i) all
fees then due in accordance with Section 4.03 and (ii) all invoiced costs and
expenses then due in accordance with Section 13.04(a).
(b) LOAN DOCUMENTS. The Agent shall have received the
following Loan Documents: (i) the Notes, executed by the Borrower; (ii) (in
sufficient copies for each of the Lenders and the Borrower) counterparts of this
Agreement, (iii) the Collateral Documents, the Guaranties, the Environmental
Indemnity and the Intercreditor and Collateral Agency Agreement, executed by
each of the respective parties thereto.
(c) DOCUMENTS AND ACTIONS RELATING TO COLLATERAL. The Agent
shall have received the following, in form and substance satisfactory to it and
the Lenders:
(i) evidence that all filings, registrations and recordings
have been made in the appropriate governmental offices, and all other action has
been taken, which shall be necessary to create, in favor of the Collateral Agent
on behalf of the Lenders, a perfected first priority Lien on the Collateral
(subject to Permitted Liens), including evidence of recordation of the Deeds of
Trust (which may consist of a written or telephonic confirmation from the title
insurance company), and filing of completed UCC-1 financing statements, in each
case in the appropriate governmental offices;
(ii) the results, dated as of a recent date prior to the
Closing Date, of searches conducted (A) in the UCC filing records in each of the
governmental offices in each jurisdiction in which personal property and fixture
Collateral is located, and (B) of the records maintained by the U.S. Patent and
Trademark Office and Copyright Office with respect to all United States patents
and patent applications and all United States registered trademarks and United
States registered copyrights constituting Collateral, which shall have revealed
no Liens with respect to any of the Collateral except Permitted Liens;
(iii) a title insurance policy (or a binding commitment
therefor) for the Deeds of Trust (A) issued by a title insurance company of
recognized standing satisfactory to the Agent, (B) in an amount and form
satisfactory to the Agent, (C) naming the Collateral Agent, for the ratable
benefit of the Lenders and the Senior Noteholders, as the insured thereunder,
(D) insuring that the Deeds of Trust insured thereby create a valid first
priority Lien on the property covered by each such Deed of Trust, subject to no
other Liens, other than Permitted Liens, and to no
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other exceptions, other than those satisfactory to the Agent, and (E) containing
such endorsements and affirmative coverage as the Agent or any Lender (through
the Agent) may reasonably request; and
(iv) such appraisals, collateral audits, consents of
landlords, estoppels from landlords, tenant subordination agreements and other
documents and instruments in connection with the Deeds of Trust as shall
reasonably be deemed necessary by the Agent or any Lender.
(d) ADDITIONAL CLOSING DOCUMENTS AND ACTIONS.The Agent shall
have received the following, in form and substance satisfactory to it and the
Lenders:
(i) confirmation that: (i) all amounts due under the
Existing Credit Facility shall have been paid in full concurrently with the
initial Credit Extension hereunder and (ii) the Existing Credit Facility shall
terminate on the Closing Date (subject to subsection 13.04(d));
(ii) evidence of completion to the satisfaction of the Agent
and the Lenders of such investigations, reviews and audits with respect to the
Borrower and the Guarantors and their respective operations as the Agent or any
Lender may deem appropriate;
(iii) evidence that all insurance required under this
Agreement and the Collateral Documents is in full force and effect, together
with copies of all policies of such insurance and all endorsements thereto
required under this Agreement and the Collateral Documents;
(iv) an environmental site assessment or other environmental
review report and opinion with respect to each Premises subject to the Lien of a
Deed of Trust, dated as of a recent date prior to the Closing Date, prepared by
a qualified environmental consulting firm acceptable to the Agent;
(v) evidence that all (A) authorizations or approvals of any
Governmental Authority and (B) approvals or consents of any other Person,
required in connection with the execution, delivery and performance of the Loan
Documents shall have been obtained;
(vi) (in sufficient copies for the Lenders) the audited
consolidated balance sheet of the Borrower and its Subsidiaries as at December
31, 2001, and the related consolidated statements of income, shareholders'
equity and cash flows for the fiscal year then ended;
(vii) a completed Borrowing Base Certificate as of the end of
the immediately preceding fiscal month, together with the related collateral
reports, also as of such date, specified in Section 10.01(a)(vii);
(viii)a completed Compliance Certificate, dated the Closing
Date, demonstrating the Borrower's compliance with the financial covenants set
forth in Section 10.02 as of the end of the immediately preceding fiscal
quarter, measured on a pro forma basis after giving effect to the Borrowings to
be made hereunder on the Closing Date;
(vii) a certificate of a Responsible Officer of the Borrower,
dated the Closing Date, stating that (A) the representations and warranties
contained in Section 9.01 and in the
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other Loan Documents are true and correct on and as of the date of such
certificate as though made on and as of such date and (B) on and as of the
Closing Date, no Default shall have occurred and be continuing or shall result
from the initial Credit Extension;
(viii)a certificate of a Responsible Officer of each
Guarantor, dated the Closing Date, stating that the representations and
warranties contained in Section 9 of the Guaranty and in the other Guarantor
Documents are true and correct on and as of the date of such certificate as
though made on and as of such date;
(e) CORPORATE DOCUMENTS. The Agent shall have received the
following, in form and substance satisfactory to it:
(i) certified copies of the Organization Documents of the
Borrower, together with certificates as to good standing, from the Secretary of
State or other Governmental Authority, as applicable, of the Borrower's state of
incorporation and certificates from the Secretary of State or other Governmental
Authority, as applicable, of the State of Washington as to the Borrower's status
as a foreign corporation and tax status, each dated as of a recent date prior to
the Closing Date;
(ii) a certificate of the Secretary or Assistant Secretary of
the Borrower, dated the Closing Date, certifying (A) the resolutions of the
Board of Directors of the Borrower authorizing the execution, delivery and
performance of the Loan Documents and (B) the incumbency, authority and
signatures of each officer of the Borrower authorized to execute and deliver the
Loan Documents and act with respect thereto, upon which certificate the Agent
and the Lenders may conclusively rely until the Agent shall have received a
further certificate of the Secretary or an Assistant Secretary of the Borrower
canceling or amending such prior certificate;
(iii) certified copies of the Organization Documents of each
Guarantor, together with certificates as to good standing, from the Secretary of
State or other Governmental Authority, as applicable, of the Guarantor's state
of incorporation and certificates from the Secretary of State or other
Governmental Authority as applicable, of California and Washington, as the case
may be, as to the Guarantor's status as a foreign corporation and tax status,
each dated as of a recent date prior to the Closing Date;
(iv) a certificate of the Secretary or Assistant Secretary of
each Guarantor, dated the Closing Date, certifying (A) the resolutions of the
Board of Directors or other governing body of the Guarantor authorizing the
execution, delivery and performance of the Guarantor Documents and (B) the
incumbency, authority and signatures of each officer of the Guarantor authorized
to execute and deliver the Guarantor Documents and act with respect thereto,
upon which certificate the Agent and the Lenders may conclusively rely until the
Agent shall have received a further certificate of the Secretary or an Assistant
Secretary of the Guarantor canceling or amending such prior certificate;
(f) LEGAL OPINIONS. The Agent shall have received the
following: (i) the opinion of Farella Braun and Martel LLP, counsel to the
Borrower and the Subsidiary Guarantors, dated the Closing Date, in substantially
the form of Exhibit L-1; and (ii) the opinion
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of Davis Wright Tremaine LLP, local Washington counsel to the Collateral Agent,
dated the Closing Date, in substantially the form of Exhibit L-2.
(g) SENIOR SECURED NOTE DOCUMENTS. The Agent shall have
received executed copies of the amended and restated Senior Secured Note
Documents, which shall be in form and substance reasonably satisfactory to the
Agent and the Majority Lenders.
(h) PRO-FORMA DEBT TO EBITDA RATIO. The ratio of (i)
Consolidated Indebtedness PLUS six times Consolidated Rent Expense (measured on
a trailing 12-month basis) to (ii) Consolidated EBITDA PLUS one times
Consolidated Rent Expense (in each case, measured on a trailing 12-month basis),
shall not be greater than 5.75 to 1.00, measured on a pro forma basis (after
giving effect to the Borrowings to be made hereunder on the Closing Date) as of
the last day of the immediately preceding fiscal quarter.
SECTION 8.02 CONDITIONS PRECEDENT TO ALL CREDIT EXTENSIONS.
The obligation of each Lender to make any Credit Extension to be made by it
hereunder (including its initial Credit Extension) is subject to the
satisfaction of the following conditions precedent on the relevant Credit
Extension date:
(a) NOTICE. The Agent shall have received a Notice of
Borrowing or Notice of Conversion or Continuation, as the case may be; or in the
case of any issuance, amendment or renewal of any Letter of Credit, the Issuing
Lender and the Agent shall have received an L/C Application or L/C Amendment
Application, as required under Section 3.02.
(b) MATERIAL ADVERSE EFFECT. On and as of the date of such
Credit Extension, there shall have occurred no Material Adverse Effect since
December 31, 2001.
(c) REPRESENTATIONS AND WARRANTIES; NO DEFAULT. On the date
of such Credit Extension date, both before and after giving effect thereto and
to the application of proceeds therefrom: (i) the representations and warranties
contained in Section 9.01 and in the other Loan Documents shall be true, correct
and complete on and as of the date of such Credit Extension date as though made
on and as of such date; and (ii) no Default shall have occurred and be
continuing or shall result from such Credit Extension. For purposes of this
Section 8.02(c), clause (i) shall be deemed instead to refer to the last day of
the most recent quarter and year for which financial statements have then been
delivered in respect of the representation and warranty made in Section 9.01(p);
clause (i) and shall not be deemed to refer to any other representations and
warranties which relate solely to an earlier date (PROVIDED that such other
representations and warranties shall be true, correct and complete as of such
earlier date); and clause (i) shall take into account any amendments to the
Schedules and other disclosures made in writing by the Borrower and the
Guarantors to the Agent and the Lenders after the Closing Date and approved by
the Agent and the Majority Lenders. The giving of any Notice of Borrowing or
Notice of Conversion or Continuation, as the case may be, the submission of any
L/C Application or L/C Amendment Application, and the acceptance by the Borrower
of the proceeds of each Borrowing following the Closing Date, shall each be
deemed a certification to the Agent and the Lenders that on and as of the date
of such Credit Extension such statements are true.
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(d) BORROWING BASE CERTIFICATE AND COLLATERAL REPORTS.
The Borrower shall have delivered to the Agent the completed Borrowing Base
Certificate, together with the related collateral reports, required under
Section 10.01(a), and the statements contained therein shall be true, correct
and complete on and as of the date of such Borrowing as though made on and as of
such date. The giving of any Notice of Borrowing or Notice of Conversion or
Continuation, as the case may be, the submission of any L/C Application or L/C
Amendment Application, and the acceptance by the Borrower of the proceeds of a
Borrowing, shall each be deemed a certification to the Agent and the Lenders
that on and as of the date of the Credit Extension such statements are true,
correct and complete.
(d) ADDITIONAL DOCUMENTS. The Agent shall have received, in
form and substance satisfactory to it, such additional approvals, opinions,
documents and other information as the Agent or any Lender (through the Agent)
may reasonably request.
ARTICLE IX
REPRESENTATIONS AND WARRANTIES
SECTION 9.01 REPRESENTATIONS AND WARRANTIES. The Borrower
represents and warrants to each Lender and the Agent that:
(a) ORGANIZATION AND POWERS. Each of the Borrower and its
Subsidiaries is a corporation, limited liability company or partnership duly
organized or formed, as the case may be, validly existing and in good standing
under the laws of the jurisdiction of its incorporation or formation, is
qualified to do business and is in good standing in each jurisdiction in which
the failure so to qualify or be in good standing would result in a Material
Adverse Effect and has all requisite power and authority to own its assets and
carry on its business and to execute, deliver and perform its obligations under
the Loan Documents.
(b) AUTHORIZATION; NO CONFLICT. The execution, delivery and
performance by the Borrower and each Guarantor of the Loan Documents to which
such Person is a party have been duly authorized by all necessary corporate
action of such Person and do not and will not (i) contravene the terms of the
Organization Documents of such Person or result in a breach of or constitute a
default under any indenture or loan or credit agreement or any other agreement,
lease or instrument to which such Person is a party or by which it or its
properties may be bound or affected; (ii) violate any provision of any law,
rule, regulation, order, writ, judgment, injunction, decree or the like binding
on or affecting such Person; or (iii) except as contemplated by this Agreement,
result in, or require, the creation or imposition of any Lien upon or with
respect to any of the properties of such Person.
(c) BINDING OBLIGATION. The Loan Documents constitute, or
when delivered under this Agreement will constitute, legal, valid and binding
obligations of the Borrower and the Guarantors, enforceable against the Borrower
and the Guarantors in accordance with their respective terms.
(d) CONSENTS. No authorization, consent, approval, license,
exemption of, or filing or registration with, any Governmental Authority, or
approval or consent of any other Person, is required for the due execution,
delivery or performance by the Borrower or the
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Guarantors of any of the Loan Documents, except for recordings or filings in
connection with the perfection of the Liens on the Collateral in favor of the
Collateral Agent on behalf of the Lenders.
(e) NO DEFAULTS. Neither the Borrower nor any of its
Subsidiaries is in default under any material contract, lease, agreement,
judgment, decree or order to which it is a party or by which it or its
properties may be bound.
(f) TITLE TO PROPERTIES; LIENS; USE. The Borrower and its
Subsidiaries have good and marketable title to, or valid and subsisting
leasehold interests in, their properties and assets, including all property
forming a part of the Collateral, there is no Lien upon or with respect to any
of such properties or assets, including any of the Collateral, except for
Permitted Liens, and the use, ownership, maintenance and operation of each
Premises by the Borrower or its Subsidiaries is in compliance in all material
respects with all applicable Requirements of Law.
(g) LITIGATION. Except as set forth on Schedule 5 hereto,
there are no actions, suits or proceedings pending or, to the best of the
Borrower's knowledge, threatened against or affecting the Borrower or any of its
Subsidiaries or the properties of the Borrower or any of its Subsidiaries before
any Governmental Authority or arbitrator which if determined adversely to the
Borrower or any such Subsidiary would result in a Material Adverse Effect.
(h) COMPLIANCE WITH ENVIRONMENTAL LAWS. Each of the Borrower
and its Subsidiaries is in full compliance with all Environmental Laws, whether
in connection with the ownership, use, maintenance or operation of its Premises
or the conduct of any business thereon, or otherwise. Neither the Borrower, any
of its Subsidiaries nor to the best of the Borrower's knowledge, after due and
diligent inquiry and investigation, any previous owner, tenant, occupant, user
or operator of the Premises, or any present tenant or other present occupant,
user or operator of the Premises has used, generated, manufactured, installed,
treated, released, stored or disposed of any Hazardous Substances on, under, or
at the Premises, except in compliance with all applicable Environmental Laws.
After due and diligent inquiry and investigation the Borrower has determined
that no Hazardous Substances have at any time been spilled, leaked, dumped,
deposited, discharged, disposed of or released or migrated on, under, at or from
the Premises, nor have any of the Premises been used at any time by any Person
as a landfill or waste disposal site. There are no actions, suits, claims,
notices of violation, hearings, investigations or proceedings pending or, to the
best of the Borrower's knowledge, threatened against or affecting the Borrower
or any of its Subsidiaries or with respect to the ownership, use, maintenance
and operation of the Premises, relating to Environmental Laws or Hazardous
Substances.
(i) GOVERNMENTAL REGULATION. Neither the Borrower nor any of
its Subsidiaries is subject to regulation under the Public Utility Holding
Company Act of 1935, the Federal Power Act, the Investment Company Act of 1940,
the Interstate Commerce Act, any state public utilities code or any other
federal or state statute or regulation limiting its ability to incur
Indebtedness.
(j) ERISA.
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(i) The Borrower and all ERISA Affiliates have satisfied all
applicable contribution requirements under Section 412(c)(11) of the Internal
Revenue Code and have never sought a waiver under Section 412(d) of the Internal
Revenue Code;
(ii) no Termination Event has occurred and is continuing, or
is reasonably expected to occur;
(iii) the aggregate amount of Unfunded Accrued Benefits under
all Pension Plans (excluding in such computation Pension Plans with assets
greater than accrued benefits) does not exceed $1,500,000;
(iv) there is no condition or event under which the Borrower,
any ERISA Affiliate, or any Plan maintained by the Borrower or any ERISA
Affiliate could be subject to any risk of material liability under ERISA or the
Internal Revenue Code, regardless of whether the Borrower or any ERISA Affiliate
engaged in a transaction giving rise to the liability;
(v) neither the Borrower nor any ERISA Affiliate has
unfunded, contingent liability that exceeds $1,500,000 with respect to Plans
that provide post-retirement welfare benefits; and
(vi) all Plans maintained by, or contributed to by, the
Borrower or any ERISA Affiliate comply in all material respects, and have been
administered in material compliance with, the requirements of applicable law
(including, if applicable, foreign law, ERISA and the Internal Revenue Code),
and in accordance with each Plan's terms.
(k) SUBSIDIARIES. The name, capital structure and ownership
of each Subsidiary of the Borrower on the date of this Agreement are as set
forth in Schedule 6. All of the outstanding capital stock of, or other interest
in, each such Subsidiary has been validly issued, and is fully paid and
nonassessable. Except as set forth in such Schedule, on the date of this
Agreement the Borrower has no equity interest in any Person.
(l) MARGIN REGULATIONS. The Borrower is not engaged in the
business of extending credit for the purpose of purchasing or carrying "margin
stock" (within the meaning of Regulation U of the FRB). No part of the proceeds
of the Loans will be used to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any margin stock,
except in accordance with the provisions of Regulations T, U, and X of the FRB.
(m) TAXES.Each of the Borrower and its Subsidiaries has duly
filed all tax and information returns required to be filed, and has paid all
taxes, fees, assessments and other governmental charges or levies that have
become due and payable, except to the extent such taxes or other charges are
being contested in good faith and are adequately reserved against in accordance
with GAAP.
(n) PATENTS AND OTHER RIGHTS. Each of the Borrower and its
Subsidiaries possesses all permits, franchises, licenses, patents, trademarks,
trade names, service marks, copyrights and all rights with respect thereto, free
from burdensome restrictions, that are necessary for the ownership, maintenance
and operation of its business and neither the Borrower nor any such Subsidiary
is in violation of any rights of others with respect to the foregoing.
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(o) INSURANCE. The properties of the Borrower and its
Subsidiaries are insured, with financially sound and reputable insurance
companies, in such amounts, with such deductibles and covering such risks as is
customarily carried by companies engaged in similar businesses and owning
similar properties in the localities where the Borrower or such Subsidiary
operates.
(p) FINANCIAL STATEMENTS.(i)The audited consolidated balance
sheet of the Borrower and its Subsidiaries as at December 31, 2001, and the
related consolidated statements of income, shareholders' equity and cash flows
for the fiscal year then ended are complete and correct and fairly present the
financial condition of the Borrower and its Subsidiaries as at such dates and
the results of operations of the Borrower and its Subsidiaries for the periods
covered by such statements, in each case in accordance with GAAP consistently
applied. (ii) Since December 31, 2001, there has been no Material Adverse
Effect.
(q) LIABILITIES. Neither the Borrower nor any of its
Subsidiaries has any material liabilities, fixed or contingent, that are not
reflected in the financial statements referred to in subsection (p), in the
notes thereto or otherwise disclosed in writing to the Lenders.
(r) LABOR DISPUTES, ETC. There are no strikes, lockouts or
other labor disputes against the Borrower or any of its Subsidiaries, or, to the
best of the Borrower's knowledge, threatened against or affecting the Borrower
or any of its Subsidiaries, and no Event of Loss has occurred with respect to
any assets or property of the Borrower or any of its Subsidiaries, which may
result in a Material Adverse Effect.
(s) SOLVENCY. Each of the Borrower and its Subsidiaries is
Solvent.
(t) DISCLOSURE. None of the representations or warranties
made by the Borrower or any of its Subsidiaries in the Loan Documents as of the
date of such representations and warranties, and none of the statements or other
information contained in each exhibit, report, certificate or written statement
furnished by or on behalf of the Borrower or any of its Subsidiaries to the
Agent and the Lenders in connection with the Loan Documents, contains any untrue
statement of a material fact or omits any material fact required to be stated
therein or necessary to make the statements made therein, in the light of the
circumstances under which they are made, not misleading, as of the time made or
delivered; PROVIDED that to the extent any such exhibit, report, certificate or
written statement was based upon or constitutes a forecast or projection, the
Borrower represents only that it has acted in good faith and utilized reasonable
assumptions and due care in the preparation of such exhibit, report, certificate
or written statement (it being understood that forecasts and projections by
their nature involve approximations and uncertainties).
ARTICLE X
COVENANTS
SECTION 10.01 REPORTING COVENANTS. So long as any of the
Obligations shall remain unpaid, any Letter of Credit shall remain outstanding
or any Lender shall have any Commitment, the Borrower agrees that:
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(a) FINANCIAL STATEMENTS AND OTHER REPORTS. The Borrower
shall furnish to the Agent in sufficient copies for distribution to the Lenders:
(i) as soon as available and in any event within 45 days
after the end of the first three fiscal quarters of each fiscal year, a
consolidated and consolidating balance sheet of the Borrower and its
Subsidiaries as of the end of such quarter, and the related consolidated and, as
to statements of income only, consolidating statements of income, shareholders'
equity and cash flows of the Borrower and its Subsidiaries for such quarter and
the portion of the fiscal year through the end of such quarter, prepared in
accordance with GAAP consistently applied, subject to changes resulting from
normal, year-end audit adjustments and except for the absence of notes, all in
reasonable detail and setting forth in comparative form the figures for the
corresponding period in the preceding fiscal year, together with a certificate
of a Responsible Officer of the Borrower stating that such financial statements
fairly present the financial condition of the Borrower and its Subsidiaries as
at such date and the results of operations of the Borrower and its Subsidiaries
for the period ended on such date and have been prepared in accordance with GAAP
consistently applied, subject to changes resulting from normal, year-end audit
adjustments and except for the absence of notes;
(ii) as soon as available and in any event within 90 days
after the end of each fiscal year, a consolidated and consolidating balance
sheet of the Borrower and its Subsidiaries as of the end of such fiscal year,
and the related consolidated and, as to statements of income only, consolidating
statements of income, shareholders' equity and cash flows of the Borrower and
its Subsidiaries for such fiscal year, prepared in accordance with GAAP
consistently applied, all in reasonable detail and setting forth in comparative
form the figures for the previous fiscal year, and (A) in the case of such
consolidated financial statements, accompanied by an audit report thereon of
Moss Adams LLP or another firm of independent certified public accountants of
recognized national standing acceptable to the Majority Lenders, which report
shall not be qualified as to (1) going concern, or (2) any limitation in the
scope of the audit, and (B) in the case of such consolidating financial
statements, certified by a Responsible Officer of the Borrower;
(iii) together with the financial statements required pursuant
to clauses (i) and (ii), (A) a Compliance Certificate of a Responsible Officer
as of the end of the applicable accounting period and (B) an Update Certificate
of a Responsible Officer as of the end of the applicable accounting period;
(iv) promptly upon receipt thereof, copies of all reports
submitted to the Borrower by its independent certified public accountants in
connection with each annual, interim or special audit examination of the
Borrower and its Subsidiaries made by such accountants, including the
"management letter" submitted by such accountants to the Borrower in connection
with their annual audit;
(v) as soon as available and in any event not less than 30
days prior to the start of each fiscal year, a consolidated financial forecast
for the Borrower and its Subsidiaries for the following fiscal year and each
fiscal year thereafter through the Final Maturity Date, including forecasted
consolidated balance sheets, consolidated statements of income, shareholders'
equity and cash flows of the Borrower and its Subsidiaries which forecast shall
(A) state the
60.
assumptions used in the preparation thereof, (B) contain such other information
as reasonably requested by the Agent or the Majority Lenders and (C) be in form
reasonably satisfactory to the Agent and the Majority Lenders;
(vi) as soon as available and in any event not less than 30
days prior to the start of each fiscal year, budgets of the Borrower and its
Subsidiaries for each quarter of the following fiscal year, which budgets shall
(A) state the assumptions used in the preparation thereof, (B) be in form
satisfactory to the Agent and the Majority Lenders, and (C) be accompanied by a
statement of a Responsible Officer of the Borrower that, to the best of such
Responsible Officer's knowledge, such budgets are a reasonable and good-faith
estimate for the period covered thereby;
(vii) as soon as available and in any event not later than the
last Business Day of each fiscal month, (A) a completed Borrowing Base
Certificate, (B) full and complete reports with respect to the Receivables,
including information as to concentration, aging, identity of Receivable
Debtors, letters of credit securing Receivables, disputed Receivables and other
matters, as the Agent shall reasonably request, and (C) a detailed schedule of
the Borrower's Inventory, each as of the end of the immediately preceding fiscal
month and in form and substance reasonably satisfactory to the Agent;
(viii)promptly after the same are released, copies of all
press releases; and
(ix) promptly after the giving, sending or filing thereof,
copies of all reports, if any, which the Borrower or any of its Subsidiaries
sends to the holders of its respective capital stock or other securities and of
all reports or filings, if any, by the Borrower or any of its Subsidiaries with
the SEC or any national securities exchange.
As to any information contained in materials furnished pursuant to clause (ix),
the Borrower shall not be separately required to furnish such information under
clause (i) or (ii), but the foregoing shall not be in derogation of the
obligation of the Borrower to furnish the information and materials described in
clauses (i) and (ii) at the times specified therein. Additionally, reports
required to be delivered pursuant to clauses (i), (ii) or (ix) of subsection
10.01(a) (to the extent any such financial statements, reports or proxy
statements are included in materials otherwise filed with the SEC) may be
delivered electronically and if so, shall be deemed to have been delivered on
the date on which the Borrower posts such reports, or provides a link thereto,
either: (i) on the Borrower's website on the Internet at the website address
listed on Schedule 2; or (ii) when such report is posted electronically on
IntraLinks/IntraAgency or other relevant website to which each Lender and the
Agent have access (whether a commercial, third-party website or whether
sponsored by the Agent), if any, on the Borrower's behalf; PROVIDED that: (A)
the Borrower shall deliver paper copies of such reports to the Agent or any
Lender who requests the Borrower to deliver such paper copies until written
request to cease delivering paper copies is given by the Agent or such Lender;
(B) the Borrower shall notify (which may be by facsimile or electronic mail) the
Agent and each Lender of the posting of any such reports and provide to the
Agent by email electronic versions (I.E. soft copies) of such reports; and (C)
in every instance the Borrower shall provide paper copies of the Compliance
Certificates required by clause (iii) above to the Agent and each of the
Lenders. Except for such Compliance Certificates, the Agent shall have no
obligation to request the delivery or to maintain copies of the reports referred
to above, and in any
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event shall have no responsibility to monitor compliance by the Borrower with
any such request for delivery, and each Lender shall be solely responsible for
requesting delivery to it or maintaining its copies of such reports.
(b) ADDITIONAL INFORMATION. The Borrower will furnish to the
Agent:
(i) promptly after the Borrower has knowledge or becomes
aware thereof, notice of the occurrence of any Event of Loss with respect to its
property or assets aggregating $1,500,000 (or its equivalent in another
currency) or more;
(ii) promptly after the Borrower has knowledge or becomes
aware thereof, notice of the occurrence or existence of any Default;
(iii) promptly after any Person becomes a Subsidiary of the
Borrower (whether by acquisition or otherwise), prompt written notice thereof;
(iv) prompt written notice of (A) any proposed acquisition of
stock, assets or property by the Borrower or any of its Subsidiaries that could
reasonably be expected to result in environmental liability under Environmental
Laws, and (B)(1) any spillage, leakage, discharge, disposal, leaching, migration
or release of any Hazardous Substances required to be reported to any
Governmental Authority under applicable Environmental Laws, and (2) all actions,
suits, claims, notices of violation, hearings, investigations or proceedings
pending, or to the best of the Borrower's knowledge, threatened against or
affecting the Borrower or any of its Subsidiaries or with respect to the
ownership, use, maintenance and operation of the Premises, relating to (1)
Environmental Laws or Hazardous Substances or (2) any other Requirement of Law
that, in the case of this clause (2), may have a Material Adverse Effect;
(v) prompt written notice of all actions, suits and
proceedings before any Governmental Authority or arbitrator pending, or to the
best of the Borrower's knowledge, threatened against or affecting the Borrower
or any of its Subsidiaries which (A) if adversely determined would involve an
aggregate uninsured liability of $1,500,000 (or its equivalent in another
currency) or more, or (B) otherwise may have a Material Adverse Effect;
(vi) promptly after the Borrower has knowledge or becomes
aware thereof, (A) notice of the occurrence of any Termination Event, together
with a copy of any notice of such Termination Event to the PBGC, and (B) the
details concerning any action taken or proposed to be taken by the IRS, PBGC,
Department of Labor or other Person with respect thereto;
(vii) the information regarding insurance maintained by the
Borrower and its Subsidiaries as required under Section 10.03(c);
(viii)within 30 days of the date thereof, or, if earlier, on
the date of delivery of any financial statements pursuant to subsection (a),
notice of any material change in accounting policies or financial reporting
practices by the Borrower or any of its Subsidiaries;
(ix) promptly after the occurrence thereof, notice of any
labor controversy resulting in or threatening to result in any strike, work
stoppage, boycott, shutdown or other
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material labor disruption against or involving the Borrower or any of its
Subsidiaries which could result in a Material Adverse Effect;
(x) upon the request from time to time of the Agent or any
Lender (through the Agent), the Swap Termination Values, together with a
description of the method by which such values were determined, relating to any
then-outstanding Rate Contracts to which the Borrower or any of its Subsidiaries
is party;
(xi) prompt written notice of any other condition or event
which has resulted, or that could reasonably be expected to result, in a
Material Adverse Effect; and
(xii) such other information respecting the operations,
properties, business or condition (financial or otherwise) of the Borrower or
its Subsidiaries (including with respect to the Collateral) as any Lender
(through the Agent) may from time to time reasonably request.
Each notice pursuant to this subsection (b) shall be accompanied by a written
statement by a Responsible Officer of the Borrower setting forth details of the
occurrence referred to therein, and stating what action the Borrower proposes to
take with respect thereto.
SECTION 10.02 FINANCIAL COVENANTS. So long as any of the
Obligations shall remain unpaid, any Letter of Credit shall remain outstanding
or any Lender shall have any Commitment, the Borrower agrees that:
(a) LEVERAGE RATIO. The Borrower shall maintain a ratio of
(a) Consolidated Indebtedness PLUS six times Consolidated Rent Expense (measured
on a rolling 4-quarter basis) to (b) Consolidated EBITDA PLUS one times
Consolidated Rent Expense (in each case, measured on a rolling 4-quarter basis)
(such ratio, the "Leverage Ratio") as of the last day of each fiscal quarter of
not more than (i) 5.75 to 1.00 for the first, second, third and fourth fiscal
quarters of 2002, (ii) 5.50 to 1.00 for the first fiscal quarter of 2003, (iii)
5.25 to 1.00 for the second fiscal quarter of 2003, (iv) 5.00 to 1.00 for the
third and fourth fiscal quarters of 2003 and the first and second fiscal
quarters of 2004, (v) 4.75 to 1.00 for the third and fourth fiscal quarters of
2004, (vi) 4.50 to 1.00 for the first and second fiscal quarters of 2005, (vii)
4.00 to 1.00 for the third and fourth fiscal quarters of 2005 and the first and
second fiscal quarters of 2006 and (viii) 3.50 to 1.00 for the third fiscal
quarter of 2006 and each fiscal quarter ending thereafter.
(b) MINIMUM CONSOLIDATED TANGIBLE NET WORTH. The Borrower
shall maintain Consolidated Tangible Net Worth at all times of not less than
$76,000,000 PLUS the Net Issuance Proceeds received by the Borrower or any
Subsidiary from the sale or issuance of equity securities to any Person other
than the Borrower or any Subsidiary PLUS the Net Issuance Proceeds received by
the Borrower or any Subsidiary from the sale or issuance of Subordinated Debt to
any Person other than the Borrower or any Subsidiary PLUS 75% of positive
Consolidated Net Income, if any, for each fiscal quarter elapsed after December
31, 2001;
(c) INTEREST COVERAGE RATIO. The Borrower shall maintain a
ratio of Consolidated EBIT to Consolidated Interest Expense, for each period of
four consecutive fiscal quarters then ended, of not less than (i) 1.50 to 1.00
as of the last day of the first, second, third and fourth fiscal quarters of
2002, (ii) 1.75 to 1.00 as of the last day of the first, second, third and
fourth fiscal quarters of 2003, (iii) 2.50 to 1.00 as of the last day of the
first, second, third and
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fourth fiscal quarters of 2004, (iv) 3.00 to 1.00 as of the last day of the
first, second, third and fourth fiscal quarters of 2005 and (v) 3.50 to 1.00 as
of the last day of the first fiscal quarter of 2006 and each fiscal quarter
ending thereafter.
(d) FIXED CHARGE COVERAGE RATIO. The Borrower shall maintain
a ratio of (a) Consolidated EBITDA to (b) the sum of Consolidated Interest
Expense PLUS regularly scheduled principal payments on Indebtedness (including
such payments attributable to Capital Leases) PLUS cash income taxes PLUS cash
dividends, of the Borrower and its Subsidiaries on a consolidated basis, as
determined in accordance with GAAP, for each period of four consecutive fiscal
quarters then ended of not less than (i) 1.65 to 1.00 as of the last day of the
first fiscal quarter of 2002 through the last day of the second fiscal quarter
of 2004 and (ii) 1.25 to 1.00 as of the last day of the third fiscal quarter of
2004 and each fiscal quarter ending thereafter.
(e) CAPITAL EXPENDITURES. (i) The Borrower shall not, and
shall not permit any of its Subsidiaries to, make or become legally obligated to
make any expenditure in respect of the purchase or other acquisition of any new
wine barrels where such expenditure exceeds, in the aggregate for the Borrower
and its Subsidiaries during each fiscal year set forth below, the amount set
forth opposite such fiscal year:
FISCAL YEAR ENDING AMOUNT
__________________ ___________
2002 $4,500,000
2003 $5,000,000
2004 $5,500,000
2005 $6,000,000
2006 $6,500,000
2007 $7,000,000
2008 $7,500,000
2009 $8,000,000
(ii) The Borrower shall not, and shall not permit any of its
Subsidiaries to, make or become legally obligated to make any expenditure in
respect of the purchase or other acquisition of any fixed or capital assets
(excluding those assets set out in clause (i) above), where such expenditure
exceeds, in the aggregate for the Borrower and its Subsidiaries during each
fiscal year set forth below, the amount set forth opposite such fiscal year:
FISCAL YEAR ENDING AMOUNT
__________________ _____________
2002 $6,000,000
2003 $12,000,000
2004 $12,500,000
2005 $4,500,000
2006 $3,000,000
2007 $3,000,000
2008 $2,500,000
2009 $2,500,000
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PROVIDED, HOWEVER, that in respect of clauses (i) and (ii) above, so long as no
Default or Event of Default has occurred and is continuing or would result from
such expenditure, any portion of any such amount set forth above, if not
expended in the fiscal year for which it is permitted above, may be carried over
for expenditure in the next following fiscal year, but may not be carried over
for expenditure in any fiscal year thereafter.
SECTION 10.03 ADDITIONAL AFFIRMATIVE COVENANTS. So long as any
of the Obligations shall remain unpaid, any Letter of Credit shall remain
outstanding or any Lender shall have any Commitment, the Borrower agrees that:
(a) PRESERVATION OF EXISTENCE, ETC. The Borrower shall, and
shall cause each of its Subsidiaries to, maintain and preserve its legal
existence, its rights to transact business and all other rights, franchises and
privileges necessary or desirable in the normal course of its business and
operations and the ownership of its properties, except in connection with
transactions permitted by Section 10.04.
(b) PAYMENT OF OBLIGATIONS. The Borrower shall, and shall
cause each of its Subsidiaries to, pay and discharge (i) all taxes, fees,
assessments and governmental charges or levies imposed upon it or upon its
properties or assets prior to the date on which penalties attach thereto, and
all lawful claims for labor, materials and supplies which, if unpaid, might
become a Lien upon any properties or assets of the Borrower or any Subsidiary,
except to the extent such taxes, fees, assessments or governmental charges or
levies, or such claims, are being contested in good faith by appropriate
proceedings and are adequately reserved against in accordance with GAAP; (ii)
all lawful claims which, if unpaid, would by law become a Lien upon its property
not constituting a Permitted Lien; and (iii) all Indebtedness, as and when due
and payable, but subject to any subordination provisions contained in any
instrument or agreement evidencing such Indebtedness.
(c) MAINTENANCE OF INSURANCE. The Borrower shall, and shall
cause each of its Subsidiaries to, carry and maintain in full force and effect,
at its own expense and with financially sound and reputable insurance companies,
insurance in such amounts, with such deductibles and covering such risks as is
customarily carried by companies engaged in the same or similar businesses and
owning similar properties in the localities where the Borrower or such
Subsidiary operates, including fire, extended coverage, business interruption,
public liability, property damage and worker's compensation. Insurance on the
Collateral shall name the Collateral Agent, for the ratable benefit of the
Lenders as their interests may appear, as additional insured and as loss payee.
Upon the request of the Agent or any Lender, the Borrower shall furnish the
Agent from time to time with full information as to the insurance carried by it
and, if so requested, copies of all such insurance policies. The Borrower shall
also furnish to the Agent from time to time upon the request of the Agent or any
Lender a certificate of the Borrower's insurance broker or other insurance
specialist stating that all premiums then due on the policies relating to
insurance on the Collateral have been paid, that such policies are in full force
and effect and that such insurance coverage and such policies comply with all
the requirements of this subsection. All insurance policies required under this
subsection shall provide that they shall not be terminated or cancelled nor
shall any such policy be materially changed without at least 30 days' prior
written notice to the Borrower and the Agent. Receipt of notice of termination
or cancellation of any such insurance policies or reduction of coverages or
65.
amounts thereunder shall entitle the Agent to renew any such policies, cause the
coverages and amounts thereof to be maintained at levels required pursuant to
the first sentence of this subsection (c) or otherwise to obtain similar
insurance in place of such policies, in each case at the expense of the
Borrower.
(d) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. The Borrower
shall, and shall cause each of its Subsidiaries to, keep adequate records and
books of account, in which complete entries shall be made in accordance with
GAAP, reflecting all financial transactions of the Borrower and its
Subsidiaries.
(e) INSPECTION RIGHTS. The Borrower shall upon reasonable
notice at any reasonable time during normal business hours and from time to time
(i) permit the Agent and the Lenders or any of their respective agents or
representatives to visit and inspect any of the properties of the Borrower and
its Subsidiaries and to examine and make copies of and abstracts from the
records and books of account of the Borrower and its Subsidiaries, and to
discuss the business affairs, finances and accounts of the Borrower and any such
Subsidiary with any of the officers, employees or accountants of the Borrower or
such Subsidiary, and (ii) permit the Agent or any of its agents or
representatives to conduct periodic audits of the Collateral at such frequencies
as the Agent or the Majority Lenders shall deem appropriate, in each case, at
the expense of the Borrower; PROVIDED, HOWEVER, that other than during the
occurrence and continuation of an Event of Default, the Borrower shall not be
required to pay for more than one such inspection or audit during any 12-month
period.
(f) COMPLIANCE WITH LAWS, ETC. The Borrower shall, and shall
cause each of its Subsidiaries to, comply in all material respects with the
requirements of all applicable laws, rules, regulations and orders of any
Governmental Authority (including all Environmental Laws) and the terms of any
indenture, contract or other instrument to which it may be a party or under
which it or its properties may be bound.
(g) MAINTENANCE OF PROPERTIES, ETC. The Borrower shall, and
shall cause each of its Subsidiaries to, maintain and preserve all of its
properties necessary or useful in the proper conduct of its business in good
working order and condition in accordance with the general practice of other
corporations or companies in similar businesses and of similar character and
size, ordinary wear and tear excepted.
(h) LICENSES. The Borrower shall, and shall cause each of
its Subsidiaries to, obtain and maintain all licenses, authorizations, consents,
filings, exemptions, registrations and other governmental approvals necessary in
connection with the execution, delivery and performance of the Loan Documents,
the consummation of the transactions therein contemplated or the operation and
conduct of its business and ownership of its properties.
(i) ACTION UNDER ENVIRONMENTAL LAWS. The Borrower shall, and
shall cause each of its Subsidiaries to, upon becoming aware of the presence of
any Hazardous Substance other than Hazardous Substances customarily used in
businesses such as Borrower's, which Hazardous Substances are used in strict
compliance with all applicable Environmental Laws, or the existence of any
environmental liability under applicable Environmental Laws with respect to the
Premises, take all actions, at their cost and expense, as shall be necessary or
reasonably
66.
advisable to investigate and clean up the condition of the Premises, including
all removal, containment and remedial actions, and restore the Premises to a
condition in compliance with applicable Environmental Laws. Nothing in this
Section 10.03(i) is intended to limit, derogate or otherwise reduce the rights
of the Collateral Agent and the Lenders under the Deeds of Trust with respect to
Environmental Laws.
(j) USE OF PROCEEDS. The Borrower shall use the proceeds of
the Loans solely for general corporate purposes not in contravention of any
Requirement of Law and to repay amounts owing under the Existing Credit
Facility.
(k) ADDITIONAL SUBSIDIARIES. (i) Promptly after the date the
Borrower incorporates, creates or acquires any additional Subsidiary and, in any
event, within ten Business Days of such incorporation, creation or acquisition,
the Borrower shall cause such Subsidiary to execute and deliver to the Agent (i)
an accession agreement, as provided for in Section 22 of the Security Agreement,
(ii) an accession agreement, as provided for in Section 26 of the Guaranty,
(iii) any UCC-1 financing statements which are required by the Collateral Agent
or the Agent for filing in each jurisdiction in which such filing is necessary
to perfect the security interest of the Collateral Agent in the Collateral of
such Subsidiary and (iv) such other items as reasonably requested by the Agent
in connection with the foregoing, including resolutions, incumbency and
officers' certificates, opinions of counsel, search reports and other
certificates and documents.
(l) PROCEEDS OF EVENTS OF LOSS. All proceeds paid to the
Borrower or any Subsidiary on account of any Event of Loss in excess of
$1,500,000 shall be deposited or otherwise held in a deposit account or
securities account in respect of which the Collateral Agent holds a perfected
first priority Lien (subject only to Permitted Liens), for the ratable benefit
of the Lenders as their interests may appear, pending the application of such
proceeds to repay the Loans as provided in Section 5.03(b) or to repair, replace
or reconstruct the property affected by the Event of Loss.
(m) FURTHER ASSURANCE S AND ADDITIONAL ACTS. The Borrower
shall execute, acknowledge, deliver, file, notarize and register at its own
expense all such further agreements, instruments, certificates, documents and
assurances and perform such acts as the Agent or the Majority Lenders shall deem
necessary or appropriate to effectuate the purposes of the Loan Documents, and
promptly provide the Agent with evidence of the foregoing satisfactory in form
and substance to the Agent or the Majority Lenders.
SECTION 10.04 NEGATIVE COVENANTS. So long as any of the
Obligations shall remain unpaid, any Letter of Credit shall remain outstanding
or any Lender shall have any Commitment, the Borrower agrees that:
(a) INDEBTEDNESS. The Borrower shall not, and shall not
permit any of its Subsidiaries to, create, incur, assume or otherwise become
liable for or suffer to exist any Indebtedness, other than:
(i) Indebtedness of the Borrower and its Subsidiaries to the
Lenders hereunder;
67.
(ii) Indebtedness of the Borrower and its Subsidiaries
existing on the Closing Date and set forth in Schedule 3 or extensions, renewals
and refinancings of such Indebtedness, PROVIDED that the principal amount of
such Indebtedness being extended, renewed or refinanced does not increase;
(iii) accounts payable to trade creditors for goods and
services and current operating liabilities (not the result of the borrowing of
money) incurred in the ordinary course of the Borrower's or such Subsidiary's
business in accordance with customary terms and paid within the specified time,
unless contested in good faith by appropriate proceedings and reserved for in
accordance with GAAP;
(iv) Indebtedness consisting of guarantees resulting from
endorsement of negotiable instruments for collection by the Borrower or any such
Subsidiary in the ordinary course of business;
(v) Indebtedness under the Senior Secured Notes and any
renewal, extension or refinancing of the Senior Secured Notes; PROVIDED that any
such renewal, extension or refinancing shall be at (or less than) then
prevailing interest rates and be on terms substantially similar to the terms
which govern the Senior Secured Notes on the Closing Date or on terms which are
more favorable to the Borrower than such governing terms existing on the Closing
Date; and PROVIDED FURTHER that the aggregate principal amount thereof shall not
exceed $30,000,000 at any time outstanding;
(vi) Indebtedness under the Senior Secured Note Guaranties;
(vii) Guaranty Obligations not to exceed $1,000,000 in the
aggregate at any time outstanding;
(viii)Rate Contracts entered into in the ordinary course of
business;
(ix) unsecured Indebtedness of the Borrower and its
Subsidiaries in an aggregate principal amount not to exceed $3,000,000 at any
time outstanding;
(x) Indebtedness in respect of Capital Leases, Synthetic
Lease Obligations and purchase money obligations for fixed or capital assets
within the limitations set forth in clause (ix) of the definition of Permitted
Liens set forth in Section 1.01 and other Indebtedness secured by Liens within
the limitations set forth in clause (x) of the definition of Permitted Liens set
forth in Section 1.01, or, in each case, extensions, renewals and refinancings
of such Indebtedness, PROVIDED that the principal amount of such Indebtedness
being extended, renewed or refinanced does not increase, and PROVIDED FURTHER
that the aggregate principal amount of all such Indebtedness does not exceed
$16,000,000 at any time outstanding;
(xi) Indebtedness subordinated on terms satisfactory to the
Majority Lenders to the Obligations in an aggregate principal amount not to
exceed $2,000,000 at any time outstanding; and
(xii) Indebtedness of the Borrower to any of its wholly owned
Subsidiaries or of any of its wholly owned Subsidiaries to another of its wholly
owned Subsidiaries.
68.
(b) LIENS; NEGATIVE PLEDGES.
(i) The Borrower shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any of its properties, revenues or assets, whether now owned or
hereafter acquired, other than Permitted Liens.
(ii) The Borrower shall not, and shall not permit any of its
Subsidiaries to, enter into or suffer to exist any negative pledge or similar
agreement (other than pursuant to this Agreement, any other Loan Document and
the Senior Secured Note Documents) prohibiting or conditioning the creation or
assumption of any Lien upon any of its properties, revenues or assets, whether
now owned or hereafter acquired; PROVIDED, HOWEVER, that this subsection shall
not prohibit any negative pledge incurred or provided in favor of any holder of
Indebtedness permitted under subsection 10.04(a)(x) solely to the extent any
such negative pledge relates to the property financed by or the subject of such
Indebtedness.
(c) CHANGE IN NATURE OF BUSINESS. The Borrower shall not,and
shall not permit any of its Subsidiaries to, engage in any material line of
business substantially different from those lines of business carried on by it
at the date hereof.
(d) RESTRICTIONS ON FUNDAMENTAL CHANGES. The Borrower shall
not, and shall not permit any of its Subsidiaries to, merge with or consolidate
into, or acquire all or substantially all of the assets of, any Person, or sell,
transfer, lease or otherwise dispose of (whether in one transaction or in a
series of transactions) all or substantially all of its assets, except that:
(i) any of the Borrower's wholly owned Subsidiaries may
merge with, consolidate into or transfer all or substantially all of its assets
to another of the Borrower's wholly owned Subsidiaries that is a Guarantor or to
the Borrower and in connection therewith such Subsidiary may be liquidated or
dissolved;
(ii) the Borrower or any of its Subsidiaries may sell or
dispose of assets in accordance with the provisions of subsection (e); and
(iii) the Borrower or any of its Subsidiaries may make any
investment permitted by subsection (f).
(e) SALES OF ASSETS. The Borrower shall not, and shall not
permit any of its Subsidiaries to, sell, lease, transfer, or otherwise dispose
of, or part with control of (whether in one transaction or a series of
transactions) any assets (including any shares of stock in any Subsidiary or
other Person), except sales or other dispositions of any of the following:
(i) any inventory in the ordinary course of business;
(ii) any Permitted Investments;
(iii) any assets which have become worn out or obsolete or
which are promptly being replaced, in the ordinary course of business;
69.
(iv) any assets by any of its wholly owned Subsidiaries to
another of its wholly owned Subsidiaries or to the Borrower;
(v) any Specified Assets; PROVIDED that such sale or
disposition is made in a bona fide arm's length transaction; and PROVIDED
FURTHER that at the time of any such sale or disposition, no Event of Default
shall exist or shall result therefrom; and
(vi) any other assets to the extent not otherwise permitted
under this subsection (e); PROVIDED that such assets do not constitute the
Primary Trademarks or Substantial Assets and such sale or disposition is made
for fair market value; and PROVIDED FURTHER that (A) at the time of any such
sale or disposition, no Event of Default shall exist or shall result therefrom,
(B) the aggregate sales price from such sale or disposition shall be paid in
cash, and (C) no dispositions of accounts or notes receivable shall be permitted
hereunder.
For purposes of clause (vi) a sale, lease, transfer or other disposition of
assets shall be deemed to be of "Substantial Assets" if such assets, when added
to all other assets sold, leased, transferred or otherwise disposed of during
the same fiscal year (other than assets sold in the ordinary course of
business), shall exceed 5% of the Borrower's Consolidated Total Assets
determined as of the end of the most recently completed fiscal year.
(f) LOANS AND INVESTMENTS. The Borrower shall not, and shall
not permit any of its Subsidiaries to, purchase or otherwise acquire the capital
stock, assets, obligations or other securities of or any interest in any Person,
or otherwise extend any credit to, guarantee the obligations of or make any
additional investments in any Person, other than:
(i) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sales of goods or services in
the ordinary course of business;
(ii) investments by the Borrower in the capital stock of
wholly-owned Subsidiaries, and extensions of credit by the Borrower to any of
its wholly owned Subsidiaries or by any of its wholly owned Subsidiaries to
another of its wholly owned Subsidiaries or the Borrower, in each case in the
ordinary course of business;
(iii) Permitted Investments;
(iv) purchases of assets in the ordinary course of business;
(v) additional purchases of or investments in joint ventures
or the capital stock, assets, obligations or other securities of or interest in
other Persons, PROVIDED that (A) immediately prior to and after giving effect to
such purchase or investment, no Event of Default shall have occurred and be
continuing, (B) the aggregate cash and non-cash consideration for any such
purchase or investment (or series of related purchases or investments) shall not
exceed $5,000,000 without the prior written consent of the Majority Lenders, (C)
after giving effect to such purchase or investment, the Borrower shall be in
full pro forma compliance with each of the financial covenants set forth in
subsections 10.02(a) through (f), measured as of the last day of the fiscal
quarter then most recently ended, and (D) in the case of any Acquisition, the
prior, effective written consent or approval to such Acquisition of the board of
directors or equivalent governing body of the acquiree is obtained;
70.
(vi) employee loans and guarantees in accordance with the
Borrower's usual and customary practices with respect thereto;
(vii) Guaranty Obligations permitted under subsection (a); or
(viii)extensions of credit by the Borrower to its Subsidiary
Canoe Ridge Vineyard L.L.C., its Subsidiary SHW Equity Co. and/or its Subsidiary
Edna Valley Vineyard outstanding on or after the Closing Date in an aggregate
amount for all such extensions of credit not to exceed, without the prior
written consent of the Majority Lenders in their sole discretion, the Maximum
Intercompany Loan Amount at any time outstanding; PROVIDED that all such
extensions of credit by the Borrower (i) to Canoe Ridge Vineyard L.L.C. shall
not at any time outstanding exceed the Canoe Ridge Intercompany Loan Amount,
(ii) to Edna Valley Vineyard shall not at any time outstanding exceed the Edna
Valley Intercompany Loan Amount, and (iii) to SHW Equity Co. shall not at any
time outstanding exceed the SHW Intercompany Loan Amount; and PROVIDED FURTHER
that no Event of Default shall exist at the time of making any such credit
extension or would result therefrom.
(g) SALES AND LEASEBACKS. The Borrower shall not, and shall
not permit any of its Subsidiaries to, become liable, directly or indirectly,
with respect to any lease, whether an Operating Lease or a Capital Lease, of any
property (whether real, personal or mixed), whether now owned or hereafter
acquired, (i) which the Borrower or such Subsidiary has sold or transferred or
is to sell or transfer to any other Person or (ii) which the Borrower or such
Subsidiary intends to use for substantially the same purposes as any other
property which has been or is to be sold or transferred by the Borrower or such
Subsidiary to any other Person in connection with such lease, unless such sale
or transfer is permitted under subsection (e)(vi).
(h) DISTRIBUTIONS. (i) The Borrower shall not declare or
pay any dividends in respect of the Borrower's capital stock, or purchase,
redeem, retire or otherwise acquire for value any of its capital stock now or
hereafter outstanding, return any capital to its shareholders as such, or make
any distribution of assets to its shareholders as such, or permit any of its
Subsidiaries to purchase, redeem, retire, or otherwise acquire for value any
stock of the Borrower, except that the Borrower may:
(A) declare and deliver dividends and distributions payable
only in common stock of the Borrower;
(B) purchase, redeem, retire, or otherwise acquire shares of
its capital stock with the proceeds received from a substantially concurrent
issue of new shares of its capital stock;
(C) declare and pay cash dividends to its stockholders and
purchase, redeem, retire or otherwise acquire shares of its own outstanding
capital stock for cash during any fiscal year if (1) after giving effect thereto
the aggregate amount of such dividends, purchases, redemptions, retirements and
acquisitions paid or made during any fiscal year is not in excess of 25% of
Consolidated Net Income of the Borrower for the fiscal year immediately
preceding the year in which such dividend, purchase, redemption, retirement or
acquisition is paid or made and
71.
(2) immediately prior to and after giving effect thereto, no Default shall have
occurred and be continuing; and
(D) declare and pay the Wine Dividend Credits, PROVIDED that
immediately prior to and after giving effect thereto, no Default shall have
occurred and be continuing.
(ii) The Borrower shall not permit any Subsidiary of the
Borrower to grant or otherwise agree to or suffer to exist any consensual
restrictions on the ability of such Subsidiary to pay dividends and make other
distributions to the Borrower, or to pay any Indebtedness owed to the Borrower
or transfer properties and assets to the Borrower.
(i) AMENDMENTS OF CERTAIN DOCUMENTS. The Borrower shall not,
and shall not permit any of its Subsidiaries to, agree to or permit any
amendment, modification or waiver of:
(i) any provision of any agreement related to any
Subordinated Debt (including any amendment, modification or waiver pursuant to
an exchange of other securities or instruments for outstanding Subordinated
Debt) if the effect of such amendment, modification or waiver is to (A) increase
the interest rate on such Subordinated Debt or change (to earlier dates) the
dates upon which principal and interest are due thereon; (B) alter the
redemption, prepayment or subordination provisions thereof; (C) alter the
covenants and events of default in a manner which would make such provisions
more onerous or restrictive to the Borrower or such Subsidiary; or (D) otherwise
increase the obligations of the Borrower or such Subsidiary in respect of such
Subordinated Debt or confer additional rights upon the holders thereof which
individually or in the aggregate would be adverse to the Borrower, its
Subsidiaries or the Lenders; and
(ii) any provision of any of the Senior Secured Note
Documents (including any amendment, modification or waiver pursuant to an
exchange of other securities or instruments for outstanding Senior Secured
Notes) if the effect of such amendment, modification or waiver would be to (A)
change to earlier dates the dates upon which principal and interest are due
thereunder, (B) alter the redemption or prepayment provisions thereof, or (C)
alter the provisions thereof relating to dispositions of collateral.
(j) REDEMPTION OF SUBORDINATED DEBT. The Borrower shall not,
and shall not permit any of its Subsidiaries to, make any voluntary or optional
payment or repayment on, redemption, exchange or acquisition for value of, or
any sinking fund or similar payment with respect to, any Subordinated Debt.
Notwithstanding the foregoing, the Borrower may from time to time satisfy all or
any portion of the outstanding principal and accrued and unpaid interest in
respect of any Subordinated Debt by exchanging common stock or Permitted
Preferred Stock of the Borrower in satisfaction of such outstanding principal
and accrued and unpaid interest pursuant to a non-cash transaction approved in
good faith by the Board of Directors of the Borrower. The Borrower shall
promptly notify the Agent of any such exchange.
(k) TRANSACTIONS WITH RELATED PARTIES. Except as set forth
in Schedule 9 hereto, the Borrower shall not, and shall not permit any of its
Subsidiaries to, enter into any transaction, including the purchase, sale or
exchange of property or the rendering of any services,
72.
with any Affiliate, any officer or director thereof or any Person which
beneficially owns or holds 5% or more of the equity securities, or 5% or more of
the equity interest, thereof (a "Related Party"), or enter into, assume or
suffer to exist, or permit any Subsidiary to enter into, assume or suffer to
exist, any employment or consulting contract with any Related Party, except a
transaction or contract which is in the ordinary course of the Borrower's or
such Subsidiary's business and which is upon fair and reasonable terms not less
favorable to the Borrower or such Subsidiary than it would obtain in a
comparable arm's length transaction with a Person not a Related Party.
(l) HAZARDOUS SUBSTANCES. The Borrower shall not, and shall
not permit any of its Subsidiaries to, use, generate, manufacture, install,
treat, release, store or dispose of any Hazardous Substances, except in
compliance with all applicable Environmental Laws.
(m) ACCOUNTING CHANGES. The Borrower shall not,and shall not
suffer or permit any of its Subsidiaries to, make any significant change in
accounting treatment or reporting practices, except as required or permitted by
GAAP, or change its fiscal year or that of any of its consolidated Subsidiaries,
except to change the fiscal year of a Subsidiary acquired in connection with a
permitted acquisition to conform its fiscal year to the Borrower's.
(n) FOREIGN SUBSIDIARIES. The Borrower shall not directly or
indirectly create or acquire any Foreign Subsidiary without the prior written
consent of the Agent and the Majority Lenders.
ARTICLE XI
EVENTS OF DEFAULT
SECTION 11.01 EVENTS OF DEFAULT. Any of the following events
which shall occur shall constitute an "Event of Default":
(a) PAYMENTS. The Borrower shall fail to pay (i) any amount
of principal of, or interest on, any Loan or Note or any amount of any L/C
Obligation when due or (ii) any fee or other amount payable hereunder or under
any of the other Loan Documents within three (3) Business Days after the same
shall have become due.
(b) REPRESENTATIONS AND WARRANTIES. Any representation or
warranty by the Borrower under or in connection with the Loan Documents shall
prove to have been incorrect in any material respect when made or deemed made.
(c) FAILURE BY BORROWER TO PERFORM CERTAIN COVENANTS. The
Borrower shall fail to perform or observe any term, covenant or agreement
contained in Section 10.01, Section 10.02, subsections (a), (c), (e), and (j) of
Section 10.03 or Section 10.04.
(d) FAILURE BY BORROWER TO PERFORM OTHER COVENANTS. The
Borrower shall fail to perform or observe any other term, covenant or agreement
contained in this Agreement or any other Loan Document on its part to be
performed or observed and any such failure shall remain unremedied for a period
of 20 days from the occurrence thereof (unless the Majority Lenders determine
that such failure is not capable of remedy).
73.
(e) INSOLVENCY; VOLUNTARY PROCEEDINGS. The Borrower or any
Subsidiary (i) ceases or fails to be Solvent, or generally fails to pay, or
admits in writing its inability to pay, its debts as they become due, subject to
applicable grace periods, if any, whether at stated maturity or otherwise; (ii)
voluntarily ceases to conduct its business in the ordinary course; (iii)
commences any Insolvency Proceeding with respect to itself; or (iv) takes any
action to effectuate or authorize any of the foregoing; or
(f) INVOLUNTARY PROCEEDINGS. (i) Any involuntary Insolvency
Proceeding is commenced or filed against the Borrower or any Subsidiary, or any
writ, judgment, warrant of attachment, execution or similar process, is issued
or levied against a substantial part of the Borrower's or any Subsidiary's
properties, and any such proceeding or petition shall not be dismissed, or such
writ, judgment, warrant of attachment, execution or similar process shall not be
released, vacated or fully bonded within 60 days after commencement, filing or
levy; (ii) the Borrower or any Subsidiary admits the material allegations of a
petition against it in any Insolvency Proceeding, or an order for relief (or
similar order under non-U.S. law) is ordered in any Insolvency Proceeding; or
(iii) the Borrower or any Subsidiary acquiesces in the appointment of a
receiver, trustee, custodian, conservator, liquidator, mortgagee in possession
(or agent therefor), or other similar Person for itself or a substantial portion
of its property or business; or
(g) DEFAULT UNDER OTHER INDEBTEDNESS. (i) The Borrower or
any of its Subsidiaries shall fail (A) to make any payment of any principal of,
or interest or premium on, any Indebtedness (other than in respect of the Loans
or any Rate Contract) having an aggregate principal amount (including undrawn
committed or available amounts and including amounts owing to all creditors
under any combined or syndicated credit arrangement) of more than $1,500,000 (or
its equivalent in another currency) when due (whether by scheduled maturity,
required prepayment, acceleration, demand or otherwise) and such failure shall
continue after the applicable grace period, if any, specified in the agreement
or instrument relating to such Indebtedness as of the date of such failure; or
(B) to perform or observe any term, covenant or condition on its part to be
performed or observed under any agreement or instrument relating to any such
Indebtedness, when required to be performed or observed, and such failure shall
continue after the applicable grace period, if any, specified in such agreement
or instrument, if the effect of such failure to perform or observe is to
accelerate, or to permit the acceleration of, the maturity of such Indebtedness;
or (ii) any such Indebtedness shall be declared to be due and payable, or
required to be prepaid (other than by a regularly scheduled required
prepayment), prior to the stated maturity thereof; (iii) any facility or
commitment available to the Borrower or any Subsidiary relating to Indebtedness
in an aggregate amount at any one time of not less than $1,500,000 (or its
equivalent in any other currency) is withdrawn, suspended or cancelled by reason
of any default (however described) of the Borrower or such Subsidiary; or (iv)
there occurs under any Rate Contract an Early Termination Date (as defined in
such Rate Contract) resulting from (A) any event of default under such Rate
Contract as to which the Borrower or any Subsidiary is the Defaulting Party (as
defined in such Rate Contract) or (B) any Termination Event (as so defined) as
to which the Borrower or any Subsidiary is an Affected Party (as so defined),
and, in either event, the Swap Termination Value owed by the Borrower or such
Subsidiary as a result thereof is greater than $1,500,000 (or its equivalent in
another currency).
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(h) JUDGMENTS. (i) A final judgment or order for the payment
of money in excess of $1,500,000 (or its equivalent in another currency) over
the amount covered by third-party insurance shall be rendered against the
Borrower or any of its Subsidiaries; or (ii) any non-monetary judgment or order
shall be rendered against the Borrower or any such Subsidiary which has or would
reasonably be expected to have a Material Adverse Effect; and in each case there
shall be any period of 20 consecutive days during which such judgment continues
unsatisfied or during which a stay of enforcement of such judgment or order, by
reason of a pending appeal or otherwise, shall not be in effect.
(i) ERISA.
(i) The Borrower or an ERISA Affiliate shall fail to satisfy
its contribution requirements in an amount in excess of $1,500,000 under Section
412(c)(11) of the Internal Revenue Code, whether or not it has sought a waiver
under Section 412(d) of the Internal Revenue Code; (ii) in the case of a
Termination Event involving the withdrawal from a Pension Plan of a "substantial
employer" (as defined in Section 4001(a)(2) or Section 4062(e) of ERISA), the
Borrower's or an ERISA Affiliate's proportionate share of that Pension Plan's
Unfunded Accrued Benefits is more than $1,500,000; (iii) in the case of a
Termination Event involving the complete or partial withdrawal from a
Multiemployer Plan, the Borrower or an ERISA Affiliate has incurred a withdrawal
liability in an aggregate amount exceeding $1,500,000; (iv) in the case of a
Termination Event not described in clause (ii) or (iii), the Unfunded Accrued
Benefits of the relevant Pension Plan or Plans exceed $1,500,000; (v) a Plan of
the Borrower or an ERISA Affiliate that is intended to be qualified under
Section 401(a) of the Internal Revenue Code shall lose its qualification, and
the loss can reasonably be expected to impose on the Borrower or an ERISA
Affiliate liability (for additional taxes, to Plan participants, or otherwise)
in the aggregate amount of $1,500,000 or more; (vi) the commencement or increase
of contributions to, the adoption of, or the amendment of a Plan by, the
Borrower or an ERISA Affiliate shall result in a net increase in unfunded
liabilities to the Borrower or an ERISA Affiliate in excess of $1,500,000; or
(vii) the occurrence of any combination of events listed in clauses (ii) through
(vi) that involves a net increase in aggregate Unfunded Accrued Benefits and
unfunded liabilities in excess of $1,500,000.
(j) DISSOLUTION, ETC.The Borrower or any of its Subsidiaries
shall (i) liquidate, wind up or dissolve (or suffer any liquidation, wind-up or
dissolution), except to the extent expressly permitted by Section 10.04, (ii)
suspend its operations other than in the ordinary course of business, or (iii)
take any corporate action to authorize any of the actions or events set forth
above in this subsection (j).
(k) MATERIAL ADVERSE EFFECT. A Material Adverse Effect shall
occur.
(l) CHANGE IN OWNERSHIP OR CONTROL. A Change of Control
shall occur.
(m) FAILURE BY GUARANTOR TO PERFORM COVENANTS; INVALIDITY OF
GUARANTY. Any Guarantor shall fail in any material respect to perform or observe
any term, covenant or agreement contained in its Guaranty or any other Guarantor
Document on its part to be performed or observed and any such failure shall
remain unremedied for a period of 20 days from the occurrence thereof (unless
the Majority Lenders determine that such failure is not
75.
capable of remedy), or any "Event of Default" as defined in any Guaranty shall
have occurred; or any Guaranty or any other Guarantor Document shall for any
reason be revoked or invalidated, or otherwise cease to be in full force and
effect, or any Guarantor or any other Person shall contest in any manner the
validity or enforceability thereof or deny that it has any further liability or
obligation thereunder.
(n) ENVIRONMENTAL INDEMNITY. The Environmental Indemnity
after delivery thereof shall for any reason be revoked or invalidated, or
otherwise cease to be in full force and effect, or the Borrower or any other
Person shall contest in any manner the validity or enforceability thereof, or
the Borrower or any other Person shall deny that it has any further liability or
obligation thereunder.
(o) SUBORDINATION PROVISIONS. The subordination or
intercreditor provisions of the Intercreditor and Collateral Agency Agreement or
of any agreement or instrument governing any Subordinated Debt shall for any
reason be revoked or invalidated, or otherwise cease to be in full force and
effect, any Person shall contest in any manner the validity or enforceability
thereof or deny that it has any further liability or obligation thereunder, or
the Indebtedness hereunder shall for any reason be subordinated or shall not
have the priority contemplated by this Agreement or such subordination or
intercreditor provisions.
(p) COLLATERAL DOCUMENTS. The Borrower or any other Person
shall fail to perform or observe any term, covenant or agreement contained in
the Collateral Documents on its part to be performed or observed and any such
failure shall remain unremedied for a period of 20 days from the occurrence
thereof (unless the Majority Lenders determine that such failure is not capable
of remedy), or any "Event of Default" as defined in any Collateral Document
shall have occurred; or any of the Collateral Documents after delivery thereof
shall for any reason be revoked or invalidated, or otherwise cease to be in full
force and effect, or the Borrower or any other Person shall contest in any
manner the validity or enforceability thereof, or the Borrower or any other
Person shall deny that it has any further liability or obligation thereunder; or
any of the Collateral Documents for any reason, except to the extent permitted
by the terms thereof, shall cease to create a valid and perfected first priority
Lien subject only to Permitted Liens in any of the Collateral purported to be
covered thereby; or any title insurance coverage in respect of any material
portion of the Collateral is disavowed or becomes ineffective.
SECTION 11.02 EFFECT OF EVENT OF DEFAULT. If any Event of
Default shall occur and be continuing, the Agent shall, at the request of, or
may, with the consent of, the Majority Lenders, (i) by notice to the Borrower,
(A) require that the Borrower cash collateralize the L/C Obligations (in an
amount equal to the then outstanding amount thereof), (B) declare the
Commitments of the Lenders (other than their respective share of the L/C
Commitment with respect to outstanding Letters of Credit) and any obligations of
the Issuing Lender to issue, amend or renew Letters of Credit, to be terminated,
whereupon the same shall forthwith terminate, and (C) declare an amount equal to
the maximum aggregate amount that is or at any time thereafter may become
available for drawing under any outstanding Letters of Credit (whether or not
any beneficiary shall have presented, or shall be entitled at such time to
present, the drafts or other documents required to draw under such Letters of
Credit) to be immediately due and payable, and declare the entire unpaid
principal amount of the Loans and the Notes, all interest accrued and unpaid
thereon and all other Obligations to be forthwith due and payable,
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whereupon such amount with respect to Letters of Credit, the Loans and the
Notes, all such accrued interest and all such other Obligations shall become and
be forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are hereby expressly waived by the Borrower;
PROVIDED that if an event described in Sections 11.01(e) or 11.01(f) shall
occur, the result which would otherwise occur only upon giving of notice by the
Agent to the Borrower as specified in this clause (i) shall occur automatically,
without the giving of any such notice; and (ii) whether or not the actions
referred to in clause (i) have been taken, (A) instruct the Collateral Agent to
exercise any or all of the Collateral Agent's rights and remedies under the
Collateral Documents and applicable law (subject to the Intercreditor and
Collateral Agency Agreement), and (B) proceed to enforce all other rights and
remedies available to the Agent and the Lenders under the Loan Documents and
applicable law.
ARTICLE XII
THE AGENT
SECTION 12.01 AUTHORIZATION AND ACTION. Each Lender hereby
appoints Rabobank as Agent and authorizes the Agent to execute the Loan
Documents and to take such action as agent on its behalf and to exercise such
powers and perform such duties under this Agreement and the other Loan Documents
as are delegated to the Agent by the terms hereof or thereof, together with such
powers as are reasonably incidental thereto. The duties and obligations of the
Agent are strictly limited to those expressly provided for herein, and no
implied covenants, functions, responsibilities, duties, obligations or
liabilities shall be read into this Agreement or otherwise exist against the
Agent. As to any matters not expressly provided for by the Loan Documents
(including enforcement of the Loan Documents or collection of any amounts due
thereunder), the Agent shall not be required to exercise any discretion or take
any action, but shall be required to act or to refrain from acting (and shall be
fully protected in so acting or refraining from acting) upon the instructions of
the Majority Lenders, and such instructions shall be binding upon all Lenders;
PROVIDED, HOWEVER, that except for action expressly required of the Agent
hereunder, the Agent shall in all cases be fully justified in failing or
refusing to act under any Loan Document unless it shall be indemnified to its
satisfaction by the Lenders against any and all liability and expense which may
be incurred by reason of taking or continuing to take any such action, and that
the Agent shall not in any event be required to take any action which exposes
the Agent to liability or which is contrary to any Loan Document or applicable
law. Nothing in any Loan Document shall, or shall be construed to, constitute
the Agent a trustee or fiduciary for any Lender or the Issuing Lender. In
performing its functions and duties hereunder, the Agent shall act solely as the
agent of the Lenders and does not assume and shall not be deemed to have assumed
any obligation towards or relationship of agency or trust with or for the
Borrower or any Guarantor. Each Lender agrees that the Borrower shall be
entitled to rely on any action purportedly taken by the Agent on behalf of the
Lenders. Each Lender agrees that the Borrower shall have no liability for the
Agent's failure to properly distribute to the Lenders, as their interests may
appear, any funds received by the Agent on behalf of the Lenders.
SECTION 12.02 LIMITATION ON LIABILITY OF AGENT; NOTICES;
CLOSING.
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(a) LIMITATION ON LIABILITY OF AGENT AND ISSUING LENDER.None
of the Agent/IB-Related Persons shall be liable for any action taken or omitted
to be taken by it or them under or in connection with any Loan Document, except
for its or their own gross negligence or willful misconduct. Without limitation
of the generality of the foregoing, the Agent (i) may treat a Lender as the
holder of its Loans for all purposes hereof unless and until such Lender and its
assignee shall have delivered to the Agent and the Borrower an Assignment and
Acceptance Agreement substantially in the form of Exhibit M (an "Assignment and
Acceptance") and the other conditions to assignment set forth in Section 13.09
shall have been satisfied; (ii) may consult with legal counsel (including
counsel to the Borrower), independent public accountants and other experts
selected by it and shall not be liable for any action taken or omitted to be
taken in good faith by it in accordance with the advice of such counsel,
accountants or experts; and (iii) shall incur no liability to any Lender under
or in respect of any Loan Document by acting upon any notice, consent,
certificate, telegram, facsimile, electronic mail, telex or teletype message,
statement or other instrument or writing believed by it to be genuine and signed
or sent by the proper party or parties or by acting upon any representation or
warranty made or deemed to be made hereunder or under any other Loan Document.
Further, the Agent (A) makes no warranty or representation to any Lender and
shall not be responsible to any Lender for the accuracy or completeness of any
information, exhibit or report furnished under any Loan Document, for any
statements, warranties or representations (whether written or oral) made or
deemed made in or in connection with any Loan Documents; (B) shall have no duty
to ascertain or to inquire as to the performance or observance of any of the
terms, covenants or conditions of this Agreement or any other Loan Document on
the part of the Borrower, the Guarantors or any other Person or to inspect the
property, books or records of the Borrower, the Guarantors or any other Person;
and (C) shall not be responsible to any Lender for the due execution, legality,
validity, enforceability, genuineness, sufficiency, value or collectibility of
this Agreement or any other Loan Document or any of the Collateral.
(b) NOTICES. Promptly upon receipt thereof, the Agent shall
forward to each Lender originals or copies, as specified in this Agreement or
any other Loan Document, of all agreements, instruments, opinions, financial
statements, notices and other documents delivered by the Borrower, the
Guarantors or any other Person to the Agent pursuant to any Loan Document for
distribution to the Lenders. Except for any of the foregoing expressly required
to be furnished to the Lenders by the Agent hereunder, the Agent shall not have
any duty or responsibility to provide any Lender with any credit or other
information concerning the business, operations, property, condition (financial
or otherwise), prospects or creditworthiness of the Borrower which may come into
the possession of the Agent or any of its officers, directors, employees,
agents, attorneys-in-fact or Affiliates.
(c) CLOSING. For purposes of determining compliance with the
conditions specified in Section 8.01, each Lender that has executed this
Agreement shall be deemed to have consented to, approved or accepted or to be
satisfied with, each document or other matter either sent (or made available) by
the Agent to such Lender for consent, approval, acceptance or satisfaction, or
required thereunder to be consented to or approved by or acceptable or
satisfactory to such Lender, unless an officer of the Agent responsible for the
transactions contemplated by the Loan Documents shall have received notice from
such Lender prior to the Closing Date specifying its objection thereto and
either such objection shall not have been withdrawn by notice to the Agent to
that effect on or prior to the Closing Date or, if any
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Borrowing on the Closing Date has been requested, the Lender shall not have made
available to the Agent on or prior to the Closing Date the Lender's Pro Rata
Share of any Borrowing.
SECTION 12.03 AGENT AND AFFILIATES. With respect to its
Commitment, the Loans made by it, the Notes issued to it, Letters of Credit
issued by it, and all other Obligations owing to it as a Lender, the Agent shall
have the same rights and powers under the Loan Documents as any other Lender and
may exercise the same as though it were not the Agent; and the term "Lender" or
"Lenders" shall, unless otherwise expressly indicated, include the Agent in its
individual capacity. The Agent and its Affiliates may accept deposits from, lend
money to, issue letters of credit for the account of, act as trustee under
indentures of and generally engage in any kind of business with the Borrower,
the Guarantors and any Affiliate thereof, all as if the Agent were not the Agent
hereunder and without any duty to account therefor to the Lenders.
SECTION 12.04 NOTICE OF DEFAULTS. The Agent shall not be
deemed to have knowledge or notice of the occurrence of a Default hereunder
(other than nonpayment of principal of or interest on the Loans or of any fees
or any of its costs and expenses) unless the Agent has actual knowledge thereof
or has received notice in writing from a Lender or the Borrower referring to
this Agreement, describing such event or condition and expressly stating that
such notice is a "notice of default." Should the Agent receive such notice of
the occurrence of a Default, the Agent shall promptly give notice thereof to the
Lenders. The Agent thereupon shall take such action with respect to such Default
as shall be reasonably directed by the Majority Lenders; PROVIDED that, unless
and until the Agent shall have received such directions, the Agent may (but
shall not be obligated to) take such action, or refrain from taking such action,
with respect to such Default as it shall deem advisable in the best interests of
the Lenders.
SECTION 12.05 NON-RELIANCE ON AGENT AND ISSUING LENDER. Each
Lender has itself been, and will continue to be, based on such documents and
information as it has deemed appropriate, solely responsible for making its own
independent appraisal of and investigations into the financial condition,
creditworthiness, condition, affairs, status and nature of the Borrower or any
of its Subsidiaries and the nature and value of any of the Collateral.
Accordingly, each Lender confirms to the Agent and the Issuing Lender that it
has not relied, and will not hereafter rely, on the Agent or the Issuing Lender
(i) to check or inquire on such Lender's behalf into the adequacy, accuracy or
completeness of any information provided by the Borrower or any other Person
under or in connection with the Loan Documents or the transactions herein
contemplated (whether or not such information has been or is hereafter
distributed to such Lender by the Agent or the Issuing Lender), or (ii) to
assess or keep under review on such Lender's behalf the financial condition,
creditworthiness, condition, affairs, status or nature of the Borrower, any
Subsidiary or the nature or value of any of the Collateral.
SECTION 12.06 INDEMNIFICATION. The Lenders agree to indemnify
each Agent/IB Related Person (to the extent not reimbursed by the Borrower),
ratably in accordance with the respective Pro Rata Shares of the Lenders,
against and hold each of them harmless from any and all liabilities,
obligations, losses, claims, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever, including the
reasonable fees and disbursements of counsel to such Agent/IB Related Person
(including allocated costs of internal counsel), which may be imposed on,
incurred by, or asserted against such Agent/IB Related Person, in any way
relating to or arising out of the Loan Documents, the use or intended
79.
use of the proceeds of the Loans or the transactions contemplated hereby or
thereby or any action taken or omitted by such Agent/IB Related Person in
connection with any of the foregoing; PROVIDED that no Lender shall be liable
for any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements to the extent they
are found by a final decision of a court of competent jurisdiction to have
resulted from the gross negligence or willful misconduct of such Agent/IB
Related Person. Without limitation of the foregoing, each Lender agrees to
reimburse each Agent/IB Related Person promptly upon demand for such Lender's
Pro Rata Share of any costs and expenses or other charges incurred by such
Agent/IB Related Person and payable by the Borrower pursuant to Section 13.04(a)
or any other Loan Document to the extent that such Agent/IB Related Person is
not reimbursed for such expenses or charges by the Borrower (without prejudice
to the Borrower's obligation to so reimburse such Agent/IB Related Person).
SECTION 12.07 DELEGATION OF DUTIES. The Agent may, in its
discretion, employ from time to time one or more agents or attorneys-in-fact
(including any of the Agent's Affiliates) to perform any of the Agent's duties
under the Loan Documents. The Agent shall not be responsible for the negligence
or misconduct of any agents or attorneys-in-fact selected by it with reasonable
care.
SECTION 12.08 SUCCESSOR AGENT. Subject to the appointment and
acceptance of a successor Agent as provided below, the Agent may resign at any
time by giving 30 days' written notice thereof to the Lenders and the Borrower.
Upon any such resignation, the Majority Lenders shall have the right to appoint
a successor Agent from among the Lenders, and the Lenders shall use their best
efforts so to appoint a successor Agent. If no successor Agent shall have been
so appointed by the Majority Lenders, and shall have accepted such appointment,
prior to the effective date of the retiring Agent's resignation, the retiring
Agent may, on behalf of the Lenders, appoint a successor Agent from among the
Lenders. Upon the effectiveness of the acceptance of any appointment as Agent
hereunder by a successor Agent, (i) the Borrower shall be promptly notified and
(ii) such successor Agent shall thereupon succeed to and become vested with all
the rights, powers, privileges, duties and obligations of the retiring Agent,
and the retiring Agent shall be discharged from its duties and obligations under
the Loan Documents. After any retiring Agent's resignation hereunder as Agent,
the provisions of this Article XII shall inure to its benefit as to any actions
taken or omitted to be taken by it while it was Agent under the Loan Documents.
The appointment of a successor Agent (other than a successor by operation of
law) shall be subject to the consent of the Borrower (such consent not to be
unreasonably withheld or delayed), unless an Event of Default shall have
occurred and be continuing, in which case no consent of the Borrower to the
appointment of a successor Agent shall be required.
SECTION 12.09 COLLATERAL MATTERS.
(a) AUTHORIZATION. The Collateral Agent is authorized on
behalf of all the Lenders, without the necessity of any notice to or further
consent from the Lenders, from time to time to take any action with respect to
any Collateral or the Collateral Documents which may be necessary to perfect and
maintain perfected the Liens on the Collateral granted pursuant to the
Collateral Documents or protect and preserve the Collateral Agent's ability to
enforce the Liens or realize upon the Collateral.
80.
(b) COLLATERAL RELEASES. The Lenders irrevocably authorize
the Collateral Agent, at its option and in its discretion, to release any Lien
granted to or held by the Collateral Agent upon any Collateral (i) upon
termination of the Commitments and payment in full of all Loans and all other
Obligations known to the Collateral Agent and payable under this Agreement or
any other Loan Document; (ii) constituting property sold or to be sold or
disposed of as part of or in connection with any sale or other disposition
permitted hereunder or under any Collateral Document; (iii) constituting
property in which the Borrower or its Subsidiaries owned no interest at the time
the Lien was granted or at any time thereafter; (iv) constituting property
leased to the Borrower or any Subsidiary under a lease permitted hereunder; (v)
consisting of an instrument evidencing Indebtedness or other debt instrument, if
the Indebtedness evidenced thereby has been paid in full; or (vi) if approved,
authorized or ratified in writing by the Majority Lenders or all the Lenders, as
the case may be, as provided in Section 13.01. Upon request by the Collateral
Agent at any time, the Lenders shall confirm in writing the Collateral Agent's
authority to release particular types or items of Collateral pursuant to this
Section 12.09, PROVIDED that the absence of any such confirmation for whatever
reason shall not affect the Collateral Agent's rights under this Section 12.09.
ARTICLE XIII
MISCELLANEOUS
SECTION 13.01 AMENDMENTS AND WAIVERS. Except as otherwise
provided herein or in any other Loan Document, (i) no amendment to any provision
of this Agreement or any of the other Loan Documents shall in any event be
effective unless the same shall be in writing and signed by the Borrower (and/or
any other party thereto, as applicable), the Agent and the Majority Lenders (or
the Agent with the written consent of the Majority Lenders); and (ii) no waiver
of any provision of this Agreement or any other Loan Document, or consent to any
departure by the Borrower or other party therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Agent and the
Majority Lenders (or the Agent with the consent of the Majority Lenders). Any
such amendment, waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given. Notwithstanding the
foregoing provisions of this Section 13.01, any term or provision of any such
other Loan Document may be amended without the agreement or consent of, or prior
notice to, the Borrower or other party thereto, to the extent such Loan Document
provides for amendments without the agreement or consent of, or notice to, the
Borrower or such other party, and any term or provision of Article XII may be
amended without the agreement or consent of, or prior notice to, the Borrower;
and, unless in writing and signed by all of the Lenders (or by the Agent with
the written consent of all the Lenders), no amendment, waiver or consent shall
do any of the following:
(A) increase the amount, or extend the stated expiration or
termination date, of the Commitments of the Lenders;
(B) reduce the principal of,or interest on, the Loans or any
fee or other amount payable to the Lenders hereunder;
81.
(C) postpone any date fixed for any payment in respect of
principal of, or interest on, the Loans or any fee or other amount payable to
the Lenders hereunder;
(D) change the definition of "Majority Lenders" or any
definition or provision of this Agreement requiring the approval of Majority
Lenders or some other specified amount of Lenders;
(E) consent to the assignment or transfer by the Borrower of
any of its rights and obligations under the Loan Documents;
(F) release any Guaranty or any material portion of the
Collateral except as contemplated herein and in the Collateral Documents
relating thereto;
(G) amend, modify or waive the provisions of Section 7.01,
7.05 or 13.07; or
(H) amend, modify or waive the provisions of this Section
13.01; and
PROVIDED FURTHER, HOWEVER, that no amendment, waiver or consent (1) shall,
unless in writing and signed by the Agent in addition to the Lenders required
hereinabove to take such action, affect the rights, obligations or duties of the
Agent under any Loan Document; (2) shall, unless in writing and signed by the
Collateral Agent in addition to the Lenders required hereinabove to take such
action, affect the rights, obligations or duties of the Collateral Agent under
any Loan Document; (3) shall, unless in writing and signed by the Issuing Lender
in addition to the Lenders required hereinabove to take such action, affect the
rights or duties of the Issuing Lender under this Agreement or any L/C-Related
Document to which it is a party; or (4) shall, unless in writing and signed by
the Swingline Lender in addition to the Lenders required hereinabove to take
such action, affect the rights, obligations or duties of the Swingline Lender
under any Loan Document; PROVIDED FURTHER, that the Fee Letter and documents
evidencing Specified Swap Contracts may be amended, or rights or privileges
thereunder waived, in a writing executed by the parties thereto; AND PROVIDED
FURTHER, HOWEVER, that, for the avoidance of doubt, it is agreed and
acknowledged by and among the Agent, the Borrower and the Lenders that, subject
to the immediately preceding proviso, the provisions of subsection 5.03(b) may
be amended or waived with the written consent of the Agent, the Borrower and the
Majority Lenders.
SECTION 13.02 NOTICES.
(a) NOTICES. All notices and other communications provided
for hereunder and under the other Loan Documents shall, unless otherwise stated
herein, be in writing (including by facsimile transmission and, subject to
subsection (c), by electronic mail) and mailed, sent or delivered to the
respective parties hereto at or to their respective addresses, facsimile numbers
or email addresses set forth in Schedule 2, or at or to such other address,
facsimile number or email address as shall be designated by any party in a
written notice to the other parties hereto. All such notices and communications
shall be effective (i) if delivered by hand, when delivered; (ii) if sent by
mail, upon the earlier of the date of receipt or five Business Days after
deposit in the mail, first class (or air mail, with respect to communications to
be sent to or from the United States), postage prepaid; and (iii) if sent by
facsimile transmission or electronic mail, when sent; PROVIDED, HOWEVER, that
notices and communications to the Agent
82.
shall not be effective until actually received by the Agent, and notices to the
Issuing Lender pursuant to Article III shall not be effective until actually
received by the Issuing Lender.
(b) FACSIMILE AND TELEPHONIC NOTICE. The Borrower
acknowledges and agrees that the agreement of the Agent and the Lenders herein
and in any other Loan Document to receive certain notices by telephone and
facsimile is solely for the convenience and at the request of the Borrower. The
Agent and the Lenders shall be entitled to rely on the authority of any Person
purporting to be a Person authorized by the Borrower to give such notice and the
Agent and the Lenders shall not have any liability to the Borrower or other
Person on account of any action taken or not taken by the Agent and the Lenders
in reliance upon such telephonic or facsimile notice. The obligation of the
Borrower to repay the Loans, the drawings under Letters of Credit and the other
Obligations shall not be affected in any way or to any extent by any failure by
the Agent and the Lenders to receive written confirmation of any telephonic or
facsimile notice or the receipt by the Agent and the Lenders of a confirmation
which is at variance with the terms understood by the Agent and the Lenders to
be contained in the telephonic or facsimile notice.
(c) ELECTRONIC MAIL. Electronic mail and internet and
intranet websites may be used only to distribute routine communications, such as
financial statements and other information, and to distribute Loan Documents for
execution by the parties thereto, and may not be used for any other purpose.
SECTION 13.03 NO WAIVER; CUMULATIVE REMEDIES. No failure on
the part of the Agent, any Lender or the Collateral Agent to exercise, and no
delay in exercising, any right, remedy, power or privilege under any Loan
Document shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, remedy, power or privilege preclude any other or
further exercise thereof or the exercise of any other right, remedy, power or
privilege. The rights and remedies under the Loan Documents are cumulative and
not exclusive of any rights, remedies, powers and privileges that may otherwise
be available to the Agent, any Lender or the Collateral Agent.
SECTION 13.04 COSTS AND EXPENSES; INDEMNIFICATION.
(a) COSTS AND EXPENSES.The Borrower agrees to pay on demand,
whether or not the transactions contemplated hereby shall be consummated:
(i) the reasonable out-of-pocket costs and expenses of the
Agent, the Issuing Lender and any of their respective Affiliates, and the
reasonable fees and disbursements of counsel to the Agent and the Issuing Lender
(including allocated costs of internal counsel), in connection with the
negotiation, preparation, execution, delivery, syndication (including
out-of-pocket expenses in connection with the use of IntraLinks) and
administration of the Loan Documents, and any amendments, modifications or
waivers of the terms thereof;
(ii) all title, appraisal (including the allocated cost of
internal appraisal services), survey, audit, environmental inspection,
consulting, search, recording, filing and similar costs, fees and expenses
incurred or sustained by the Agent or any of its Affiliates in connection with
the Loan Documents or the Collateral; and
83.
(iii) all costs and expenses of the Agent, the Issuing Lender,
their respective Affiliates and the Lenders, and fees and disbursements of
counsel (including allocated costs of internal counsel), in connection with (A)
any Default, (B) the enforcement or attempted enforcement of, and preservation
of any rights or interests under, the Loan Documents, (C) any out-of-court
workout or other refinancing or restructuring or any Insolvency Proceeding, and
(D) the preservation of and realization upon any of the Collateral, including
any losses, costs and expenses sustained by the Agent, the Issuing Lender and
any Lender as a result of any failure by the Borrower or any Guarantor to
perform or observe its respective obligations contained in the Loan Documents.
(b) INDEMNIFICATION. Whether or not the transactions
contemplated hereby shall be consummated, the Borrower hereby agrees to
indemnify each Agent/IB Related Person, each Lender and any Affiliates,
directors, officers, employees, agents, counsel and other advisors
(collectively, the "Related Persons") of any Lender (each an "Indemnified
Person") against, and hold each of them harmless from, any and all liabilities,
obligations, losses, claims, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever, including the
reasonable fees and disbursements of counsel to an Indemnified Person (including
allocated costs of internal counsel), which may be imposed on, incurred by, or
asserted against any Indemnified Person, (i) by any Governmental Authority or
other third party in any way relating to or arising out of any of the Loan
Documents, the Letters of Credit, the use or intended use of the proceeds of the
Loans or the transactions contemplated hereby or thereby, (ii) with respect to
any investigation, litigation or other proceeding relating to any of the
foregoing, irrespective of whether the Indemnified Person shall be designated a
party thereto, or (iii) in any way relating to or arising out of the use,
generation, manufacture, installation, treatment, storage or presence, or the
spillage, leakage, leaching, migration, dumping, deposit, discharge, disposal or
release, at any time, of any Hazardous Substances on, under, at or from any
Premises, including any personal injury or property damage suffered by any
Person, and any investigation, site assessment, environmental audit, feasibility
study, monitoring, clean-up, removal, containment, restoration, remedial
response or remedial work undertaken by or on behalf of the any Indemnified
Person at any time, voluntarily or involuntarily, with respect to the Premises
(the "Indemnified Liabilities"); PROVIDED that the Borrower shall not be liable
to any Indemnified Person for any portion of such Indemnified Liabilities to the
extent they are found by a final decision of a court of competent jurisdiction
to have resulted from such Indemnified Person's gross negligence or willful
misconduct. If and to the extent that the foregoing indemnification is for any
reason held unenforceable, the Borrower agrees to make the maximum contribution
to the payment and satisfaction of each of the Indemnified Liabilities which is
permissible under applicable law.
(c) OTHER CHARGES.The Borrower agrees to indemnify the Agent
and each of the Lenders against and hold each of them harmless from any and all
present and future stamp, transfer, documentary and other such taxes, levies,
fees, assessments and other charges made by any jurisdiction by reason of the
execution, delivery, performance and enforcement of the Loan Documents.
(d) OBLIGATIONS UNDER EXISTING CREDIT FACILITY. All rights
of Rabobank in respect of any indemnification and otherwise for reimbursement or
payment of any losses, costs, charges, expenses or disbursements (including fees
and disbursements of counsel) under or in
84.
respect of the Existing Credit Facility shall survive the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby.
SECTION 13.05 RIGHT OF SET-OFF. Upon the occurrence and during
the continuance of any Event in Default, each Lender hereby is authorized at any
time and from time to time, without notice to the Borrower (any such notice
being expressly waived by the Borrower), to set off and apply any and all
deposits (general or special, time or demand, provisional or final) at any time
held and other indebtedness at any time owing by such Lender to or for the
credit or the account of the Borrower against any and all of the Obligations of
the Borrower now or hereafter existing under this Agreement and the other Loan
Documents, irrespective of whether or not such Lender shall have made any demand
under this Agreement or any such other Loan Document and although such
Obligations may be unmatured. Each Lender agrees promptly to notify the Borrower
(through the Agent) after any such set-off and application made by such Lender;
PROVIDED that the failure to give such notice shall not affect the validity of
such set-off and application. The rights of each Lender under this Section 13.05
are in addition to other rights and remedies (including other rights of set-off)
which such Lender may have. NOTWITHSTANDING THE FOREGOING, NO LENDER SHALL
EXERCISE, OR ATTEMPT TO EXERCISE, ANY RIGHT OF SET-OFF, BANKER'S LIEN, OR THE
LIKE, AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY OF THE BORROWER OR ANY SUBSIDIARY
HELD OR MAINTAINED BY THE LENDER WITHOUT THE PRIOR WRITTEN CONSENT OF THE AGENT
AND THE MAJORITY LENDERS.
SECTION 13.06 SURVIVAL. All covenants, agreements,
representations and warranties made in any Loan Document shall, except to the
extent otherwise provided therein, survive the execution and delivery of this
Agreement, the making of the Credit Extensions and the execution and delivery of
the Notes, and shall continue in full force and effect so long as the Lenders
have any Commitments, any Loans or Letters of Credit remain outstanding or any
other Obligations remain unpaid or any obligation to perform any other act under
any Loan Document remains unsatisfied. Without limiting the generality of the
foregoing, the obligations of the Borrower under Sections 6.02, 6.03, 7.03 and
13.04, and of the Lenders under Sections 7.03 and 12.06, and all similar
obligations under the other Loan Documents (including all obligations to pay
costs and expenses and all indemnity obligations), shall survive the repayment
of the Loans, the termination of the Letters of Credit and the termination of
the Commitments.
SECTION 13.07 OBLIGATIONS SEVERAL. The obligations of the
Lenders under the Loan Documents are several. The failure of any Lender or the
Agent to carry out its obligations thereunder shall not relieve any other Lender
or the Agent of any obligation thereunder, nor shall any Lender or the Agent be
responsible for the obligations of, or any action taken or omitted by, any other
Person hereunder or thereunder. Nothing contained in any Loan Document shall be
deemed to cause any Lender or the Agent to be considered a partner of or joint
venturer with any other Lender or Lenders, the Agent, the Guarantors or the
Borrower.
SECTION 13.08 BENEFITS OF AGREEMENT. The Loan Documents are
entered into for the sole protection and benefit of the parties hereto and their
successors and assigns, and no other Person (other than any Agent/IB Related
Persons and any Related Persons of the Lenders) shall be a direct or indirect
beneficiary of, or shall have any direct or indirect cause of action or claim in
connection with, any Loan Document.
85.
SECTION 13.09 BINDING EFFECT; ASSIGNMENT.
(a) BINDING EFFECT. This Agreement shall become effective
when it shall have been executed by the Borrower, the Issuing Lender and the
Agent and when the Agent shall have been notified by each Lender that such
Lender has executed it and thereafter shall be binding upon, inure to the
benefit of and be enforceable by the Borrower, the Issuing Lender, the Agent and
each Lender and their respective successors and assigns.
(b) ASSIGNMENT. The Borrower shall not have the right to
assign its rights and obligations hereunder or under the other Loan Documents or
any interest herein or therein without the prior written consent of all the
Lenders. Each Lender may sell, assign, transfer or grant participations in all
or any portion of such Lender's rights and obligations hereunder and under the
other Loan Documents to any Lender or Eligible Assignee on the basis set forth
below in this subsection.
(i) Any Lender may,with the written consent of the Borrower,
the Agent and the Issuing Lender (which in each case shall not be unreasonably
withheld), at any time assign and delegate to one or more Eligible Assignees
all, or any ratable part of all, of the Loans, the Commitments and the other
rights and obligations of such Lender hereunder; PROVIDED, HOWEVER, that (i) no
written consent of the Borrower shall be required during the existence of a
Default; (ii) no written consent of the Borrower or the Agent shall be required
in connection with any assignment and delegation by a Lender to an Eligible
Assignee that is another Lender or an Affiliate of such Lender; (iii) except in
connection with an assignment of all of a Lender's rights and obligations with
respect to its Commitment and Loans, any such assignment to an Eligible Assignee
that is not a Lender hereunder shall be equal to or greater than $2,000,000, and
(iv) any Lender may (1) assign all or any part of its Term Loans separately from
its Revolving Loans and Revolving Commitment and (2) assign all or any ratable
part of its Revolving Loans and Revolving Commitment separately from its Term
Loans.
(ii) In the event of any such assignment,unless and until (A)
an Assignment and Acceptance shall have been delivered pursuant to clause (i) of
Section 12.02(a), (B) the Agent shall have received payment of an administrative
transfer charge in the amount of $3,500 from the assigning Lender (unless the
assignee shall otherwise agree to pay such charge), and (C) the Agent and the
Borrower shall have received all tax forms and documents required under Section
7.03(d), such assignee shall not be entitled to exercise the rights of a Lender
under this Agreement and the other Loan Documents with respect to such
assignment and the Agent shall not be obligated to make payment of any amount to
which such assignee may become entitled thereunder other than to the assigning
Lender. Subject to satisfaction of the foregoing conditions in connection with
any assignment, upon the effectiveness of such assignment the assignee shall be
deemed a "Lender" for all purposes of this Agreement and the other Loan
Documents with respect to the rights and obligations assigned to it, and the
other Loan Documents with respect to the rights and obligations assigned to it,
and the assigning Lender shall, to the extent that rights and obligations
hereunder and under the other Loan Documents have been assigned by it pursuant
to such Assignment and Acceptance, relinquish its rights and be released from
its obligations under the Loan Documents; PROVIDED, HOWEVER, that the assigning
Lender shall not relinquish its rights under Article VI or under Sections 7.03
and 13.04 to the extent such rights relate to the time prior to the effective
date of the Assignment and Acceptance.
86.
(iii) In connection with any partial assignment, upon the
request of the assigning Lender or the assignee, (A) the Borrower shall execute
and deliver substitute Notes to the assigning Lender or the assignee, dated the
effective date of such assignment, setting forth the respective Revolving
Commitments of such assigning Lender and assignee as the maximum principal
amount thereof (in the case of substitute Revolving Notes), or the principal
amount of the Term Loans held by such assigning Lender and assignee (in the case
of substitute Term Notes), and containing other appropriate insertions, and the
assigning Lender (and assignee, if applicable) shall thereupon return the Notes
previously held by it; and (B) Schedules 1 and 2 shall be deemed amended to
reflect the adjustment of the Commitments and Pro Rata Shares of the Lenders
resulting therefrom and the Lending Office, if any, and address for notices of
the assignee.
(iv) In the event of any grant of a participation, the
granting Lender shall remain a "Lender" for purposes of this Agreement, the
Borrower, the Guarantors, the other Lenders, the Issuing Lender and the Agent
shall continue to deal solely and directly with such Lender in connection with
this Agreement and the other Loan Documents, and no Lender shall transfer or
grant any participating interest under which the participant shall have rights
to approve any amendment to, or any consent or waiver with respect to, this
Agreement or any other Loan Document, except to the extent such amendment,
consent or waiver would require unanimous consent of all the Lenders as
described in Section 13.01. In the case of any such participation, the
participant shall not have any of the rights of a Lender under this Agreement or
the other Loan Documents, except that the participant shall (A) be deemed to
have a right of setoff under Section 13.05 in respect of its participation to
the same extent as if it were a "Lender" hereunder, PROVIDED that such
participant shall also be considered a "Lender" for purposes of such Section
13.05 and Section 7.05; and (B) such participant shall also be entitled to the
benefits of Sections 6.02, 6.03, 7.03 and 13.04 , PROVIDED that any amounts
payable under Sections 6.03 or 7.03 to any participant shall not exceed the
amounts which would have been payable by the Borrower thereunder to the Lender
granting such participation.
(v) The Borrower agrees that in connection with any such
grant or assignment, such Lender may deliver to the prospective participant or
assignee financial statements and other relevant information relating to the
Borrower and its Subsidiaries.
(vi) Each Lender shall obtain from any such prospective
participant or assignee a confidentiality agreement in which such participant or
assignee agrees to an obligation of confidentiality substantially similar to the
terms of Section 13.14.
SECTION 13.10 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
SECTION 13.11 SUBMISSION TO JURISDICTION. The Borrower hereby
(i) submits to the non-exclusive jurisdiction of the courts of the State of New
York and the Federal courts of the United States sitting in the State of New
York for the purpose of any action or proceeding arising out of or relating to
the Loan Documents, (ii) agrees that all claims in respect of any such action or
proceeding may be heard and determined in such courts, (iii) irrevocably waives
(to the extent permitted by applicable law) any objection which it now or
87.
hereafter may have to the laying of venue of any such action or proceeding
brought in any of the foregoing courts, and any objection on the ground that any
such action or proceeding in any such court has been brought in an inconvenient
forum and (iv) agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner permitted by law.
(a) NO LIMITATION. Nothing in this Section 13.11 shall limit
the right of the Agent, the Lenders or the Collateral Agent to bring any action
or proceeding against the Borrower or its property in the courts of other
jurisdictions.
SECTION 13.12 WAIVER OF JURY TRIAL. THE BORROWER, THE LENDERS
AND THE AGENT HEREBY AGREE TO WAIVE THEIR RESPECTIVE RIGHTS TO A TRIAL BY JURY
OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS
AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE TRANSACTIONS CONTEMPLATED HEREBY OR
THEREBY IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY
OF THE PARTIES AGAINST ANY OTHER PARTY OR PARTIES, WHETHER WITH RESPECT TO
CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE BORROWER, THE LENDERS AND THE
AGENT HEREBY AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT IN ANY WAY LIMITING THE FOREGOING, THE
PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM, OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF.
THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR
MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS. A COPY OF THIS
SECTION 13.12 MAY BE FILED WITH ANY COURT AS WRITTEN EVIDENCE OF THE WAIVER OF
THE RIGHT TO TRIAL BY JURY AND CONSENT TO TRIAL BY COURT. THIS SECTION 13.12 MAY
NOT BE AMENDED, MODIFIED, TERMINATED OR WAIVED EXCEPT BY A WRITING WHICH MAKES
SPECIFIC REFERENCE TO THIS SECTION 13.12.
SECTION 13.13 LIMITATION ON LIABILITY. No claim shall be made
by the Borrower or its Affiliates against any Agent/IB Related Person, or the
Lenders or any of their respective Related Persons, for any special, indirect,
exemplary, consequential or punitive damages in respect of any breach or
wrongful conduct (whether or not the claim therefor is based on contract, tort
or duty imposed by law), in connection with, arising out of or in any way
related to the transactions contemplated by the Loan Documents or any act or
omission or event occurring in connection therewith; and the Borrower hereby
waives, releases and agrees not to sue upon any such claim for any such damages,
whether or not accrued and whether or not known or suspected to exist in its
favor.
SECTION 13.14 CONFIDENTIALITY. Each Lender, the Issuing Lender
and the Agent shall hold all non-public information relating to the Borrower and
its Subsidiaries
88.
obtained by it under this Agreement in accordance with its customary procedures
for handling confidential information of this nature, which in no event shall be
less protective than the procedures such Lender, Issuing Lender or Agent employs
with respect to its own confidential information of a like kind and no less
protective than is required by applicable laws, including U.S. federal
securities laws and regulations governing the disclosure and use of material
non-public information, except for: (i) disclosure to its Affiliates or to its
counsel or to any agent or advisor acting on its behalf in connection with the
negotiation, execution or performance of the Loan Documents; (ii) disclosure as
reasonably required in connection with a transfer to a prospective assignee or
participant of all or part of its Loans or any participation therein, as
provided in Section 13.09(b); (iii) disclosure as may be required or requested
by any Governmental Authority or representative thereof or pursuant to legal
process; (iv) disclosure to any Person and in any proceeding necessary in such
Lender's, the Issuing Lender's or the Agent's judgment to protect its interests
in connection with any claim or dispute involving such Lender, the Issuing
Lender or the Agent; (v) disclosure to any direct or indirect contractual
counterparty or prospective counterparty (or such contractual counterparty's or
prospective counterparty's professional advisor) to any credit derivative
transaction relating to any Obligations; (vi) disclosure to the National
Association of Insurance Commissioners or any other similar organization or any
nationally recognized rating agency that requires access to information about a
Lender's or its Affiliates' investment portfolio in connection with ratings
issued with respect to such Lender or its Affiliates; and (vii) any other
disclosure with the prior written consent of the Borrower. In addition, the
Agent and the Lenders may disclose the existence of this Agreement and
information about this Agreement to market data collectors, similar service
providers to the lending industry, and service providers to the Agent and the
Lenders in connection with the administration and management of this Agreement
and the other Loan Documents. Prior to any disclosure by any Lender, the Issuing
Lender or the Agent of such non-public information permitted under clause (iii)
(other than in connection with an examination of the financial condition of such
Lender, the Agent or any of their Affiliates by any Governmental Authority), it
shall, if permitted by applicable laws or judicial order, notify the Borrower of
such pending disclosure. In no event shall any Lender, the Issuing Lender or the
Agent be obligated or required to return any materials furnished by the Borrower
or its Subsidiaries. Notwithstanding the foregoing, such obligation of
confidentiality shall not apply if the information or substantially similar
information (A) is rightfully received by any Lender, the Issuing Lender or the
Agent from a Person other than the Borrower or any of its Affiliates without
such Lender, the Issuing Lender or the Agent being under an obligation to such
Person not to disclose such information, or (B) is or becomes part of the public
domain.
SECTION 13.15 ENTIRE AGREEMENT. The Loan Documents reflect the
entire agreement among the Borrower, the Lenders and the Agent with respect to
the matters set forth herein and therein and supersede any prior agreements,
commitments, drafts, communications, discussions and understandings, oral or
written, with respect thereto.
SECTION 13.16 PAYMENTS SET ASIDE. To the extent that any
payment by or on behalf of the Borrower is made to the Agent or any Lender, or
the Agent or any Lender exercises its right of set-off, and such payment or the
proceeds of such set-off or any part thereof is subsequently invalidated,
declared to be fraudulent or preferential, set aside or required (including
pursuant to any settlement entered into by the Agent or such Lender in its
discretion) to be repaid to a trustee, receiver or any other party, in
connection with any proceeding under the
89.
Bankruptcy Code or other U.S. Federal, state or foreign liquidation,
conservatorship, bankruptcy, assignment for the benefit of creditors,
moratorium, rearrangement, receivership, insolvency, reorganization, or similar
debtor relief laws, or otherwise, then (a) to the extent of such recovery, the
obligation or part thereof originally intended to be satisfied shall be revived
and continued in full force and effect as if such payment had not been made or
such set-off had not occurred, and (b) each Lender severally agrees to pay to
the Agent upon demand its applicable share of any amount so recovered from or
repaid by the Agent, plus interest thereon from the date of such demand to the
date such payment is made at a rate per annum equal to the Federal Funds Rate
from time to time in effect.
SECTION 13.17 SEVERABILITY. Whenever possible, each provision
of the Loan Documents shall be interpreted in such manner as to be effective and
valid under all applicable laws and regulations. If, however, any provision of
any of the Loan Documents shall be prohibited by or invalid under any such law
or regulation in any jurisdiction, it shall, as to such jurisdiction, be deemed
modified to conform to the minimum requirements of such law or regulation, or,
if for any reason it is not deemed so modified, it shall be ineffective and
invalid only to the extent of such prohibition or invalidity without affecting
the remaining provisions of such Loan Document, or the validity or effectiveness
of such provision in any other jurisdiction.
SECTION 13.18 COUNTERPARTS. This Agreement may be executed in
any number of counterparts and by different parties hereto in separate
counterparts, each of which when so executed shall be deemed to be an original
and all of which taken together shall constitute but one and the same agreement.
[SIGNATURE PAGES FOLLOW.]
90.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
THE BORROWER
THE CHALONE WINE GROUP, LTD
By:____________________________________
Name:__________________________________
Title:_________________________________
THE AGENT
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
INTERNATIONAL", NEW YORK BRANCH, as
Agent
By:____________________________________
Name:__________________________________
Title:_________________________________
By:____________________________________
Name:__________________________________
Title:_________________________________
91.
THE LENDERS
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEENBANK B.A., "RABOBANK
INTERNATIONAL", NEW YORK BRANCH, as
Issuing Lender, as Swingline Lender and
as a Lender
By:____________________________________
Name:__________________________________
Title:_________________________________
By:____________________________________
Name:__________________________________
Title:_________________________________
92.
FARM CREDIT WEST FLCA
By:____________________________________
Name:__________________________________
Title:_________________________________
93.
U.S. BANK NATIONAL ASSOCIATION
By:____________________________________
Name:__________________________________
Title:_________________________________
94.
COMERICA BANK-CALIFORNIA
By:____________________________________
Name:__________________________________
Title:_________________________________
95.
ANNEX I
PRICING GRID
From the Closing Date until the date on which the Borrower
delivers a Compliance Certificate pursuant to Section 10.01(a)(iii) of the
Credit Agreement for the fiscal quarter ending March 31, 2002 (the "INITIAL
PERIOD"), the Applicable Margin and the Applicable Fee Amount shall be fixed at
Level 2. From and after the last day of the Initial Period, the Applicable
Margin and the Applicable Fee Amount for any day shall be the amount per annum
set forth below based on the Leverage Ratio set forth in the most recently
delivered Compliance Certificate delivered by the Borrower pursuant to Section
10.01(a)(iii) of the Credit Agreement. Changes in the Applicable Margin and the
Applicable Fee Amount resulting from a change in the Leverage Ratio shall become
effective on the date of delivery by the Borrower to the Agent of a new
Compliance Certificate pursuant to Section 10.01(a)(iii), except that no such
change shall take effect until the end of the Initial Period. If the Borrower
shall fail to deliver a Compliance Certificate and accompanying financial
statements within the number of days after the end of any fiscal quarter or
fiscal year as required pursuant to Section 10.01(a), the parties agree that the
Applicable Margin and the Applicable Fee Amount shall be fixed at Level 1 until
such time as the Borrower delivers such new Compliance Certificate and
accompanying financial statements pursuant to Section 10.01(a).
===============================================================================================================================
REVOLVING TERM TERM
LOAN REVOLVING LOAN LOAN LOAN
EURODOLLAR BASE RATE COMMITMENT EURODOLLAR BASE RATE LETTER OF
LEVEL LEVERAGE RATIO RATE SPREAD SPREAD FEE RATE SPREAD SPREAD CREDIT FEE
===============================================================================================================================
Level 1 greater than or 2.25% 1.00% 0.45% 2.75% 1.50% 2.25%
equal to 5.50 to 1.00
_______________________________________________________________________________________________________________________________
Level 2 greater than or 2.00% 0.75% 0.375% 2.50% 1.25% 2.00%
equal to 4.50 to
1.00 and less than
5.50 to 1.00
_______________________________________________________________________________________________________________________________
Level 3 greater than or 1.75% 0.50% 0.375% 2.25% 1.00% 1.75%
equal to 3.50 to
1.00 and less than
4.50 to 1.00
_______________________________________________________________________________________________________________________________
Level 4 less than 3.50 to 1.25% 0.00% 0.25% 1.75% 0.50% 1.25%
1.00
_______________________________________________________________________________________________________________________________
96.
SCHEDULE 1
to the Credit Agreement
COMMITMENTS AND PRO RATA SHARES
1. REVOLVING LOANS
____________________________________________________________________________________________________________
BANK REVOLVING COMMITMENT PRO RATA SHARE
____________________________________________________________________________________________________________
Cooperatieve Centrale $25,000,000.00 45.454545454%
Raiffeisen-Boerenleenbank B.A.
____________________________________________________________________________________________________________
U.S. Bank National Association $15,000,000.00 27.272727273%
____________________________________________________________________________________________________________
Comerica Bank $15,000,000.00 27.272727273%
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
TOTAL $55,000,000.00 100%
____________________________________________________________________________________________________________
2. TERM LOANS
____________________________________________________________________________________________________________
BANK TERM COMMITMENT PRO RATA SHARE
____________________________________________________________________________________________________________
Farm Credit West, FLCA $17,500,000.00 100%
____________________________________________________________________________________________________________
____________________________________________________________________________________________________________
TOTAL $17,500,000.00 100%
____________________________________________________________________________________________________________
S-1.
EX-10.55
5
ex10-55.txt
NOTE AGREEMENT
EXECUTION COPY
________________________________________________________________________________
THE CHALONE WINE GROUP, LTD.
$5,000,000 Adjustable Rate Senior Secured Notes, Series A,
Due September 15, 2010
$10,000,000 Adjustable Rate Senior Secured Notes, Series B,
Due September 15, 2010
$15,000,000 Adjustable Rate Senior Secured Notes, Series C,
Due September 15, 2010
_______________________
AMENDED AND RESTATED
NOTE PURCHASE AGREEMENT
_______________________
Dated as of April 19, 2002
________________________________________________________________________________
TABLE OF CONTENTS
PAGE
1. Amendment and Restatement; Guaranties; Security...........................1
1.1 Amendment and Restated Note Purchase Agreement and Notes..........1
1.2 Guarantee ........................................................2
1.3 Security for the Notes and Subsidiary Guarantee Agreements .......2
1.4 Intercreditor Agreement ..........................................2
2. Issuance and Exchange Of Notes ...........................................3
3. Closing...................................................................3
4. Conditions To Closing ....................................................3
4.1 Representations and Warranties ...................................3
4.2 Performance; No Default...........................................3
4.3 Compliance Certificates ..........................................3
4.4 Opinions of Counsel...............................................4
4.5 Original Subsidiary Guarantee Agreement...........................4
4.6 Purchase Permitted By Applicable Law, etc ........................4
4.7 Exchange of Other Notes ..........................................5
4.8 Payment of Special Counsel Fees ..................................5
4.9 Private Placement Number..........................................5
4.10 Changes in Corporate Structure ..................................5
4.11 Collateral Documents; Related Transactions; Collateral Due
Diligence .....................................................5
4.12 Consent of Other Holders.........................................6
4.13 Pro-Forma Debt to EBITDA Ratio ..................................6
4.14 Proceedings and Documents .......................................7
5. Representations And Warranties Of The Company.............................7
5.1 Organization; Power and Authority.........................................7
5.2 Authorization, etc........................................................7
5.3 Disclosure................................................................8
5.4 Organization and Ownership of Shares of Subsidiaries; Affiliates..........8
-i-
TABLE OF CONTENTS
(CONTINUED)
PAGE
5.5 Financial Statements .............................................9
5.6 Compliance with Laws and Instruments .............................9
5.7 Governmental Authorizations, etc..................................9
5.8 Litigation; Observance of Agreements, Statutes and Orders ........9
5.9 Taxes ...........................................................10
5.10 Title to Property; Leases.......................................10
5.11 Licenses, Permits, etc. ........................................10
5.12 Compliance with ERISA...........................................11
5.13 Intentionally Omitted ..........................................12
5.14 Use of Proceeds; Margin Regulations ............................12
5.15 Existing Debt; Future Liens ....................................12
5.16 Intentionally Omitted ..........................................12
5.17 Status under Certain Statutes...................................12
5.18 Environmental Matters...........................................12
5.19 [Intentionally Omitted].........................................13
5.20 Solvency........................................................13
5.21 Consolidated and Integrated Business of the Company and
its Restricted Subsidiaries...................................14
5.22 No Burdensome Restrictions......................................14
5.23 Matters Relating to the Collateral .............................14
5.24 Credit Agreement Representations................................15
6. Representations Of The Purchasers........................................15
6.1 Purchase for Investment .........................................15
6.2 Source of Funds..................................................15
7. Information As To Company................................................16
7.1 Financial and Business Information ..............................16
7.2 Additional Information...........................................18
-ii-
TABLE OF CONTENTS
(CONTINUED)
PAGE
7.3 Inspection ......................................................20
8. Prepayment Of The Notes .................................................20
8.1 Required Prepayments.............................................20
8.2 Optional Prepayments with Make-Whole Amount .....................21
8.3 Allocation of Partial Prepayments................................22
8.4 Maturity; Surrender, etc. .......................................22
8.5 Purchase of Notes................................................22
8.6 Make-Whole Amount................................................22
9. Affirmative Covenants ...................................................24
9.1 Compliance with Law .............................................24
9.2 Insurance .......................................................24
9.3 Maintenance of Properties; Action under Environmental Laws ......25
9.4 Payment of Taxes and Claims .....................................25
9.5 Corporate Existence, etc.........................................26
9.6 [Intentionally Omitted.].........................................26
9.7 Further Assurances and Additional Acts...........................26
9.8 Proceeds of Events of Loss ......................................27
9.9 Post-Closing Matters ............................................27
10. Negative Covenants.......................................................27
10.1 Transactions with Affiliates ...................................27
10.2 Restrictions on Fundamental Changes ............................27
10.3 Liens; Negative Pledges ........................................28
10.4 Financial Covenants ............................................28
10.5 Indebtedness ...................................................30
10.6 Intentionally Omitted ..........................................32
10.7 Distributions...................................................32
10.8 Loans and Investments ..........................................33
-iii-
TABLE OF CONTENTS
(CONTINUED)
PAGE
10.9 Sale of Assets .................................................34
10.10 Limitations on Sale-and-Leaseback Transactions ................34
10.11 Subsidiary Guarantors .........................................35
10.12 Line of Business ..............................................36
10.13 Change of Control .............................................36
10.14 Amendments of Certain Documents ...............................36
10.15 Redemption of Subordinated Debt................................37
10.16 Hazardous Substances ..........................................37
10.17 Accounting Changes.............................................37
10.18 Foreign Subsidiaries...........................................37
11. Events Of Default........................................................37
12. Remedies On Default, Etc.................................................40
12.1 Acceleration ...................................................40
12.2 Other Remedies .................................................41
12.3 Rescission......................................................41
12.4 No Waivers or Election of Remedies, Expenses, etc. .............42
13. Registration; Exchange; Substitution Of Notes ...........................42
13.1 Registration of Notes...........................................42
13.2 Transfer and Exchange of Notes .................................42
13.3 Replacement of Notes ...........................................43
14. Payment Of Notes ........................................................43
14.1 Place of Payment ...............................................43
14.2 Home Office Payment ............................................43
15. Expenses, Etc. ..........................................................44
15.1 Transaction Expenses............................................44
15.2 Survival .......................................................44
16. Survival Of Representations And Warranties; Entire Agreement.............44
-iv-
TABLE OF CONTENTS
(CONTINUED)
PAGE
17. Amendment And Waiver ....................................................45
17.1 Requirements....................................................45
17.2 Solicitation of Holders of Notes................................45
17.3 Binding Effect, etc.............................................45
17.4 Notes Held by Company, etc......................................46
18. Notices..................................................................46
19. Reproduction Of Documents................................................46
20. Confidential Information.................................................47
21. Substitution Of Purchaser; Participation ................................48
22. Miscellaneous............................................................48
22.1 Successors and Assigns..........................................48
22.2 Payments Due on Non-Business Days ..............................48
22.3 Severability....................................................49
22.4 Construction ...................................................49
22.5 Counterparts ...................................................49
22.6 Governing Law; Jurisdiction and Service of Process..............49
22.7 Agents for Service of Process ..................................50
22.8 Waiver of Jury Trial ...........................................50
-v-
TABLE OF CONTENTS
(CONTINUED)
SCHEDULES
Schedule A Information Relating to Purchasers
Schedule B Defined Terms
Schedule 4.10 Corporate Changes
Schedule 5.4 Subsidiaries
Schedule 5.5 Financial Statements
Schedule 5.8 Litigation
Schedule 5.11 Licenses
Schedule 5.15 Existing Debt; Existing Liens
Schedule 10.9 Specified Assets
EXHIBITS
Exhibit 1-A Form of Series A Note
Exhibit 1-B Form of Series B Note
Exhibit 1-C Form of Series C Note
Exhibit 4.4(a) Form of Opinion of Counsel for the Company
Exhibit 4.4(b) Form of Opinion of Special Washington Counsel for the
Purchasers
Exhibit 4.5 Form of Subsidiary Guarantee Agreement
Exhibit 10.11(a) Representations and Warranties of Original Subsidiary
Guarantors
Exhibit A Form of Deed of Trust
Exhibit B Form of Environmental Indemnity
Exhibit C Form of Patent and Trademark Security Agreement
Exhibit D Form of Security Agreement
Exhibit E Form of Intercreditor Agreement
Exhibit F Form of Compliance Certificate
Exhibit G Form of Update Certificate
-vi-
THE CHALONE WINE GROUP, LTD.
621 Airpark Road
Napa, California 94558
$ 5,000,000 Adjustable Rate Senior Secured Notes, Series A,
Due September 15, 2010
$ 10,000,000 Adjustable Rate Senior Secured Notes, Series B,
Due September 15, 2010
$ 15,000,000 Adjustable Rate Senior Secured Notes, Series C,
Due September 15, 2010
April 19, 2002
TO EACH OF THE PURCHASERS LISTED IN
THE ATTACHED SCHEDULE A:
Ladies and Gentlemen:
THE CHALONE WINE GROUP, LTD., a California corporation (the "Company"),
in consideration of the mutual promises herein contained and for other good and
valuable consideration agrees with each of the purchasers named in Schedule A to
this Agreement (the "Purchasers") as follows:
1. AMENDMENT AND RESTATEMENT; GUARANTIES; SECURITY
1.1 Amendment and Restated Note Purchase Agreement and Notes.
The Purchasers and the Company are parties to that certain Note
Purchase Agreement dated as of September 15, 2000 as amended by the First
Amendment, Consent and Waiver dated as of February 9, 2001 (as so amended, the
"Original Note Purchase Agreement"), pursuant to which the Company authorized
the issue and sale of, and the Purchasers purchased, the (i) $5,000,000 8.90%
Senior Guaranteed Notes, Series A, Due September 15, 2010 (the "Original Series
A Notes"); (ii) $10,000,000 8.93% Senior Guaranteed Notes, Series B, Due
September 15, 2010 (the "Original Series B Notes"); and (iii) $15,000,000 9.05%
Senior Guaranteed Notes, Series C, Due September 15, 2010 (the "Original Series
C Notes", and together with the Original Series A Notes and the Original Series
B Notes, the "Original Notes").
On the Closing (as defined below) the company will amend and restate
the Original Notes in the form of Exhibit 1. Reference in this Agreement to the
"Series A Notes" shall be a reference to the Original Series A Notes as amended
and restated in the form of Exhibit 1-A. Reference in this Agreement to the
"Series B Notes" shall be a reference to the Original Series B Notes as amended
and restated in the form of Exhibit 1-B. Reference in this Agreement to the
"Series C Notes" shall be a reference to the Original Series C Notes as amended
and restated in the form of Exhibit 1-C. Reference in this Agreement to the
"Notes" shall be a reference to the Original Notes as so amended and restated in
said Exhibit 1 with such changes therefrom, if any, as may be approved by you
and the Company.
Each of the Notes shall bear interest from the date thereof until such
Note shall become due and payable in accordance with the terms thereof and
hereof (whether at maturity, by
acceleration or otherwise) at the applicable Adjustable Rate. Interest on each
Note shall be computed on the basis of a 360 day year of twelve 30 day months.
Notwithstanding the foregoing, the Company shall pay interest on any overdue
payment (including any overdue prepayment) of principal, any overdue payment of
interest and any overdue payment of any Make-Whole Amount at the applicable
Default Rate in accordance with the Notes. Certain capitalized terms used in
this Agreement are defined in Schedule B; references to a "Schedule" or an
"Exhibit" are, unless otherwise specified, to a Schedule or an Exhibit attached
to this Agreement.
The Company and the Purchasers now desire to amend and restate the
Original Note Purchase Agreement and the Original Notes to, among other things,
(a) amend certain covenants and related definitions, (b) provide for additional
collateral to secure the obligations represented by the Notes and the Guarantee,
(c) waive certain Defaults and Events of Default existing under the Original
Note Purchase Agreement and (d) make certain other changes to the Original Note
Purchase Agreement.
1.2 Guarantee.
The payment and performance obligations of the Company under and
pursuant to this Agreement and the Notes are to be fully and unconditionally
guaranteed by each of the Subsidiary Guarantors pursuant to the Subsidiary
Guarantee Agreements.
1.3 Security for the Notes and Subsidiary Guarantee Agreements.
The Notes and the obligations of the Subsidiary Guarantors under the
Subsidiary Guarantee Agreements shall be secured, equally and ratably, by the
Collateral Documents.
1.4 Intercreditor Agreement.
The collateral described in the Collateral Documents shall be held by
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank International",
New York Branch, as Collateral Agent for the benefit of the Purchasers and the
Bank Lenders (the "Collateral Agent") pursuant to the Intercreditor and
Collateral Agency Agreement dated as of the date hereof and in substantially the
form attached hereto as Exhibit E (the "Intercreditor Agreement") among the
Purchasers, the Collateral Agent and the banks which are parties to the Credit
Agreement (the "Bank Lenders"). The Intercreditor Agreement shall recognize (a)
the first perfected interest and rights of the Purchasers and the Bank Term
Lenders in the Real Estate Collateral, (b) the second perfected interest and
rights of the Bank Revolver Lenders in the Real Estate Collateral, (c) the first
perfected interest and rights of the Bank Revolver Lenders in the Accounts and
Inventory Collateral, (d) the second perfected interest and rights of the
Purchasers and the Bank Term Lenders in the Accounts and Inventory Collateral,
and (e) the pari passu perfected interest and rights of the Purchasers and the
Bank Lenders in the Intellectual Property Collateral.
-2-
2. ISSUANCE AND EXCHANGE OF NOTES.
Subject to the terms and conditions of this Agreement, the Company will
issue the amended and restated Notes to each Purchaser upon surrender by them of
the Original Notes for cancellation by the Company. The obligation of each
Purchaser shall be several and not joint and no Purchaser shall have any
obligation or any liability to any Person for the performance or nonperformance
by any other Purchaser hereunder.
3. CLOSING.
The issue and exchange of the Notes shall occur at the offices of
Farella Braun & Martel LLP, at 10:00 a.m., Central time, at a closing (the
"CLOSING") on April 19, 2002 or on such other Business Day thereafter on or
prior to April 30, 2002 as may be agreed upon by the Company and the Purchasers
(the "CLOSING DATE"). If at the Closing the Company shall fail to tender such
Notes to be purchased by any Purchaser as provided above in this Section 3, or
any of the conditions specified in Section 4 shall not have been fulfilled to
such Purchaser's satisfaction, such Purchaser shall, at its election, be
relieved of all further obligations under this Agreement, without thereby
waiving any rights such Purchaser may have by reason of such failure or such
non-fulfillment.
4. CONDITIONS TO CLOSING.
Each Purchaser's obligation to exchange the Original Notes for the
Notes to be issued to such Purchaser at the Closing is subject to the
fulfillment to such Purchaser's satisfaction, prior to or at the Closing, of the
following conditions:
4.1 Representations and Warranties.
The representations and warranties of the Company in this Agreement,
and the representations and warranties of the Original Subsidiary Guarantors
contained in Exhibit 10.11(a) to this Agreement, shall be correct when made and
at the time of the Closing.
4.2 Performance; No Default.
The Company and each of the Original Subsidiary Guarantors shall have
performed and complied with all agreements and conditions contained in this
Agreement, the Collateral Documents and the Subsidiary Guarantee Agreements
required to be performed or complied with by it prior to or at the Closing and
after giving effect to the issue and exchange of the Notes and no Default or
Event of Default shall have occurred and be continuing.
4.3 Compliance Certificates.
(a) Officer's Certificate of the Company. The Company shall
have delivered to you an Officer's Certificate, dated the date of the Closing,
certifying that the conditions specified in Sections 4.1, 4.2 and 4.10 have been
fulfilled.
-3-
(b) Secretary's Certificate of the Company.The Company shall
have delivered to you a certificate certifying as to the resolutions attached
thereto and other corporate proceedings relating to the authorization, execution
and delivery of the Notes, this Agreement and the Collateral Documents.
(c) Officer's Certificate of the Guarantors. Each Original
Subsidiary Guarantor shall have delivered to you an Officer's Certificate, dated
the date of the Closing, certifying that the conditions specified in Sections
4.1, 4.2 and 4.10 have been fulfilled in respect of such Original Subsidiary
Guarantor.
(d) Secretary's Certificate of the Guarantors. Each Original
Subsidiary Guarantor shall have delivered to you a certificate certifying as to
the resolutions attached thereto and other corporate proceedings relating to the
authorization, execution and delivery of the subject Original Subsidiary
Guarantee Agreement and the subject Collateral Documents.
4.4 Opinions of Counsel.
You shall have received opinions in form and substance satisfactory to
you, dated the date of the Closing (a) from Farella Braun & Martel LLP, counsel
for the Company and the Original Subsidiary Guarantors, covering the matters set
forth in Exhibit 4.4(a) and covering such other matters incident to the
transactions contemplated hereby as you or your counsel may reasonably request
(and the Company hereby instructs its counsel to deliver such opinion to you)
and (b) from Davis Wright Termaine LLP, your special Washington local real
estate counsel in connection with such transactions, substantially in the form
set forth in Exhibit 4.4(b) and covering such other matters incident to such
transactions as each Purchaser may reasonably request.
4.5 Original Subsidiary Guarantee Agreement.
You shall have received a counterpart original of a Subsidiary
Guarantee Agreement, duly executed and delivered by each of the Original
Subsidiary Guarantors, in substantially the form set forth in Exhibit 4.5
(collectively, the "Subsidiary Guarantee Agreements"), together with such other
documents as to each Original Subsidiary Guarantor as are sufficient to comply
with Section 10.11, and each Subsidiary Guarantee Agreement shall be in full
force and effect.
4.6 Purchase Permitted By Applicable Law, etc.
On the Closing Date each Purchaser's exchange of Notes shall (i) be
permitted by the laws and regulations of each jurisdiction to which it is
subject, without recourse to provisions (such as Section 1405(a)(8) of the New
York Insurance Law) permitting limited investments by insurance companies
without restriction as to the character of the particular investment, (ii) not
violate any applicable law or regulation (including, without limitation,
Regulation U, T or X of the Board of Governors of the Federal Reserve System)
and (iii) not subject any Purchaser to any tax, penalty or liability under or
pursuant to any applicable law or regulation, which law or regulation was not in
effect on the date hereof. If requested by any Purchaser, such Purchaser shall
have received an Officer's Certificate certifying as to such matters of fact as
such Purchaser
-4-
may reasonably specify to enable such Purchaser to determine whether such
exchange is so permitted.
4.7 Exchange of Other Notes.
Contemporaneously with the Closing the Company shall issue the Notes to
the Purchasers and the Purchasers shall exchange the Original Notes to be
exchanged by them at the Closing as specified in Schedule A.
4.8 Payment of Special Counsel Fees.
Without limiting the provisions of Section 15.1, the Company shall have
paid on or before the Closing the reasonable fees, charges and disbursements of
McDermott, Will & Emery, the Purchasers' special counsel and the Purchasers'
special Washington local real estate counsel referred to in Section 4.4 to the
extent reflected in a statement of each such counsel rendered to the Company at
least one Business Day prior to the Closing.
4.9 Private Placement Number.
A Private Placement number issued by Standard & Poor's CUSIP Service
Bureau (in cooperation with the Securities Valuation Office of the National
Association of Insurance Commissioners) shall have been obtained for each series
of the Notes, if necessary. 4.10 Changes in Corporate Structure. Except as
specified in Schedule 4.10, neither the Company nor any Original Subsidiary
Guarantor shall have changed its jurisdiction of incorporation or been a party
to any merger or consolidation nor shall it have succeeded to all or any
substantial part of the liabilities of any other entity, at any time following
the date of the most recent financial statements referred to in Schedule 5.5.
4.11 Collateral Documents; Related Transactions; Collateral Due
Diligence.
(a) Each of the Collateral Documents shall have been duly
executed and delivered in the respective forms thereof and shall be in full
force and effect and all of the security interests granted thereunder shall be
duly perfected to the satisfaction of the Purchasers.
(b) The Credit Agreement and the Intercreditor Agreement
shall have been duly executed and delivered by the parties thereto and all of
the transactions contemplated thereby shall have been consummated to the
satisfaction of the Purchasers.
(c) The Purchasers shall have received the following, in
form and substance satisfactory to the Purchasers:
(i) evidence that all filings, registrations and
recordings have been made in the appropriate governmental offices, and all other
action has been taken, which shall be necessary to create, in favor of the
Collateral Agent on behalf of the Purchasers, a
-5-
perfected first or second, as the case may be, priority Lien on the Collateral,
including evidence of recordation of the Deeds of Trust (which may consist of a
written or telephonic confirmation from the title insurance company), and filing
of completed UCC-1 financing statements, in each case in the appropriate
governmental offices;
(ii) the results, dated as of a recent date prior
to the Closing Date, of searches conducted (A) in the UCC filing records in each
of the governmental offices in each jurisdiction in which personal property and
fixture Collateral is located, and (B) of the records maintained by the U.S.
Patent and Trademark Office and Copyright Office with respect to all United
States patents and patent applications and all United States registered
trademarks and United States registered copyrights constituting Collateral,
which shall have revealed no Liens with respect to any of the Collateral except
Permitted Liens;
(iii) a title insurance policy ( or a binding
commitment therefor) for the Deeds of Trust (A) issued by a title insurance
company of recognized standing satisfactory to the Purchasers, (B) on an ALTA
lender's extended coverage policy, in an amount and form satisfactory to the
Purchasers, (C) naming the Collateral Agent, for the ratable benefit of the
Secured Parties, as the insured thereunder, (D) insuring that the Deeds of Trust
insured thereby create a valid first priority Lien on the property covered by
each such Deed of Trust, subject to no other Liens, other than Permitted Liens,
and to no other exceptions, other than those satisfactory to the Purchasers, and
(E) containing such endorsements and affirmative coverage as the Purchasers or
any Lender (through the Purchasers)
may reasonably request; and
(iv) such surveys, appraisals, collateral audits,
consents of landlords, estoppels from landlords, tenant subordination agreements
and other documents and instruments in connection with the Deeds of Trust as
shall reasonably be deemed necessary by the Purchasers.
4.12 Consent of Other Holders.
Any consents or approvals required to be obtained from any Holder or
holder of any outstanding debt of the Company or any Original Subsidiary
Guarantor and any amendments of agreements pursuant to which any debt may have
been incurred by the Company or any Original Subsidiary Guarantor, which shall
be necessary to permit the consummation of the transactions contemplated hereby
shall have been obtained and all such consents, approvals or amendments shall be
satisfactory in form and substance to each Purchaser and special counsel to the
Purchasers.
4.13 Pro-Forma Debt to EBITDA Ratio.
The ratio of (a) Consolidated Indebtedness PLUS six times Consolidated
Rent Expense to (b) Consolidated EBITDA (measured on a trailing 12-month basis)
plus one times Consolidated Rent Expense, in each case, measured on a trailing
12-month basis, shall not be greater than 5.75 to 1.00, measured on a pro forma
basis (after giving effect to the transactions and borrowings
-6-
contemplated hereunder and under the Credit Agreement) as of the last day of the
immediately preceding fiscal month.
4.14 Proceedings and Documents.
All corporate and other proceedings in connection with the transactions
contemplated by this Agreement and all documents and instruments incident to
such transactions shall be satisfactory to each Purchaser and the Purchasers'
special counsel, and each Purchaser and the Purchasers' special counsel shall
have received all such counterpart originals or certified or other copies of
such documents as each Purchaser or special counsel to the Purchasers' may
reasonably request.
5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to the Purchasers that:
5.1 Organization; Power and Authority.
The Company is a corporation duly organized, validly existing and in
good standing under the laws of its jurisdiction of organization, and is duly
qualified as a foreign corporation or other legal entity and is in good standing
in each jurisdiction in which such qualification is required by law, other than
those jurisdictions as to which the failure to be so qualified or in good
standing would not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. The Company has the corporate or other legal
entity power and authority to own or hold under lease the properties it purports
to own or hold under lease, to transact the business it transacts and proposes
to transact, to execute and deliver this Agreement, the Collateral Documents and
the Notes and to perform the provisions hereof and thereof.
5.2 Authorization, etc.
This Agreement, the Collateral Documents and the Notes have been duly
authorized by all necessary corporate or other legal entity action on the part
of the Company, and this Agreement and the Collateral Documents constitute, the
legal, valid and binding obligations and contracts of the Company enforceable
against the Company in accordance with their respective terms, except as such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and (b) general principles of equity (regardless of
whether such enforceability is considered in a proceeding in equity or at law).
Upon execution and delivery thereof, each Note will constitute a legal, valid
and binding obligation of the Company enforceable against the Company in
accordance with its terms, except as such enforceability may be limited by (a)
applicable bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting the enforcement of creditors' rights generally and (b) general
principles of equity (regardless of whether such enforceability is considered in
a proceeding in equity or in law).
-7-
5.3 Disclosure.
This Agreement, the Collateral Documents, the documents, certificates
or other communications made or delivered to each Purchaser by or on behalf of
the Company and the Original Subsidiary Guarantors in connection with the
transactions contemplated hereby and the financial statements listed in Schedule
5.5, taken as a whole, do not contain any untrue statement of a material fact or
omit to state any material fact necessary to make the statements therein not
misleading in light of the circumstances under which they were made. Since
December 31, 2001, there has been no change in the financial condition,
operations, business or properties of the Company or any Subsidiary except
changes that individually or in the aggregate could not reasonably be expected
to have a Material Adverse Effect. There is no fact known to the Company that
could reasonably be expected to have a Material Adverse Effect that has not been
set forth herein or in the Memorandum or in the other documents, certificates
and other communications made or delivered to you by or on behalf of the Company
or any Original Subsidiary Guarantor specifically for use in connection with the
transactions contemplated hereby.
5.4 Organization and Ownership of Shares of Subsidiaries;Affiliates.
(a) Schedule 5.4 contains (except as noted therein) complete
and correct lists (i) of the Company's Subsidiaries, showing, as to each
Subsidiary, the correct name thereof, the jurisdiction of its organization, and
the percentage of shares of each class of its Capital Stock or similar equity
interests outstanding owned by the Company and each other Subsidiary, (ii) of
the Company's Restricted Subsidiaries, (iii) of the Company's Affiliates, other
than Subsidiaries, and (iv) of the Company's directors and senior officers.
(b) All of the outstanding shares of Capital Stock or
similar equity interests of each Subsidiary shown in Schedule 5.4 as being owned
by the Company and its Subsidiaries have been validly issued, are fully paid and
nonassessable and are owned by the Company or another Subsidiary free and clear
of any Lien (except as otherwise disclosed in Schedule 5.4).
(c) Each Subsidiary identified in Schedule 5.4 is a
corporation or other legal entity duly organized, validly existing and in good
standing under the laws of its jurisdiction of organization, and is duly
qualified as a foreign corporation or other legal entity and is in good standing
in each jurisdiction in which such qualification is required by law, other than
those jurisdictions as to which the failure to be so qualified or in good
standing could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. Each such Subsidiary has the corporate or other
power and authority to own or hold under lease the properties it purports to own
or hold under lease and to transact the business it transacts and proposes to
transact.
(d) No Subsidiary is a party to, or otherwise subject to any
legal restriction or any agreement (other than this Agreement, the agreements
listed on Schedule 5.4 and customary limitations imposed by corporate law
statutes) restricting the ability of such Subsidiary to pay dividends out of
profits or make any other similar distributions of profits to the Company or any
-8-
of its Subsidiaries that owns outstanding shares of Capital Stock or similar
equity interests of such Subsidiary.
5.5 Financial Statements.
The Company has delivered to each Purchaser copies of the financial
statements of the Company and its Subsidiaries listed on Schedule 5.5. All of
said financial statements (including in each case the related schedules and
notes) fairly present in all Material respects the consolidated financial
position of the Company and its Subsidiaries as of the respective dates
specified in such financial statements and the consolidated results of their
operations and cash flows for the respective periods so specified and have been
prepared in accordance with GAAP consistently applied throughout the periods
involved except as set forth in the notes thereto (subject, in the case of any
interim financial statements, to normal year-end adjustments and the absence of
notes).
5.6 Compliance with Laws and Instruments.
The execution, delivery and performance by the Company of this
Agreement, the Collateral Documents and the Notes will not (i) contravene,
result in any breach of, or constitute a default under, or, unless permitted
hereunder, result in the creation of any Lien in respect of any property of the
Company or any Subsidiary under, any indenture, mortgage, deed of trust, loan,
purchase or credit agreement, lease, corporate charter or by-laws, or any other
agreement or instrument to which the Company or any Subsidiary is bound or by
which the Company or any Subsidiary or any of their respective properties may be
bound or affected, (ii) conflict with or result in a breach of any of the terms,
conditions or provisions of any order, judgment, decree, or ruling of any court,
arbitrator or Governmental Authority applicable to the Company or any
Subsidiary, or (iii) violate any provision of any statute or other rule or
regulation of any Governmental Authority applicable to the Company or any
Subsidiary.
5.7 Governmental Authorizations, etc.
No consent, approval or authorization of, or registration, filing or
declaration with, any Governmental Authority is required in connection with the
execution, delivery or performance by the Company of this Agreement, the
Collateral Documents or the Notes. 5.8 Litigation; Observance of Agreements,
Statutes and Orders.
(a) Except as disclosed in Schedule 5.8, there are no
actions, suits or proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company or any Subsidiary or any property of
the Company or any Subsidiary in any court or before any arbitrator of any kind
or before or by any Governmental Authority that, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect.
(b) Neither the Company nor any Subsidiary is in default
under any term of any agreement or instrument to which it is a party or by which
it is bound, or any order, judgment, decree or ruling of any court, arbitrator
or Governmental Authority or is in violation of
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any applicable law, ordinance, rule or regulation (including without limitation
Environmental Laws) of any Governmental Authority, which default or violation,
individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect.
5.9 Taxes.
The Company and its Subsidiaries have filed all tax returns that are
required to have been filed in any jurisdiction, and have paid all taxes shown
to be due and payable on such returns and all other taxes and assessments levied
upon them or their properties, assets, income or franchises, to the extent such
taxes and assessments have become due and payable and before they have become
delinquent, except for any taxes and assessments (i) the amount of which is not
individually or in the aggregate Material, or (ii) the amount, applicability or
validity of which is currently being contested in good faith by appropriate
proceedings and with respect to which the Company or a Subsidiary has
established adequate reserves in accordance with GAAP. The Company knows of no
basis for any other tax or assessment that could reasonably be expected to have
a Material Adverse Effect. The charges, accruals and reserves on the books of
the Company and its Subsidiaries in respect of Federal, state or other taxes for
all fiscal periods are adequate. The Federal income tax liabilities of the
Company and its Subsidiaries have been paid for all fiscal years up to and
including the fiscal year ended March 31, 2000.
5.10 Title to Property; Leases.
The Company and its Subsidiaries have good and sufficient title to
their respective properties that individually or in the aggregate are Material,
including all such properties reflected in the most recent audited balance sheet
referred to in Section 5.5 or purported to have been acquired by the Company or
any Subsidiary after said date (except as sold or otherwise disposed of in the
ordinary course of business), in each case free and clear of Liens prohibited by
this Agreement. All leases that individually or in the aggregate are Material
are valid and subsisting and are in full force and effect in all Material
respects.
5.11 Licenses, Permits, etc.
Except as disclosed in Schedule 5.11,
(a) the Company and its Subsidiaries own, possess or have
the right to use all licenses, permits, franchises, authorizations, patents,
copyrights, service marks, trademarks, technology, know-how, processes and trade
names, or rights thereto (collectively "Intellectual Property"), that
individually or in the aggregate are Material, without known conflict with the
rights of others;
(b) to the best knowledge of the Company, no product of the
Company or any Subsidiary infringes in any Material respect any license, permit,
franchise, authorization, patent, copyright, service mark, trademark, trade name
or other right owned by any other Person;
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(c) to the best knowledge of the Company, there is no
Material violation by any Person of any right of the Company or any of its
Subsidiaries with respect to any Intellectual Property or other right owned or
used by the Company or any of its Subsidiaries; and
(d) the Company and each Subsidiary owns, or has the legal
right to use, (subject to the common law rights of another user) all
Intellectual Property necessary for each of them to conduct its business as
currently conducted except for those which the failure to own or have such legal
right to use could not have a Material Adverse Effect.
5.12 Compliance with ERISA.
(a) The Company and each ERISA Affiliate have operated and
administered each Plan in compliance with all applicable laws except for such
instances of noncompliance as have not resulted in and could not reasonably be
expected to result in a Material Adverse Effect. Neither the Company nor any
ERISA Affiliate has incurred any liability pursuant to Title I or IV of ERISA or
the penalty or excise tax provisions of the Code relating to employee benefit
plans (as defined in Section 3 of ERISA), and no event, transaction or condition
has occurred or exists that could reasonably be expected to result in the
incurrence of any such liability by the Company or any ERISA Affiliate, or in
the imposition of any Lien on any of the rights, properties or assets of the
Company or any ERISA Affiliate, in either case pursuant to Title I or IV of
ERISA or to such penalty or excise tax provisions or to Section 401(a)(29) or
412 of the Code, other than such liabilities or Liens as would not be
individually or in the aggregate Material.
(b) The Company does not maintain any Plan that is a defined
benefit pension plan subject to Title IV of ERISA.
(c) The Company and its ERISA Affiliates have not incurred
withdrawal liabilities (and are not subject to contingent withdrawal
liabilities) under section 4201 or 4204 of ERISA in respect of Multiemployer
Plans that individually or in the aggregate are Material.
(d) The expected postretirement benefit obligation
(determined as of the last day of the Company's most recently ended fiscal year
in accordance with Financial Accounting Standards Board Statement No. 106,
without regard to liabilities attributable to continuation coverage mandated by
section 4980B of the Code) of the Company and its Subsidiaries is not Material.
(e) The execution and delivery of this Agreement, the
Collateral Documents and the issuance and sale of the Notes hereunder will not
involve any transaction that is subject to the prohibitions of section 406 of
ERISA or in connection with which a tax could be imposed pursuant to section
4975(c)(1)(A)-(D) of the Code. The representation by the Company in the first
sentence of this Section 5.12(e) is made in reliance upon and subject to (i) the
accuracy of each Purchaser's representation in Section 6.2 as to the sources of
the funds used to pay the purchase price of the Notes to be purchased by such
Purchaser and (ii) the assumption, made solely for the purpose of making such
representation, that Department of Labor Interpretive Bulletin 75-2 with respect
to prohibited transactions remains valid in the circumstances of the
transactions contemplated herein.
-11-
5.13 Intentionally Omitted.
5.14 Use of Proceeds; Margin Regulations.
Margin stock does not constitute more than 5% of the value of the
consolidated assets of the Company and its Subsidiaries and the Company does not
have any present intention that margin stock will constitute more than 5% of the
value of such assets. As used in this Section, the terms "margin stock" and
"purpose of buying or carrying" shall have the meanings assigned to them in said
Regulation U.
5.15 Existing Debt; Future Liens.
(a) Except as described therein, Schedule 5.15 sets forth a
complete and correct list of all outstanding Debt of the Company and its
Subsidiaries as of the Closing Date since which date there has been no Material
change in the amounts, interest rates, sinking funds, installment payments or
maturities of the Debt of the Company or its Subsidiaries. Neither the Company
nor any Subsidiary is in default and no waiver of default is currently in
effect, in the payment of any principal or interest on any Debt of the Company
or any such Subsidiary and no event or condition exists with respect to any Debt
of the Company or any Subsidiary that would permit (or that with notice or the
lapse of time, or both, would permit) one or more Persons to cause such Debt to
become due and payable before its stated maturity or before its regularly
scheduled dates of payment.
(b) Except as described in Schedule 5.15,neither the Company
nor any Subsidiary has agreed or consented to cause or permit in the future
(upon the happening of a contingency or otherwise) any of its property, whether
now owned or hereafter acquired, to be subject to a Lien not permitted by
Section 10.3.
(c) The Original Subsidiary Guarantors will derive a
commercial benefit by their execution and delivery of the Subsidiary Guarantee
Agreements generally and, in certain other respects, as more specifically
described in Section 5.21 hereto.
5.16 Intentionally Omitted.
5.17 Status under Certain Statutes.
Neither the Company nor any Subsidiary is subject to regulation under
the Investment Company Act of 1940, as amended, the Public Utility Holding
Company Act of 1935, as amended, the Interstate Commerce Act, as amended, or the
Federal Power Act, as amended.
5.18 Environmental Matters.
As of the date of the Closing, neither the Company nor any Subsidiary
has knowledge of any claim or has received any notice of any claim, and no
proceeding has been instituted raising any claim against the Company or any of
its Subsidiaries or any of their respective real properties now or formerly
owned, leased or operated by any of them or other assets, alleging any damage to
the environment or violation of any Environmental Laws, except, in each case,
such as could
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not reasonably be expected to result in a Material Adverse Effect. As of the
Closing Date, except as otherwise disclosed to the Purchasers in writing,
(a) neither the Company nor any Subsidiary has knowledge
of any facts which would give rise to any claim, public or private, of violation
of Environmental Laws or damage to the environment emanating from, occurring on
or in any way related to real properties now or formerly owned, leased or
operated by any of them or to other assets or their use, except, in each case,
such as could not reasonably be expected to result in a Material Adverse Effect;
(b) neither the Company nor any Subsidiaries has stored or
has knowledge of any storage of any Hazardous Materials on real properties now
or formerly owned, leased or operated by any of them and has not disposed, nor
has any knowledge of any disposal, of any Hazardous Materials in a manner
contrary to any Environmental Laws in each case in any manner that could
reasonably be expected to result in a Material Adverse Effect; and
(c) neither the Company nor any of its Subsidiaries has
knowledge that any buildings on any real properties now owned, leased or
operated by the Company or any of its Subsidiaries are not in compliance with
applicable Environmental Laws, except where failure to comply could not
reasonably be expected to result in a Material Adverse Effect.
5.19 [Intentionally Omitted].
5.20 Solvency.
Each of the Company and the Original Subsidiary Guarantors is, and upon
giving effect to the exchange of the Notes and the execution of this Agreement
and the Subsidiary Guarantee Agreements will be, a "solvent institution", as
said term is used in section 1405(c) of the New York State Insurance Law, whose
"obligations are not in default as to principal or interest", as said terms are
used in said section 1405(c). Each of the Company and the Original Subsidiary
Guarantors has capital not unreasonably small in relation to its respective
business or any contemplated or undertaken transaction and has assets having a
value both at fair valuation and at present fair salable value greater than the
amount required to pay its debts as they become due and greater than the amount
that will be required to pay its respective probable liability on its existing
debts as they become absolute and matured. Neither the Company nor any Original
Subsidiary Guarantor intends to incur, or believes or should have believed that
it will incur, debts beyond its ability to pay such debts as they become due.
Neither the Company nor any Original Subsidiary Guarantor will be rendered
insolvent by the execution and delivery of, and performance of its respective
obligations under, this Agreement, the Notes and the Subsidiary Guarantee
Agreements.
5.21 Consolidated and Integrated Business of the Company and its
Restricted Subsidiaries.
The Company and its Restricted Subsidiaries share centralized
administration of the winery functions of each entity including finance, sales
and marketing. Such centralized administration is performed at the Company's
Napa office. This facility also includes a central
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distribution center in which substantially all of the Company's and its
Restricted Subsidiaries' wines are stored prior to shipping.
Sales and marketing of all of the Company's and Restricted
Subsidiaries' wines within the State of California are made through the
Company's own sales forces and one or more wholesalers. The Company uses a
single broker for all wholesale California sales of the Company and its
Restricted Subsidiaries. Furthermore, all of the Company's and Restricted
Subsidiaries' wineries are operated under the overall supervision of the
Company's Chief Executive Officer.
The Company and its Restricted Subsidiaries prepare consolidated
financial statements and present their financial reporting on a consolidated
basis.
5.22 No Burdensome Restrictions.
Neither the Company nor any Original Subsidiary Guarantor is a party to
any agreement or instrument or subject to any other obligation or any charter or
corporate restriction or any provision of any applicable law, rule or regulation
which, individually or in the aggregate, could have a Material Adverse Effect.
5.23 Matters Relating to the Collateral.
The Liens granted in favor of the Collateral Agent pursuant to the
Collateral Documents in respect of the collateral described therein constitute
and will constitute first and second, as the case may be, priority (subject to
Permitted Liens) perfected security interests under the Uniform Commercial Code
as in effect in each applicable jurisdiction, entitled to all rights, benefits
and priorities as provided by such Uniform Commercial Code or other applicable
law. Upon the filing of financing statements relating to such security interests
in each office and in each jurisdiction where required in order to perfect the
security interests described above and recordations of the Security Agreements
and/or the Patent and Trademark Security Agreements in the United States Patent
and Trademark Office and the United States Copyright Office, all such action as
is necessary or advisable to establish such rights of the Collateral Agent will
have been taken. There will be upon execution and delivery of the Security
Agreements and Patent and Trademark Security Agreements and such filings no
necessity for any further action in order to preserve, protect and continue such
rights, except the filing of continuation statements with respect to such
financing statements within six months prior to each five year anniversary of
the filing of such financing statements.
5.24 Credit Agreement Representations.
The representations and warranties set forth in Article IX of the
Credit Agreement are hereby incorporated by reference herein as if such
representations and warranties were set forth herein in full. The information
contained in the Schedules to the Credit Agreement are hereby incorporated by
reference herein as if such information were set forth herein in full
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6. REPRESENTATIONS OF THE PURCHASERS.
6.1 Purchase for Investment.
Each Purchaser represents that it purchased the Notes for its own
account or for one or more separate accounts maintained by it for the account of
one or more pension or trust funds and not with a view to the distribution
thereof, PROVIDED THAT the disposition of such Purchaser's property shall at all
times be within its control; PROVIDED FURTHER that such Purchaser shall not be
prohibited from creating security interests, including any pledge or assignment,
to any Federal Reserve Bank in accordance with applicable law or by any
Purchaser which is a Farm Credit System entity, to the Farm Credit Funding Corp.
or other appropriate funding sources and entities within the Farm Credit System
in accordance with applicable law. Each Purchaser understands that the Notes
have not been registered under the Securities Act and may be resold only if
registered pursuant to the provisions of the Securities Act or if an exemption
from registration is available, except under circumstances where neither such
registration nor such an exemption is required by law, and that the Company is
not required to register the Notes.
6.2 Source of Funds.
Each Purchaser represents that at least one of the following statements
is an accurate representation as to each source of funds (a "SOURCE") which was
used by such Purchaser to pay the purchase price of the Notes to be purchased by
such Purchaser hereunder:
(a) the Source is an "insurance company general account"
within the meaning of Department of Labor Prohibited Transaction Exemption
("PTE") 95-60 (issued July 12, 1995) and there is no employee benefit plan,
treating as a single plan, all plans maintained by the same employer or employee
organization, with respect to which the amount of the general account reserves
and liabilities for all contracts held by or on behalf of such plan, exceed ten
percent (10%) of the total reserves and liabilities of such general account
(exclusive of separate account liabilities) plus surplus, as set forth in the
NAIC Annual Statement filed by such Purchaser with such Purchaser's state of
domicile; or
(b) the Source is either (i) an insurance company pooled
separate account, within the meaning of PTE 90-1 (issued January 29, 1990), or
(ii) a bank collective investment fund, within the meaning of the PTE 91-38
(issued July 12, 1991) and, except as such Purchaser has disclosed to the
Company in writing pursuant to this paragraph (b), no employee benefit plan or
group of plans maintained by the same employer or employee organization
beneficially owns more than 10% of all assets allocated to such pooled separate
account or collective investment fund; or
(c) the Source constitutes assets of an "investment fund"
(within the meaning of Part V of the "QPAM Exemption") managed by a "qualified
professional asset manager" or "QPAM" (within the meaning of Part V of the QPAM
Exemption), no employee benefit plan's assets that are included in such
investment fund, when combined with the assets of all other employee benefit
plans established or maintained by the same employer or by an affiliate (within
the meaning of Section V(c)(1) of the QPAM Exemption) of such employer or by the
same
-15-
employee organization and managed by such QPAM, exceed 20% of the total client
assets managed by such QPAM, the conditions of Part I(c) and (g) of the QPAM
Exemption are satisfied, neither the QPAM nor a person controlling or controlled
by the QPAM (applying the definition of "control" in Section V(e) of the QPAM
Exemption) owns a 5% or more interest in the Company and (i) the identity of
such QPAM and (ii) the names of all employee benefit plans whose assets are
included in such investment fund have been disclosed to the Company in writing
pursuant to this paragraph (c); or
(d) the Source is a governmental plan; or
(e) the Source is one or more employee benefit plans, or a
separate account or trust fund comprised of one or more employee benefit plans,
each of which has been identified to the Company in writing pursuant to this
paragraph (e); or
(f) the Source does not include assets of any employee
benefit plan, other than a plan exempt from the coverage of ERISA.
If any Purchaser or any subsequent transferee of the Notes indicates
that such Purchaser or such transferee is relying on any representation
contained in paragraph (b), (c) or (e) above, the Company shall deliver on the
Closing Date and on the date of any applicable transfer a certificate, which
shall either state that (i) it is neither a party in interest nor a
"disqualified person" (as defined in Section 4975(e)(2) of the Internal Revenue
Code of 1986, as amended), with respect to any plan identified pursuant to
paragraphs (b) or (e) above, or (ii) with respect to any plan, identified
pursuant to paragraph (c) above, neither it nor any "affiliate" (as defined in
Section V(c) of the QPAM Exemption) has at such time, and during the immediately
preceding one year, exercised the authority to appoint or terminate said QPAM as
manager of any plan identified in writing pursuant to paragraph (c) above or to
negotiate the terms of said QPAM's management agreement on behalf of any such
identified plan. As used in this Section 6.2, the terms "employee benefit plan",
"governmental plan", "party in interest" and "separate account" shall have the
respective meanings assigned to such terms in Section 3 of ERISA.
7. INFORMATION AS TO COMPANY.
7.1 Financial and Business Information.
The Company shall deliver to each Holder:
(a) as soon as available and in any event within 45 days
after the end of the first three fiscal quarters of each fiscal year, a
consolidated and consolidating balance sheet of the Company and its Subsidiaries
as of the end of such quarter, and the related consolidated and, as to
statements of income only, consolidating statements of income, shareholders'
equity and cash flows of the Company and its Subsidiaries for such quarter and
the portion of the fiscal year through the end of such quarter, prepared in
accordance with GAAP consistently applied, subject to changes resulting from
normal, year-end audit adjustments and except for the absence of notes all in
reasonable detail and setting forth in comparative form the figures for the
corresponding period in the preceding fiscal year, together with a certificate
of a Responsible Officer of the
-16-
Company stating that such financial statements fairly present the financial
condition of the Company and its Subsidiaries as at such date and the results of
operations of the Company and its Subsidiaries for the period ended on such date
and have been prepared in accordance with GAAP consistently applied, subject to
changes resulting from normal, year-end audit adjustments and except for the
absence of notes;
(b) as soon as available and in any event within 90 days
after the end of each fiscal year, a consolidated and consolidating balance
sheet of the Company and its Subsidiaries as of the end of such fiscal year, and
the related consolidated and, as to statements of income only, consolidating
statements of income, shareholders' equity and cash flows of the Company and its
Subsidiaries for such fiscal year, prepared in accordance with GAAP consistently
applied, all in reasonable detail and setting forth in comparative form the
figures for the previous fiscal year, and (i) in the case of such consolidated
financial statements, accompanied by a report thereon of Moss Adams LLP or
another firm of independent certified public accountants of recognized national
standing acceptable to the Required Holders, which report shall not be qualified
as to (A) going concern, or (B) any limitation in the scope of the audit, and
(ii) in the case of such consolidating financial statements, certified by a
Responsible Officer of the Company;
(c) together with the financial statements required pursuant
to clauses (a) and (b), (i) a Compliance Certificate of a Responsible Officer as
of the end of the applicable accounting period and (ii) an Update Certificate of
a Responsible Officer as of the end of the applicable accounting period;
(d) promptly upon receipt thereof, copies of all reports
submitted to the Company by its independent certified public accountants in
connection with each annual, interim or special audit examination of the Company
and its Subsidiaries made by such accountants, including the "management letter"
submitted by such accountants to the Company in connection with their annual
audit;
(e) as soon as available and in any event not less than 30
days prior to the start of each fiscal year, a consolidated financial forecast
for the Company and its Subsidiaries for the following fiscal year and each
fiscal year thereafter, including forecasted consolidated balance sheets,
consolidated statements of income, shareholders' equity and cash flows of the
Company and its Subsidiaries which forecast shall (i) state the assumptions used
in the preparation thereof, (ii) contain such other information as reasonably
requested by the Required Holders and (iii) be in form reasonably satisfactory
to the Required Holders;
(f) as soon as available and in any event not less than 30
days prior to the start of each fiscal year, budgets of the Company and its
Subsidiaries for each quarter of the following fiscal year, which budgets shall
(i) state the assumptions used in the preparation thereof, (ii) be in form
satisfactory to the Required Holders, and (iii) be accompanied by a statement of
a Responsible Officer of the Company that, to the best of such Responsible
Officer's knowledge, such budgets are a reasonable and good-faith estimate for
the period covered thereby; and
-17-
(g) promptly after the giving, sending or filing thereof,
copies of all reports, if any, which the Company or any of its Subsidiaries
sends to the holders of its respective capital stock or other securities and of
all reports or filings, if any, by the Company or any of its Subsidiaries with
the SEC or any national securities exchange.
As to any information contained in materials furnished pursuant to clause (i),
the Company shall not be separately required to furnish such information under
clause (a) or (b), but the foregoing shall not be in derogation of the
obligation of the Company to furnish the information and materials described in
clauses (a) and (b) at the times specified therein. Additionally, reports
required to be delivered pursuant to clauses (a), (b) or (h) of this Section 7.1
(to the extent any such financial statements, reports or proxy statements are
included in materials otherwise filed with the SEC) may be delivered
electronically and if so, shall be deemed to have been delivered on the date on
which the Company posts such reports, or provides a link thereto, either: (x) on
the Company's website on the Internet at the website address set forth in
Section 18; or (y) when such report is posted electronically on
IntraLinks/IntraAgency or other relevant website to which each Holder has access
(whether a commercial, third-party website or whether sponsored by any Holder),
if any, on the Company's behalf; PROVIDED that: (1) the Company shall deliver
paper copies of such reports to any Holder who requests the Company to deliver
such paper copies until written request to cease delivering paper copies is
given by Holder; (2) the Company shall notify (which may be by facsimile or
electronic mail) each Holder of the posting of any such reports and provide to
each Holder by email electronic versions (i.e. soft copies) of such reports; and
(3) in every instance the Company shall provide paper copies of the Compliance
Certificates required by clause (c) above to each of the Holders. Except for
such Compliance Certificates, the Holders shall have no obligation to request
the delivery or to maintain copies of the reports referred to above, and in any
event shall have no responsibility to monitor compliance by the Company with any
such request for delivery, and each Holder shall be solely responsible for
requesting delivery to it or maintaining its copies of such reports.
7.2 Additional Information.
The Company will furnish to the Holders:
(a) promptly after the Company has knowledge or becomes
aware thereof, notice of the occurrence of any Event of Loss with respect to its
property or assets aggregating $1,500,000 (or its equivalent in another
currency) or more;
(b) promptly after the Company has knowledge or becomes
aware hereof, notice of the occurrence or existence of any Default and any Event
of Default;
(c) promptly after any Person becomes a Subsidiary of the
Company (whether by acquisition or otherwise), prompt written notice thereof;
(d) prompt written notice of (i) any proposed acquisition
of stock, assets or property by the Company or any of its Subsidiaries that
could reasonably be expected to result in environmental liability under
Environmental Laws, and (ii)(1) any spillage, leakage, discharge, disposal,
leaching, migration or release of any Hazardous Material required to be reported
to any
-18-
Governmental Authority under applicable Environmental Laws, and (2) all actions,
suits, claims, notices of violation, hearings, investigations or proceedings
pending, or to the best of the Company's knowledge, threatened against or
affecting the Company or any of its Subsidiaries or with respect to the
ownership, use, maintenance and operation of the Premises, relating to (x)
Environmental Laws or Hazardous Material, (y) or any other Requirement of Law
that, in the case of this clause (y), may have a Material Adverse Effect;
(e) prompt written notice of all actions, suits and
proceedings before any Governmental Authority or arbitrator pending, or to the
best of the Company's knowledge, threatened against or affecting the Company or
any of its Subsidiaries which (i) if adversely determined would involve an
aggregate uninsured liability of $1,500,000 (or its equivalent in another
currency) or more, or (ii) otherwise may have a Material Adverse Effect;
(f) promptly after the Company has knowledge or becomes
aware thereof, (i) notice of the occurrence of any Termination Event, together
with a copy of any notice of such Termination Event to the PBGC, and (ii) the
details concerning any action taken or proposed to be taken by the IRS, PBGC,
Department of Labor or other Person with respect thereto;
(g) the information regarding insurance maintained by the
Company and its Subsidiaries as required under Section 9.2;
(h) within 30 days of the date thereof, or, if earlier,
on the date of delivery of any financial statements pursuant to Section 7.1,
notice of any material change in accounting policies or financial reporting
practices by the Company or any of its Subsidiaries;
(i) promptly after the occurrence thereof, notice of any
labor controversy resulting in or threatening to result in any strike, work
stoppage, boycott, shutdown or other material labor disruption against or
involving the Company or any of its Subsidiaries which could result in a
Material Adverse Effect;
(j) upon the request from time to time of any Holder, the
Swap Termination Values, together with a description of the method by which such
values were determined, relating to any then-outstanding Rate Contracts to which
the Company or any of its Subsidiaries is party;
(k) prompt written notice of any other condition or event
which has resulted, or that could reasonably be expected to result, in a
Material Adverse Effect; and
(l) such other information respecting the operations,
properties, business or condition (financial or otherwise) of the Company or its
Subsidiaries (including with respect to the Collateral) as any Holder may from
time to time reasonably request.
Each notice pursuant to this Section 7.2 shall be accompanied by a written
statement by a Responsible Officer of the Company setting forth details of the
occurrence referred to therein, and stating what action the Company proposes to
take with respect thereto.
-19-
7.3 Inspection.
The Company shall permit the representatives of each Holder:
(a) No Default -- if no Default or Event of Default then
exists, at the expense of such Holder and upon reasonable prior notice to the
Company during normal business hours, to visit the principal executive office of
the Company to discuss the affairs, finances and accounts of the Company and its
Subsidiaries with the Company's officers, and (with the consent of the Company,
which consent will not be unreasonably withheld) its independent public
accountants, and (with the consent of the Company, which consent will not be
unreasonably withheld) to visit the other offices and properties of the Company
and each Subsidiary, all at such reasonable times and as often as may be
reasonably requested in writing; and
(b) Default -- if a Default or Event of Default then exists,
at the expense of the Company, to visit and inspect any of the offices or
properties of the Company or any Subsidiary, to examine all their respective
books of account, records, reports and other papers, to make copies and extracts
therefrom, and to discuss their respective affairs, finances and accounts with
their respective officers and independent public accountants (and by this
provision the Company authorizes said accountants to discuss the affairs,
finances and accounts of the Company and its Subsidiaries), all at such times
and as often as may be requested.
8. PREPAYMENT OF THE NOTES.
8.1 Required Prepayments.
(a) The Company agrees that on September 15 in each year
commencing September 15, 2004 and ending on September 15, 2009, both inclusive,
it will prepay and apply and there shall become due and payable on the principal
debt evidenced by the Series A Notes an amount equal to the lesser of (x)
$714,285.71 or (y) the principal amount of the Series A Notes then outstanding.
The entire remaining principal amount of the Series A Notes shall become due and
payable on September 15, 2010. No premium shall be payable in connection with
any required prepayment made pursuant to this Section 8.1(a). Upon any partial
prepayment of the Series A Notes pursuant to Section 8.2, the principal amount
of each required prepayment of the Series A Notes becoming due under this
Section 8.1(a) on and after the date of such prepayment shall be reduced in the
same proportion as the aggregate unpaid principal amount of the Series A Notes
is reduced as a result of such prepayment.
(b) The Company agrees that on September 15 in each year
commencing September 15, 2004 and ending on September 15, 2009, both inclusive,
it will prepay and apply and there shall become due and payable on the principal
debt evidenced by the Series B Notes an amount equal to the lesser of (x)
$1,428,571.43 or (y) the principal amount of the Series B Notes then
outstanding. The entire remaining principal amount of the Series B Notes shall
become due and payable on September 15, 2010. No premium shall be payable in
connection with any required prepayment made pursuant to this Section 8.1(b).
Upon any partial prepayment of the Series B Notes pursuant to Section 8.2, the
principal amount of each required prepayment of the Series B Notes becoming due
under this Section 8.1(b) on and after the date of such prepayment
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shall be reduced in the same proportion as the aggregate unpaid principal amount
of the Series B Notes is reduced as a result of such prepayment.
(c) The Company agrees that on September 15 in each year
commencing September 15, 2004 and ending on September 15, 2009, both inclusive,
it will prepay and apply and there shall become due and payable on the principal
debt evidenced by the Series C Notes an amount equal to the lesser of (x)
$2,142,857.14 or (y) the principal amount of the Series C Notes then
outstanding. The entire remaining principal amount of the Series C Notes shall
become due and payable on September 15, 2010. No premium shall be payable in
connection with any required prepayment made pursuant to this Section 8.1(c).
Upon any partial prepayment of the Series C Notes pursuant to Section 8.2, the
principal amount of each required prepayment of the Series C Notes becoming due
under this Section 8.1(c) on and after the date of such prepayment shall be
reduced in the same proportion as the aggregate unpaid principal amount of the
Series C Notes is reduced as a result of such prepayment.
8.2 Optional Prepayments with Make-Whole Amount.
The Company may, at its option, upon notice as provided below, prepay
at any time all, or from time to time any part of (but if in part, then such
prepayment shall be applied against the Series A Note, the Series B Note and the
Series C Note, respectively, in proportion to the aggregate amount outstanding
of each Series), the Notes, in an amount not less than 5% of the aggregate
principal amount of all series of the Notes then outstanding in the case of a
partial prepayment, at 100% of the principal amount so prepaid, together with
interest accrued thereon to the date of such prepayment, plus the greater of (i)
zero and (ii) the Make-Whole Amount determined for the prepayment date with
respect to such principal amount. The Company will give each Holder of Notes
written notice of each optional prepayment under this Section 8.2 not less than
30 days and not more than 60 days prior to the date fixed for such prepayment.
Each such notice shall specify such date, the aggregate principal amount of the
Notes to be prepaid on such date, the principal amount of each Note held by such
Holder to be prepaid (determined in accordance with Section 8.3), and the
interest to be paid on the prepayment date with respect to such principal amount
being prepaid, and shall be accompanied by a certificate of a Senior Financial
Officer as to the estimated Make-Whole Amount due in connection with such
prepayment (calculated as if the date of such notice were the date of the
prepayment), setting forth the details of such computation. Two Business Days
prior to such prepayment, the Company shall deliver to each Holder of Notes a
certificate of a Senior Financial Officer specifying the calculation of such
Make-Whole Amount as of the specified prepayment date.
8.3 Allocation of Partial Prepayments.
In the case of each partial prepayment of the Notes pursuant to Section
8.2, the principal amount of the Notes to be prepaid shall be allocated among
all of the Notes at the time outstanding in proportion, as nearly as
practicable, to the respective unpaid principal amounts thereof not theretofore
prepaid.
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8.4 Maturity; Surrender, etc.
In the case of each prepayment or purchase of Notes pursuant to this
Section 8, the principal amount of each Note to be prepaid or purchased shall
mature and become due and payable on the date fixed for such prepayment or
purchase, together with interest on such principal amount accrued to such date
and the applicable Make-Whole Amount, if any. From and after such date, unless
the Company shall fail to pay such principal amount when so due and payable,
together with the interest and Make-Whole Amount, if any, as aforesaid, interest
on such principal amount shall cease to accrue. Any Note paid, purchased or
prepaid in full shall be surrendered to the Company and cancelled and shall not
be reissued, and no Note shall be issued in lieu of any prepaid or purchased
principal amount of any Note.
8.5 Purchase of Notes.
The Company will not and will not permit any Affiliate to purchase,
redeem, prepay or otherwise acquire, directly or indirectly, any of the
outstanding Notes except upon the purchase, payment or prepayment of the Notes
in accordance with the terms of this Agreement and the Notes. The Company will
promptly cancel all Notes acquired by it or any Affiliate pursuant to any
payment, prepayment or purchase of Notes pursuant to any provision of this
Agreement and no Notes may be issued in substitution or exchange for any such
Notes.
8.6 Make-Whole Amount.
"MAKE-WHOLE AMOUNT" means, with respect to any Note of any series, an
amount equal to the excess, if any, of the Discounted Value of the Remaining
Scheduled Payments with respect to the Called Principal of such Note of such
series over the amount of such Called Principal, provided that the Make-Whole
Amount may in no event be less than zero. For the purposes of determining the
Make-Whole Amount, the following terms have the following meanings:
"CALLED PRINCIPAL" means, with respect to any Note of any series, the
principal of the Note of such series that is to be prepaid or purchased pursuant
to Sections 8.2 or 8.7 or has become or is declared to be immediately due and
payable pursuant to Section 12.1, as the context requires.
"DISCOUNTED VALUE" means, with respect to the Called Principal of any
Note of any series, the amount obtained by discounting all Remaining Scheduled
Payments with respect to such Called Principal from their respective scheduled
due dates to the Settlement Date with respect to such Called Principal, in
accordance with accepted financial practice and at a discount factor (applied on
the same periodic basis as that on which interest on such Notes is payable)
equal to the Reinvestment Yield with respect to such Called Principal.
"REINVESTMENT YIELD" means, with respect to the Called Principal of a
Note of any series, 0.50% over the yield to maturity implied by (i) the yields
reported, as of 10:00 A.M. (New York City time) on the second Business Day
preceding the Settlement Date with respect to such Called Principal, on the
display designated as Screen PX1 on the Bloomberg Financial Markets Services
System (or such other display as may replace Screen PX1 on Bloomberg Financial
Markets
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Services System) for actively traded U.S. Treasury securities having a maturity
equal to the remaining average live of such Called Principal as of such
Settlement Date, or (ii) if such yields are not reported as of such time or the
yields reported as of such time are not ascertainable, the Treasury Constant
Maturity Series Yields reported, for the latest day for which such yields have
been so reported as of the second Business Day preceding the Settlement Date
with respect to such Called Principal, in Federal Reserve Statistical Release
H.15 (519) (or any comparable successor publication) for actively traded U.S.
Treasury securities having a constant maturity equal to the remaining average
life of such Called Principal as of such Settlement Date. Such implied yield
will be determined, if necessary, by (a) converting U.S. Treasury bill
quotations to bond-equivalent yields in accordance with accepted financial
practice and (b) interpolating linearly between (1) the actively traded U.S.
Treasury security with the maturity closest to and greater than the remaining
average life of such Called Principal and (2) the actively traded U.S. Treasury
security with the maturity closest to and less than the remaining average life
of such Called Principal.
"REMAINING SCHEDULED PAYMENTS" means, with respect to the Called
Principal of any Note of any series, all payments of such Called Principal and
interest thereon that would be due after the Settlement Date with respect to
such Called Principal if no payment or purchase of such Called Principal were
made prior to its scheduled due date (assuming that the Notes will continue to
bear interest at the rates in effect on the Settlement Date), PROVIDED that if
such Settlement Date is not a date on which interest payments are due to be made
under the terms of the Notes of such series, then the amount of the next
succeeding scheduled interest payment will be reduced by the amount of interest
accrued to such Settlement Date and required to be paid on such Settlement Date
pursuant to Sections 8.2, 8.7 or 12.1.
"SETTLEMENT DATE" means, with respect to the Called Principal of any
Note of any series, the date on which such Called Principal is to be prepaid or
purchased pursuant to Section 8.2 or has become or is declared to be immediately
due and payable pursuant to Section 12.1, as the context requires.
8.7 Mandatory Prepayments with Make-Whole Amount.
(a) Upon the sale, transfer or other disposition of any
Collateral by the Company or any Subsidiary under Section 10.9(c) (to the extent
the Net Proceeds from the sale, transfer or other disposition of worn out or
obsolete assets are not promptly applied to replace such assets) or 10.9(f), the
Company shall, if either (i) an Event of Default shall have occurred and be
continuing or (ii) a Specified Loan to Value Event would occur after giving
effect to such sale, transfer or other disposition, within one Business Day of
the Company's or such Subsidiary's receipt of the proceeds thereof, prepay the
outstanding principal amount of the Notes, together with the Make-Whole Amount
payable with respect thereto, in an amount equal to (1) in the case of a
prepayment by reason of the circumstances set forth in clause (i) above, 100% of
the Net Proceeds therefrom by depositing such amount with the Collateral Agent
for application by the Collateral Agent under and pursuant to Section 6.10 of
the Intercreditor Agreement to the Secured Obligations, and (2) in the case of a
prepayment be reason of the circumstances set forth in clause (ii) above, that
amount of the Net Proceeds therefrom that would be required to be prepaid on the
Notes so that after giving effect to the application thereof,
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such Specified Loan to Value Event would no longer exist by depositing such
amount with the Collateral Agent for application by the Collateral Agent under
and pursuant to Section 6.10 of the Intercreditor Agreement to the Secured
Obligations.
(b) Upon the incurrence of indebtedness for borrowed money
by the Company or any Subsidiary during the continuance of an Event of Default,
the Company shall, within one Business Day of the Company's or such Subsidiary's
receipt of the proceeds thereof, prepay the outstanding principal amount of the
Notes in an amount equal to 100% of the Net Issuance Proceeds (as defined in the
Credit Agreement) therefrom by depositing such amount with the Collateral Agent
for application by the Collateral Agent under and pursuant to Section 6.10 of
the Intercreditor Agreement to the Secured Obligations.
(c) If any Event of Loss shall occur the Company shall, if
either (i) an Event of Default shall have occurred and be continuing or (ii) if
such Event of Loss is in a amount in excess of $1,500,000 and a Specified Loan
to Value Event would occur after giving effect to such Event of Loss, within one
Business Day of the Company's or such Subsidiary's receipt of the proceeds
therefrom, prepay the outstanding principal amount of the Notes, together with
the Make-Whole Amount payable with respect thereto, in an amount equal to (1) in
the case of a prepayment by reason of the circumstances set forth in clause (i)
above, 100% of the Net Proceeds therefrom by depositing such amount with the
Collateral Agent for application by the Collateral Agent under and pursuant to
Section 6.10 of the Intercreditor Agreement to the Secured Obligations, and (2)
in the case of a prepayment be reason of the circumstances set forth in clause
(ii) above, that amount of the Net Proceeds therefrom that would be required to
be prepaid on the Notes so that after giving effect to the application thereof,
such Specified Loan to Value Event would no longer exist by depositing such
amount with the Collateral Agent for application by the Collateral Agent under
and pursuant to Section 6.10 of the Intercreditor Agreement to the Secured
Obligations.
9. AFFIRMATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
9.1 Compliance with Law.
The Company will, and will cause each of its Subsidiaries to, comply
with all laws, ordinances or governmental rules or regulations to which each of
them is subject, including, without limitation, Environmental Laws, and will
obtain and maintain in effect all licenses, certificates, permits, franchises
and other governmental authorizations necessary to the ownership of their
respective properties or to the conduct of their respective businesses, in each
case to the extent necessary to ensure that non-compliance with such laws,
ordinances or governmental rules or regulations or failures to obtain or
maintain in effect such licenses, certificates, permits, franchises and other
governmental authorizations could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect.
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9.2 Insurance.
The Company shall, and shall cause each of its Subsidiaries to, carry
and maintain in full force and effect, at its own expense and with financially
sound and reputable insurance companies, insurance in such amounts, with such
deductibles and covering such risks as is customarily carried by companies
engaged in the same or similar businesses and owning similar properties in the
localities where the Company or such Subsidiary operates, including fire,
extended coverage, business interruption, public liability, property damage and
worker's compensation. Insurance on the Collateral shall name the Holders as
additional insured and shall name the Collateral Agent as loss payee. Upon the
request of the Holders, the Company shall furnish the Holders from time to time
with full information as to the insurance carried by it and, if so requested,
copies of all such insurance policies. The Company shall also furnish to the
Holders from time to time upon the request of any Holder a certificate of the
Company's insurance broker or other insurance specialist stating that all
premiums then due on the policies relating to insurance on the Collateral have
been paid, that such policies are in full force and effect and that such
insurance coverage and such policies comply with all the requirements of this
subsection. All insurance policies required under this section shall provide
that they shall not be terminated or cancelled nor shall any such policy be
materially changed without at least 30 days' prior written notice to the Company
and the Holders. Receipt of notice of termination or cancellation of any such
insurance policies or reduction of coverages or amounts thereunder shall entitle
the Holders to renew any such policies, cause the coverages and amounts thereof
to be maintained at levels required pursuant to the first sentence of this
Section 9.2 or otherwise to obtain similar insurance in place of such policies,
in each case at the expense of the Company.
9.3 Maintenance of Properties; Action under Environmental Laws.
(a) The Company will,and will cause each of its Subsidiaries
to, maintain and keep, or cause to be maintained and kept, their respective
properties in good repair, working order and condition (other than ordinary wear
and tear), so that the business carried on in connection therewith may be
properly conducted at all times, PROVIDED that this Section shall not prevent
the Company or any Subsidiary from discontinuing the operation and the
maintenance of any of its properties if such discontinuance is desirable in the
conduct of its business and the Company has concluded that such discontinuance
could not, individually or in the aggregate, reasonably be expected to have a
Material Adverse Effect.
(b) The Company shall, and shall cause each of its
Subsidiaries to, upon becoming aware of the presence of any Hazardous Material
or the existence of any environmental liability under applicable Environmental
Laws with respect to the Premises, take all actions, at their cost and expense,
as shall be necessary or advisable to investigate and clean up the condition of
the Premises, including all removal, containment and remedial actions, and
restore the Premises to a condition in compliance with applicable Environmental
Laws.
9.4 Payment of Taxes and Claims.
The Company will, and will cause each of its Subsidiaries to, file all
tax returns required to be filed in any jurisdiction and to pay and discharge
all taxes shown to be due and payable on
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such returns and all other taxes, assessments, governmental charges, or levies
imposed on them or any of their properties, assets, income or franchises, to the
extent such taxes and assessments have become due and payable and before they
have become delinquent and all claims for which sums have become due and payable
that have or might become a Lien on properties or assets of the Company or any
Subsidiary, PROVIDED that neither the Company nor any Subsidiary need pay any
such tax or assessment or claims if (a) the amount, applicability or validity
thereof is contested by the Company or such Subsidiary on a timely basis in good
faith and in appropriate proceedings, and the Company has established adequate
reserves therefor in accordance with GAAP on the books of the Company or (b) the
nonpayment of all such taxes and assessments in the aggregate could not
reasonably be expected to have a Material Adverse Effect.
9.5 Corporate Existence, etc.
The Company and each Subsidiary will at all times preserve and keep in
full force and effect its corporate existence. Subject to Sections 10.2 and
10.9, the Company will at all times preserve and keep in full force and effect
the corporate existence of each of its Subsidiaries and all rights and
franchises of the Company and its Subsidiaries unless, in the good faith
judgment of the Company, the termination of or failure to preserve and keep in
full force and effect such corporate existence, right or franchise could not,
individually or in the aggregate, have a Material Adverse Effect.
9.6 [Intentionally Omitted.].
9.7 Further Assurances and Additional Acts.
The Company shall execute, acknowledge, deliver, file, notarize and
register at its own expense all such further agreements, instruments,
certificates, documents and assurances and perform such acts as the Holders
shall deem necessary or appropriate to effectuate the purposes of the Loan
Documents, and promptly provide the Holders with evidence of the foregoing
satisfactory in form and substance to the Holders.
9.8 Proceeds of Events of Loss. All proceeds paid to the Company
or any Subsidiary on account of any Event of Loss in excess of $1,500,000 shall
be deposited or otherwise held in a deposit account or securities account in
respect of which the Collateral Agent holds a perfected first priority Lien
(subject only to Permitted Liens), for the ratable benefit of the Secured
Parties as their interests may appear, pending the application of such proceeds
to repay the Notes as provided in Section __ or to repair, replace or
reconstruct the property affected by the Event of Loss.
9.9 Post-Closing Matters. In addition to the terms and provisions of
Section 4.11, the Company shall, and shall cause its Subsidiaries to, within the
time periods set forth below (to the extent such actions have not occurred on or
prior to the Closing), cause the following to occur with respect to each
Property described in any Deed of Trust as set forth below: (a) within thirty
(30) days of the Closing, deliver a Lender's 1970 ALTA form of title insurance
policy (or executed Pro-Forma thereof) in favor of the Collateral Agent in the
amount of the net book value of such Property; (b) within thirty (30) days of
the Closing, deliver the final appraisal with
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respect to the Hewitt Property (as defined in the Credit Agreement) and the
property in Napa County leased by the Company bearing APN 047-272-011 and owned
by the Lois Martinez Trust, in form and substance reasonably satisfactory to the
Purchasers; (c) within thirty (30) days of the Closing, deliver a Phase I
Environmental Assessment addressed to and in form and substance reasonably
satisfactory to the Holders, and prepared by an environmental engineering firm
reasonably acceptable to the Holders, with respect to the Hewitt Property (as
defined in the Credit Agreement) and the property located in Walla Walla County,
Washington; (d) within sixty (60) days of the Closing, deliver an ALTA plat of
survey prepared by a surveyor licensed in the state in which each such Property
is located; and (e) within thirty (30) days of delivery of each survey, cause
any necessary amendments, adjustments or modifications to the Deeds of Trust or
the title insurance policy related to each Property as may be reasonably
required to reflect the survey and the facts set forth therein on the title
insurance policy and the Deeds of Trust.
10. NEGATIVE COVENANTS.
The Company covenants that so long as any of the Notes are outstanding:
10.1 Transactions with Affiliates.
The Company and each Restricted Subsidiary will not enter into directly
or indirectly any transaction or Material group of related transactions
(including without limitation the purchase, lease, sale or exchange of
properties of any kind or the rendering of any service) with any Affiliate
(other than the Company or another Restricted Subsidiary), except in the
ordinary course and pursuant to the reasonable requirements of the Company's or
such Restricted Subsidiary's business and upon fair and reasonable terms no less
favorable to the Company or such Restricted Subsidiary than would be obtainable
in a comparable arm's-length transaction with a Person not an Affiliate.
10.2 Restrictions on Fundamental Changes
The Company shall not, and shall not permit any of its Subsidiaries to,
merge with or consolidate into, or acquire all or substantially all of the
assets of, any Person, or sell, transfer, lease or otherwise dispose of (whether
in one transaction or in a series of transactions) all or substantially all of
its assets, except that:
(a) any of the Company's wholly owned Subsidiaries may merge
with, consolidate into or transfer all or substantially all of its assets to
another of the Company's wholly owned Subsidiaries that is a Guarantor or to the
Company and in connection therewith such Subsidiary may be liquidated or
dissolved; (b) the Company or any of its Subsidiaries may sell or dispose of
assets in accordance with the provisions of Section 10.9; and (c) the Company or
any of its Subsidiaries may make any investment permitted by Section 10.8.
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10.3 Liens; Negative Pledges.
(a) The Company shall not, and shall not permit any of its
Subsidiaries to, create, incur, assume or suffer to exist any Lien upon or with
respect to any of its properties, revenues or assets, whether now owned or
hereafter acquired, other than Permitted Liens.
(b) The Company shall not, and shall not permit any of its
Subsidiaries to, enter into or suffer to exist any agreement (other than this
Agreement, any other Loan Document and the Credit Agreement) prohibiting or
conditioning the creation or assumption of any Lien upon any of its properties,
revenues or assets, whether now owned or hereafter acquired; PROVIDED, HOWEVER,
that this subsection shall not prohibit any negative pledge incurred or provided
in favor of any holder of Indebtedness permitted under subsection 10.5(j) solely
to the extent any such negative pledge relates to the property financed by or
the subject of such Indebtedness.
10.4 Financial Covenants.
So long as any of the Notes shall remain unpaid, the Company agrees
that:
(a) Leverage Ratio.
The Company shall maintain a ratio of (a) Consolidated Indebtedness
PLUS six times Consolidated Rent Expense (measured on a rolling 4-quarter basis)
to (b) Consolidated EBITDA PLUS one times Consolidated Rent Expense (in each
case, measured on a rolling 4-quarter basis) (such ratio, the "Leverage Ratio")
as of the last day of each fiscal quarter of not more than (i) 5.75 to 1.00 for
the first, second, third and fourth fiscal quarters of 2002, (ii) 5.50 to 1.00
for the first fiscal quarter of 2003, (iii) 5.25 to 1.00 for the second fiscal
quarter of 2003, (iv) 5.00 to 1.00 for the third and fourth fiscal quarters of
2003 and the first and second fiscal quarters of 2004, (v) 4.75 to 1.00 for the
third and fourth fiscal quarters of 2004, (vi) 4.50 to 1.00 for the first and
second fiscal quarters of 2005, (vii) 4.00 to 1.00 for the third and fourth
fiscal quarters of 2005 and the first and second fiscal quarters of 2006 and
(viii) 3.50 to 1.00 for the third fiscal quarter of 2006 and each fiscal quarter
ending thereafter.
(b) Minimum Consolidated Tangible Net Worth.
The Company shall maintain Consolidated Tangible Net Worth at all times of not
less than $76,000,000 PLUS the Net Issuance Proceeds received by the Company or
any Subsidiary from the sale or issuance of equity securities to any Person
other than the Company or any Subsidiary PLUS the Net Issuance Proceeds received
by the Company or any Subsidiary from the sale or issuance of Subordinated Debt
to any Person other than the Company or any Subsidiary plus 75% of positive
Consolidated Net Income, if any, for each fiscal quarter elapsed after December
31, 2001.
(c) Interest Coverage Ratio.
The Company shall maintain a ratio of Consolidated EBIT to Consolidated
Interest Expense, for each period of four consecutive fiscal quarters then
ended, of not less than (i) 1.50
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to 1.00 as of the last day of the first, second, third and fourth fiscal
quarters of 2002, (ii) 1.75 to 1.00 as of the last day of the first, second,
third and fourth fiscal quarters of 2003, (iii) 2.50 to 1.00 as of the last day
of the first, second, third and fourth fiscal quarters of 2004, (iv) 3.00 to
1.00 as of the last day of the first, second, third and fourth fiscal quarters
of 2005 and (v) 3.50 to 1.00 as of the last day of the first fiscal quarter of
2006 and each fiscal quarter ending thereafter.
(d) Fixed Charge Coverage Ratio.
The Company shall maintain a ratio of (i) Consolidated EBITDA to (ii) the sum of
Consolidated Interest Expense plus regularly scheduled principal payments on
Indebtedness (including such payments attributable to Capital Leases) plus cash
income taxes PLUS cash dividends, of the Company and its Subsidiaries on a
consolidated basis, as determined in accordance with GAAP, for each period of
four consecutive fiscal quarters then ended of not less than (1) 1.65 to 1.00 as
of the last day of the first fiscal quarter of 2002 through the last day of the
second fiscal quarter of 2004 and (2) 1.25 to 1.00 as of the last day of the
third fiscal quarter of 2004 and each fiscal quarter ending thereafter.
(e) Capital Expenditures.
(i) The Company shall not, and shall not permit any of its
Subsidiaries to, make or become legally obligated to make any expenditure in
respect of the purchase or other acquisition of any new wine barrels where such
expenditure exceeds, in the aggregate for the Company and its Subsidiaries
during each fiscal year set forth below, the amount set forth opposite such
fiscal year:
Fiscal Year
Ending Amount
------ ------
2002 $4,500,000
2003 $5,000,000
2004 $5,500,000
2005 $6,000,000
2006 $6,500,000
2007 $7,000,000
2008 $7,500,000
2009 $8,000,000
2010 $8,000,000
(ii) The Company shall not, and shall not permit any of its
Subsidiaries to, make or become legally obligated to make any expenditure in
respect of the purchase or other acquisition of any fixed or capital assets
(excluding those assets set out in clause (i) above), where such expenditure
exceeds, in the aggregate for the Company and its Subsidiaries during each
fiscal year set forth below, the amount set forth opposite such fiscal year:
Fiscal Year Amount
------
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Ending
------
2002 $6,000,000
2003 $12,000,000
2004 $12,500,000
2005 $4,500,000
2006 $3,000,000
2007 $3,000,000
2008 $2,500,000
2009 $2,500,000
2010 $2,500,000
PROVIDED, HOWEVER, that in respect of clauses (i) and (ii) above, so long as no
Default or Event of Default has occurred and is continuing or would result from
such expenditure, any portion of any such amount set forth above, if not
expended in the fiscal year for which it is permitted above, may be carried over
for expenditure in the next following fiscal year, but may not be carried over
for expenditure in any fiscal year thereafter.
10.5 Indebtedness.
The Company shall not, and shall not permit any of its Subsidiaries to,
create, incur, assume or otherwise become liable for or suffer to exist any
Indebtedness, other than:
(a) Indebtedness of the Company and its Subsidiaries to the
Holders hereunder;
(b) Indebtedness of the Company and its Subsidiaries
existing on the Closing Date and set forth in Schedule 5.15 or extensions,
renewals and refinancings of such Indebtedness, PROVIDED that the principal
amount of such Indebtedness being extended, renewed or refinanced does not
increase;
(c) accounts payable to trade creditors for goods and
services and current operating liabilities (not the result of the borrowing of
money) incurred in the ordinary course of the Company's or such Subsidiary's
business in accordance with customary terms and paid within the specified time,
unless contested in good faith by appropriate proceedings and reserved for in
accordance with GAAP;
(d) Indebtedness consisting of guarantees resulting from
endorsement of negotiable instruments for collection by the Company or any such
Subsidiary in the ordinary course of business;
(e) Indebtedness under the Credit Agreement and any renewal,
extension or refinancing of the Credit Agreement; PROVIDED that (i) any such
renewal, extension or refinancing shall be on terms substantially similar to the
terms which are set forth in the Credit Agreement on the Closing Date or on
terms which are more favorable to the Company than such terms existing on the
Closing Date; (ii) that the aggregate principal amount of the exposure
thereunder shall not
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exceed $72,500,000, plus accrued interest and other charges thereon; (iii) the
maturity dates of such renewed, extended or refinanced Indebtedness shall not be
shorter than the maturity dates of the existing Indebtedness under the Credit
Agreement and the interest rate of such Indebtedness shall be at then prevailing
interest rates; (iv) the new Indebtedness shall contain a term loan portion
which shall not exceed $17,500,000 aggregate principal amount, and (v) the new
Indebtedness shall contain a revolver facility in such amount and form as shall
be reasonably necessary to provide the Company adequate liquidity thereunder and
which shall not be in an amount in excess of $55,000,000;
(f) Indebtedness under the Credit Agreement Guaranties;
(g) Guaranty Obligations not to exceed $1,000,000 in the
aggregate at any time outstanding;
(h) Rate Contracts entered into in the ordinary course of
business;
(i) unsecured Indebtedness of the Company and its
Subsidiaries in an aggregate principal amount not to exceed $3,000,000 at any
time outstanding;
(j) Indebtedness in respect of Capital Leases, Synthetic
Lease Obligations and purchase money obligations for fixed or capital assets
within the limitations set forth in clause (i) of the definition of Permitted
Liens and other Indebtedness secured by Liens within the limitations set forth
in clause (j) of the definition of Permitted Liens, or, in each case,
extensions, renewals and refinancings of such Indebtedness, PROVIDED that the
principal amount of such Indebtedness being extended, renewed or refinanced does
not increase, and PROVIDED FURTHER that the aggregate principal amount of all
such Indebtedness does not exceed $16,000,000 at any time outstanding;
(k) Indebtedness subordinated on terms satisfactory to the
Required Holders to the Notes in an aggregate principal amount not to exceed
$2,000,000 at any time outstanding; and
(l) Indebtedness of the Company to any of its wholly owned
Subsidiaries or of any of its wholly owned Subsidiaries to another of its wholly
owned Subsidiaries.
10.6 Intentionally Omitted.
10.7 Distributions.
(a) The Company shall not declare or pay any dividends in
respect of the Company's capital stock, or purchase, redeem, retire or otherwise
acquire for value any of its capital stock now or hereafter outstanding, return
any capital to its shareholders as such, or make any distribution of assets to
its shareholders as such, or permit any of its Subsidiaries to purchase, redeem,
retire, or otherwise acquire for value any stock of the Company, except that the
Company may:
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(i) declare and deliver dividends and distributions
payable only in common stock of the Company;
(ii) purchase, redeem, retire, or otherwise acquire
shares of its capital stock with the proceeds received from a substantially
concurrent issue of new shares of its capital stock;
(iii) declare and pay cash dividends to its
stockholders and purchase, redeem, retire or otherwise acquire shares of its own
outstanding capital stock for cash during any fiscal year if (1) after giving
effect thereto the aggregate amount of such dividends, purchases, redemptions,
retirements and acquisitions paid or made during any fiscal year is not in
excess of 25% of Consolidated Net Income of the Company for the fiscal year
immediately preceding the year in which such dividend, purchase, redemption,
retirement or acquisition is paid or made and (2) immediately prior to and after
giving effect thereto, no Default shall have occurred and be continuing; and
(iv) declare and pay the Wine Dividend Credits,
PROVIDED that immediately prior to and after giving effect thereto, no Default
shall have occurred and be continuing.
(b) The Company shall not permit any Subsidiary of the
Company to grant or otherwise agree to or suffer to exist any consensual
restrictions on the ability of such Subsidiary to pay dividends and make other
distributions to the Company, or to pay any Indebtedness owed to the Company or
transfer properties and assets to the Company.
10.8 Loans and Investments.
The Company shall not, and shall not permit any of its Subsidiaries to,
purchase or otherwise acquire the capital stock, assets, obligations or other
securities of or any interest in any Person, or otherwise extend any credit to,
guarantee the obligations of or make any additional investments in any Person,
other than:
(a) extensions of credit in the nature of accounts
receivable or notes receivable arising from the sales of goods or services in
the ordinary course of business;
(b) investments by the Company in the capital stock of
wholly-owned Subsidiaries, and extensions of credit by the Company to any of its
wholly owned Subsidiaries or by any of its wholly owned Subsidiaries to another
of its wholly owned Subsidiaries or the Company, in each case in the ordinary
course of business;
(c) Permitted Investments;
(d) purchases of assets in the ordinary course of business;
(e) additional purchases of or investments in joint ventures
or the capital stock, assets, obligations or other securities of or interest in
other Persons, provided that (i) immediately prior to and after giving effect to
such purchase or investment, no Event of
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Default shall have occurred and be continuing, (ii) the aggregate cash and
non-cash consideration for any such purchase or investment (or series of related
purchases or investments) shall not exceed $5,000,000 without the prior written
consent of the Required Holders and (iii) after giving effect to such purchase
or investment, the Company shall be in full pro forma compliance with each of
the financial covenants set forth in subsections 10.04(a) through (e), measured
as of the last day of the fiscal quarter then most recently ended and (iv) in
the case of any Acquisition, the prior, effective written consent or approval to
such Acquisition of the board of directors or equivalent governing body of the
acquiree is obtained;
(f) employee loans and guarantees in accordance with the
Company's usual and customary practices with respect thereto;
(g) Guaranty Obligations permitted under Section 10.4(a); or
(h) extensions of credit by the Company to its Subsidiary
Canoe Ridge Vineyard L.L.C., its Subsidiary SHW Equity Co. and/or its Subsidiary
Edna Valley Vineyard outstanding on or after the Closing Date in an aggregate
amount for all such extensions of credit not to exceed, without the prior
written consent of the Required Holders in their sole discretion, the Maximum
Intercompany Loan Amount at any time outstanding; PROVIDED that all such
extensions of credit by the Company (i) to Canoe Ridge Vineyard L.L.C. shall not
at any time outstanding exceed the Canoe Ridge Intercompany Loan Amount, (ii) to
Edna Valley Vineyard shall not at any time outstanding exceed the Edna Valley
Intercompany Loan Amount and (iii) to SHW Equity Co. shall not at any time
outstanding exceed the SHW Intercompany Loan Amount; and PROVIDED FURTHER that
no Event of Default shall exist at the time of making any such credit extension
or would result therefrom.
10.9 Sale of Assets.
The Company shall not, and shall not permit any of its Subsidiaries to, sell,
lease, transfer, or otherwise dispose of, or part with control of (whether in
one transaction or a series of transactions) any assets (including any shares of
stock in any Subsidiary or other Person), except sales or other dispositions of
any of the following:
(a) any inventory in the ordinary course of business;
(b) any Permitted Investments;
(c) any assets which have become worn out or obsolete or
which are promptly being replaced, in the ordinary course of business;
(d) any assets by any of its wholly owned Subsidiaries to
another of its wholly owned Subsidiaries or to the Company;
(e) any Specified Assets; PROVIDED that such sale or
disposition is made in a bona fide arm's length transaction; and provided
further that at the time of any such sale or disposition, no Event of Default
shall exist or shall result therefrom; and
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(f) any other assets to the extent not otherwise permitted
under this Section 10.9; provided that such assets do not constitute the Primary
Trademarks or Substantial Assets and such sale or disposition is made for fair
market value; and provided further that (i) at the time of any such sale or
disposition, no Event of Default shall exist or shall result therefrom, (ii) the
aggregate sales price from such sale or disposition shall be paid in cash, and
(iii) no dispositions of accounts or notes receivable shall be permitted
hereunder. For purposes of clause (f) a sale, lease, transfer or other
disposition of assets shall be deemed to be of "Substantial Assets" if such
assets, when added to all other assets sold, leased, transferred or otherwise
disposed of during the same fiscal year (other than assets sold in the ordinary
course of business), shall exceed 5% of the Company's Consolidated Total Assets
determined as of the end of the most recently completed fiscal year.
10.10 Limitations on Sale-and-Leaseback Transactions.
The Company shall not, and shall not permit any of its Subsidiaries to,
become liable, directly or indirectly, with respect to any lease, whether an
Operating Lease or a Capital Lease, of any property (whether real, personal or
mixed), whether now owned or hereafter acquired, (a) which the Company or such
Subsidiary has sold or transferred or is to sell or transfer to any other Person
or (b) which the Company or such Subsidiary intends to use for substantially the
same purposes as any other property which has been or is to be sold or
transferred by the Company or such Subsidiary to any other Person in connection
with such lease, unless such sale or transfer is permitted under Section
10.9(f).
10.11 Subsidiary Guarantors.
(a) The Company shall cause each of the Original Subsidiary
Guarantors to execute and deliver, on or before the Closing, and thereafter
shall cause each Additional Subsidiary Guarantor to execute and deliver, the
Subsidiary Guarantee Agreement pursuant to which each such Subsidiary shall
guarantee the payment of all amounts payable by the Company hereunder and under
the Notes and the performance of all obligations of the Company hereunder and
under the Notes and the Collateral Documents to which it is a party to secure
its obligations under the Subsidiary Guarantee Agreement.
(b) In connection with the delivery of the Subsidiary
Guarantee Agreement and the relevant Collateral Documents, the Company shall
cause each Subsidiary Guarantor to deliver to each Holder of the Notes (i) such
documents and evidence with respect to such Subsidiary Guarantor as any Holder
may reasonably request in order to establish the existence and good standing of
such Subsidiary Guarantor and evidence that the Board of Directors of such
Subsidiary Guarantor has adopted resolutions authorizing the execution and
delivery of the Subsidiary Guarantee Agreement and the Collateral Documents to
which such Subsidiary Guarantor is a party, (ii) evidence that the Subsidiary
Guarantee Agreement and the relevant Collateral Documents do not violate any of
such Subsidiary Guarantor's outstanding debt instruments in the form of (A) a
certificate from such Subsidiary Guarantor to such effect, (B) consents or
approvals of the holder or holders of any Security, and/or (C) amendments of
agreements pursuant to which any Security may have been issued, all as may be
reasonably
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deemed necessary by the Holders to permit the execution and delivery of the
Subsidiary Guarantee Agreement and the Collateral Documents to which such
Subsidiary Guarantor is a party, (iii) a certificate of such Subsidiary as to
the matters described in Exhibit 10.11(a) hereto and such certificates or other
evidence as any Holder may reasonably request to establish that the transactions
contemplated by the Subsidiary Guarantee Agreement and the Collateral Documents
to which such Subsidiary Guarantor is a party shall not subject any such
Subsidiary Guarantor to any tax, penalty, liability or other onerous condition
under or pursuant to any applicable law or governmental regulation, (iv) an
opinion of independent counsel (which opinion, in scope, form and substance, and
counsel, shall be reasonably satisfactory to the Holders) and (v) all other
documents and showings reasonably requested by the Holders in connection with
the execution and delivery of the Subsidiary Guarantee Agreement and the
Collateral Documents to which such Subsidiary Guarantor is a party, which
documents shall be satisfactory in form and substance to the Holders and their
special counsel, and each Holder shall have received a copy (executed or
certified as may be appropriate) of all of the foregoing legal documents.
(c) In addition to the other limitations contained in this
Agreement, the Company will not permit any Subsidiary which is not a Subsidiary
Guarantor at that time to be or become liable in respect of any other Guaranty
after the date hereof; PROVIDED, however, that such Subsidiary may execute and
deliver such subsequent Guaranty so long as the Company shall contemporaneously
therewith cause such Subsidiary to execute and deliver, and such Subsidiary
shall execute and deliver, to the Holders of the Notes, the Subsidiary Guarantee
Agreement and all relevant Collateral Documents together with all other
documents, agreement, certificates and opinions in compliance with the terms and
provisions of this Section 10.11. It being the intent of this Section 10.11(c)
that at all times the Company shall cause all Subsidiaries which have executed
and delivered Guaranties to Holders of Funded Debt of the Company and/or any
other Subsidiary to be Subsidiary Guarantors in accordance with and pursuant to
the provisions of this Section 10.11.
(d) All reasonable out-of-pocket fees and expenses of the
Holders of the Notes, including, without limitation, the reasonable fees and
expenses of special counsel to the Holders of the Notes, incurred in connection
with the execution and delivery of the Subsidiary Guarantee Agreement, the
Collateral Documents and the related agreements and opinions described above
shall be borne by the Company.
10.12 Line of Business.
The Company will not, and will not permit any of the Restricted
Subsidiaries to, engage in any business if, as a result, the general nature of
the business in which the Company and the Restricted Subsidiaries, taken as a
whole, would then be engaged would be substantially changed from the general
nature of the business in which the Company and the Restricted Subsidiaries,
taken as a whole, are engaged on the date of the Closing.
10.13 Change of Control.
The Company will not allow a Change of Control.
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10.14 Amendments of Certain Documents.
The Company shall not, and shall not permit any of its Subsidiaries to,
agree to or permit any amendment, modification or waiver of:
(a) any provision of any agreement related to any
Subordinated Debt (including any amendment, modification or waiver pursuant to
an exchange of other securities or instruments for outstanding Subordinated
Debt) if the effect of such amendment, modification or waiver is to (i) increase
the interest rate on such Subordinated Debt or change (to earlier dates) the
dates upon which principal and interest are due thereon; (ii) alter the
redemption, prepayment or subordination provisions thereof; (iii) alter the
covenants and events of default in a manner which would make such provisions
more onerous or restrictive to the Company or such Subsidiary; or (iv) otherwise
increase the obligations of the Company or such Subsidiary in respect of such
Subordinated Debt or confer additional rights upon the holders thereof which
individually or in the aggregate would be adverse to the Company, its
Subsidiaries or the Holders; and
(b) any provision of any of the Credit Agreement Documents
(including any amendment, modification or waiver pursuant to an exchange of
other securities or instruments for outstanding Revolving Notes or Term) if the
effect of such amendment, modification or waiver would be to (i) change to
earlier dates the dates upon which principal and interest are due thereunder,
(ii) alter the redemption or prepayment provisions thereof, or (iii) alter the
provisions thereof relating to dispositions of collateral.
10.15 Redemption of Subordinated Debt.
The Company shall not, and shall not permit any of its Subsidiaries to,
make any voluntary or optional payment or repayment on, redemption, exchange or
acquisition for value of, or any sinking fund or similar payment with respect
to, any Subordinated Debt. Notwithstanding the foregoing, the Company may from
time to time satisfy all or any portion of the outstanding principal and accrued
and unpaid interest in respect of any Subordinated Debt by exchanging common
stock or Permitted Preferred Stock of the Company in satisfaction of such
outstanding principal and accrued and unpaid interest pursuant to a non-cash
transaction approved in good faith by the Board of Directors of the Company. The
Company shall promptly notify the Holders of any such exchange.
10.16 Hazardous Substances.
The Company shall not, and shall not permit any of its Subsidiaries to,
use, generate, manufacture, install, treat, release, store or dispose of any
Hazardous Material, except in compliance with all applicable Environmental Laws.
10.17 Accounting Changes.
The Company shall not, and shall not suffer or permit any of its
Subsidiaries to, make any significant change in accounting treatment or
reporting practices, except as required or permitted
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by GAAP, or change its fiscal year or that of any of its consolidated
Subsidiaries, except to change the fiscal year of a Subsidiary acquired in
connection with a permitted acquisition to conform its fiscal year to the
Company's.
10.18 Foreign Subsidiaries.
The Company shall not directly or indirectly create or acquire any
Foreign Subsidiary without the prior written consent of the Required Holders.
11. EVENTS OF DEFAULT.
An "EVENT OF DEFAULT" shall exist if any of the following conditions or
events shall occur:
(a) the Company defaults in the payment of any principal or
Make-Whole Amount, if any, on any Note when the same becomes due and payable,
whether at maturity or at a date fixed for prepayment or by declaration or
otherwise; or
(b) the Company defaults in the payment of any interest on
any Note or any other amount payable hereunder or under any other Loan Document
for more than three Business Days after the same becomes due and payable; or
(c) the Company defaults in the performance of or compliance
with any term contained in Sections 7, 9.2, 9.5 and 10 inclusive; or
(d) the Company defaults in the performance of or compliance
with any term contained herein (other than those referred to in paragraphs (a),
(b) and (c) of this Section 11) and such default is not remedied within 30 days
after the occurrence thereof; or
(e) any representation or warranty made in writing by or on
behalf of the Company or any Original Subsidiary Guarantor or by any officer of
the Company or any Original Subsidiary Guarantor in this Agreement, any
Collateral Document or in any writing furnished in connection with the
transactions contemplated hereby proves to have been false or incorrect in any
Material respect on the date as of which made; or
(f) (i)the Company or any Subsidiary Guarantor is in default
(as principal or as guarantor or other surety) in the payment of any principal
of or premium or make-whole amount or interest on any Debt that is outstanding
in an aggregate principal amount exceeding $1,500,000 beyond any period of grace
provided with respect thereto, or (ii) the Company or any Subsidiary Guarantor
is in default in the performance of or compliance with any term of any evidence
of any Debt in an aggregate outstanding principal amount exceeding $1,500,000 or
of any mortgage, indenture or other agreement relating thereto or any other
condition exists, and as a consequence of such default or condition such Debt
has become, or has been declared (or one or more Persons are entitled to declare
such Debt to be), due and payable before its stated maturity or before its
regularly scheduled dates of payment, or (iii) as a consequence of the
occurrence or continuation of any event or condition (other than the passage of
time or the right of the holder of Debt to convert such Debt into equity
interests), (x) the Company or any Subsidiary Guarantor has become obligated to
purchase or repay Debt before its regular maturity
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or before its regularly scheduled dates of payment in an aggregate outstanding
principal amount exceeding $1,500,000, or (y) one or more Persons have the right
to require the Company or any Subsidiary Guarantor so to purchase or repay such
Debt; or
(g) the Company or any Subsidiary (i) is generally not
paying, or admits in writing its inability to pay, its debts as they become due,
(ii) files, or consents by answer or otherwise to the filing against it of, a
petition for relief or reorganization or arrangement or any other petition in
bankruptcy, for liquidation or to take advantage of any bankruptcy, insolvency,
reorganization, moratorium or other similar law of any jurisdiction, (iii) makes
an assignment for the benefit of its creditors, (iv) consents to the appointment
of a custodian, receiver, trustee or other officer with similar powers with
respect to it or with respect to any substantial part of its property, (v) is
adjudicated as insolvent or to be liquidated, or (vi) takes corporate action for
the purpose of any of the foregoing; or
(h) a court or governmental authority of competent
jurisdiction enters an order appointing, without consent by the Company or any
of its Subsidiaries, a custodian, receiver, trustee or other officer with
similar powers with respect to it or with respect to any substantial part of its
property, or constituting an order for relief or approving a petition for relief
or reorganization or any other petition in bankruptcy or for liquidation or to
take advantage of any bankruptcy or insolvency law of any jurisdiction, or
ordering the dissolution, winding-up or liquidation of the Company or any of its
Subsidiaries, or any such petition shall be filed against the Company or any of
its Subsidiaries and such petition shall not be dismissed within 60 days; or
(i) a final judgment or judgments for the payment of money
aggregating in excess of $1,500,000 are rendered against one or more of the
Company and its Subsidiaries and which judgments are not, within 20 days after
entry thereof, bonded, discharged or stayed pending appeal, or are not
discharged within 20 days after the expiration of such stay; or
(j) (i) Default shall occur in the observance or performance
of any covenant or agreement contained in any Subsidiary Guarantee Agreement
which is not remedied within 20 days after the occurrence thereof, (2) any
Subsidiary Guarantee Agreement shall cease to be in full force and effect for
any reason whatsoever, including, without limitation, a determination by any
governmental body or court that such agreement is invalid, void or unenforceable
or (3) the Company or any Subsidiary Guarantor, as the case may be, shall
contest or deny in writing the validity or enforceability of any of its
obligations under any Subsidiary Guarantee Agreement; or
(k) any Plan shall fail to satisfy the minimum funding
standards of ERISA or the Code for any plan year or part thereof or a waiver of
such standards or extension of any amortization period is sought or granted
under section 412 of the Code, (ii) a notice of intent to terminate any Plan
shall have been or is reasonably expected to be filed with the PBGC or the PBGC
shall have instituted proceedings under ERISA section 4042 to terminate or
appoint a trustee to administer any Plan or the PBGC shall have notified the
Company or any ERISA Affiliate that a Plan may become a subject of any such
proceedings, (iii) the aggregate "amount of unfunded benefit liabilities"
(within the meaning of section 4001(a)(18) of ERISA) under all Plans, determined
in accordance with Title IV of ERISA, shall exceed $1,500,000, (iv) the
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Company or any ERISA Affiliate shall have incurred or is reasonably expected to
incur any liability pursuant to Title I or IV of ERISA or the penalty or excise
tax provisions of the Code relating to employee benefit plans, (v) the Company
or any ERISA Affiliate withdraws from any Multiemployer Plan, or (vi) the
Company or any Subsidiary establishes or amends any employee welfare benefit
plan that provides post-employment welfare benefits in a manner that would
increase the liability of the Company or any Subsidiary thereunder; and any such
event or events described in clauses (i) through (vi) above, either individually
or together with any other such event or events, could reasonably be expected to
have a Material Adverse Effect; or
(l) a Material Adverse Effect shall occur; or
(m) a Change of Control shall occur; or
(n) [intentionally omitted]; or
(o) the Environmental Indemnity after delivery thereof shall
for any reason be revoked or invalidated, or otherwise cease to be in full force
and effect, or the Company or any other Person shall contest in any manner the
validity or enforceability thereof, or the Company shall deny that it has any
further liability or obligation thereunder; or
(p) the subordination or intercreditor provisions of the
Intercreditor Agreement or of any agreement or instrument governing any
Subordinated Debt shall for any reason be revoked or invalidated, or otherwise
cease to be in full force and effect, any Person shall contest in any manner the
validity or enforceability thereof or deny that it has any further liability or
obligation thereunder, or the Indebtedness hereunder shall for any reason be
subordinated or shall not have the priority contemplated by this Agreement or
such subordination or intercreditor provisions; or
(q) the Company or any other Person shall fail to perform or
observe any term, covenant or agreement contained in the Collateral Documents on
its part to be performed or observed and any such failure shall remain
unremedied for a period of 20 days from the occurrence thereof (unless the
Required Holders determine that such failure is not capable of remedy), or any
"Event of Default" as defined in any Collateral Document shall have occurred; or
any of the Collateral Documents after delivery thereof shall for any reason be
revoked or invalidated, or otherwise cease to be in full force and effect, or
the Company or any other Person shall contest in any manner the validity or
enforceability thereof, or the Company or any other Person shall deny that it
has any further liability or obligation thereunder; or any of the Collateral
Documents for any reason, except to the extent permitted by the terms thereof,
shall cease to create a valid and perfected first priority Lien subject only to
Permitted Liens in any of the Collateral purported to be covered thereby; or any
title insurance coverage in respect of any material portion of the Collateral is
disavowed or becomes ineffective.
As used in Section 11(k), the terms "EMPLOYEE BENEFIT PLAN" and
"EMPLOYEE WELFARE BENEFIT PLAN" shall have the respective meanings assigned to
such terms in Section 3 of ERISA.
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12. REMEDIES ON DEFAULT, ETC.
12.1 Acceleration.
(a) If an Event of Default with respect to the Company
described in paragraph (g) or (h) of Section 11 (other than an Event of Default
described in clause (i) of paragraph (g) or described in clause (vi) of
paragraph (g) by virtue of the fact that such clause encompasses clause (i) of
paragraph (g)) has occurred, all the Notes then outstanding shall automatically
become immediately due and payable.
(b) If any other Event of Default has occurred and is
continuing, any Holder or Holders of more than 25% in principal amount of the
Notes at the time outstanding may at any time at its or their option, by notice
or notices to the Company, declare all the Notes then outstanding to be
immediately due and payable.
(c) If any Event of Default described in paragraph (a) or(b)
of Section 11 has occurred and is continuing, any Holder or Holders of Notes at
the time outstanding affected by such Event of Default may at any time, at its
or their option, by notice or notices to the Company, declare all the Notes held
by it or them to be immediately due and payable. Upon any Notes becoming due and
payable under this Section 12.1, whether automatically or by declaration, such
Notes will forthwith mature and the entire unpaid principal amount of such
Notes, plus (x) all accrued and unpaid interest thereon and (y) the Make-Whole
Amount determined in respect of such principal amount (to the full extent
permitted by applicable law), shall all be immediately due and payable, in each
and every case without presentment, demand, protest or further notice, all of
which are hereby waived. The Company acknowledges, and the parties hereto agree,
that each holder of a Note has the right to maintain its investment in the Notes
free from repayment by the Company (except as herein specifically provided for)
and that the provision for payment of a Make-Whole Amount by the Company in the
event that the Notes are prepaid or are accelerated as a result of an Event of
Default, is intended to provide compensation for the deprivation of such right
under such circumstances.
12.2 Other Remedies.
If any Default or Event of Default has occurred and is continuing, and
irrespective of whether any Notes have become or have been declared immediately
due and payable under Section 12.1, the Holder of any Note at the time
outstanding may proceed to protect and enforce the rights of such Holder by an
action at law, suit in equity or other appropriate proceeding, whether for the
specific performance of any agreement contained herein or in any Note, or for an
injunction against a violation of any of the terms hereof or thereof, or in aid
of the exercise of any power granted hereby or thereby or by law or otherwise.
12.3 Rescission.
At any time after any Notes have been declared due and payable pursuant
to clause (b) or (c) of Section 12.1, the Holders of not less than 66-2/3% in
principal amount of the Notes then
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outstanding, by written notice to the Company, may rescind and annul any such
declaration and its consequences if (a) the Company has paid all overdue
interest on the Notes, all principal of and Make-Whole Amount, if any, on any
Notes that are due and payable and are unpaid other than by reason of such
declaration, and all interest on such overdue principal and Make-Whole Amount,
if any, and (to the extent permitted by applicable law) any overdue interest in
respect of the Notes, at the Default Rate, (b) all Events of Default and
Defaults, other than non-payment of amounts that have become due solely by
reason of such declaration, have been cured or have been waived pursuant to
Section 17, and (c) no judgment or decree has been entered for the payment of
any monies due pursuant hereto or to the Notes. No rescission and annulment
under this Section 12.3 will extend to or affect any subsequent Event of Default
or Default or impair any right consequent thereon.
12.4 No Waivers or Election of Remedies, Expenses, etc.
No course of dealing and no delay on the part of any Holder of any Note
in exercising any right, power or remedy shall operate as a waiver thereof or
otherwise prejudice such holder's rights, powers or remedies. No right, power or
remedy conferred by this Agreement or by any Note upon any Holder thereof shall
be exclusive of any other right, power or remedy referred to herein or therein
or now or hereafter available at law, in equity, by statute or otherwise.
Without limiting the obligations of the Company under Section 15, the Company
will pay to the holder of each Note on demand such further amount as shall be
sufficient to cover all costs and expenses of such holder incurred in any
enforcement or collection under this Section 12, including, without limitation,
reasonable attorneys' fees, expenses and disbursements.
13. REGISTRATION; EXCHANGE; SUBSTITUTION OF NOTES.
13.1 Registration of Notes.
The Company shall keep at its principal executive office a register for the
registration and registration of transfers of Notes. The name and address of
each Holder and the name and address of each transferee of one or more Notes
shall be registered in such register. Prior to due presentment for registration
of transfer, the Person in whose name any Note shall be registered shall be
deemed and treated as the owner and Holder thereof for all purposes hereof, and
the Company shall not be affected by any notice or knowledge to the contrary.
The Company shall give to any Holder promptly upon request therefor, a complete
and correct copy of the names and addresses of all registered Holders.
13.2 Transfer and Exchange of Notes.
Upon surrender of any Note at the principal executive office of the
Company for registration of transfer or exchange (and in the case of a surrender
for registration of transfer, duly endorsed or accompanied by a written
instrument of transfer duly executed by the registered Holder or his attorney
duly authorized in writing and accompanied by the address for notices of each
transferee of such Note or part thereof), the Company shall execute and deliver,
at the Company's expense (except as provided below), one or more new Notes (as
requested by the Holder thereof) in such Series in exchange therefor, in an
aggregate principal amount equal to the
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unpaid principal amount of the surrendered Note. Each such new Note shall be
payable to such Person as such Holder may request and shall be substantially in
the form of Exhibit 1-A, 1-B or 1-C, as the case may be. Each such new Note
shall be dated and bear interest from the date to which interest shall have been
paid on the surrendered Note or dated the date of the surrendered Note if no
interest shall have been paid thereon. The Company may require payment of a sum
sufficient to cover any stamp tax or governmental charge imposed in respect of
any such transfer of Notes. Notes shall not be transferred in denominations of
less than $100,000, PROVIDED THAT if necessary to enable the registration of
transfer by a Holder of its entire holding of Notes, one Note may be in a
denomination of less than $100,000. Any transferee, by its acceptance of a Note
registered in its name (or the name of its nominee), shall be deemed to have
made the representation set forth in Section 6.2.
13.3 Replacement of Notes.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the ownership of and the loss, theft, destruction or mutilation of any Note
(which evidence shall be, in the case of an Institutional Investor, notice from
such Institutional Investor of such ownership and such loss, theft, destruction
or mutilation), and
(a) in the case of loss, theft or destruction, of indemnity
reasonably satisfactory to it (PROVIDED THAT if the Holder is, or is a nominee
for, an original Purchaser or another Holder with a minimum net worth of at
least $25,000,000, such Person's own unsecured agreement of indemnity shall be
deemed to be satisfactory), or
(b) in the case of mutilation, upon surrender and
cancellation thereof,
the Company at the Holder's sole expense shall execute and deliver, in
lieu thereof, a new Note of such Series, dated and bearing interest from the
date to which interest shall have been paid on such lost, stolen, destroyed or
mutilated Note or dated the date of such lost, stolen, destroyed or mutilated
Note if no interest shall have been paid thereon.
14. PAYMENT OF NOTES.
14.1 Place of Payment.
Subject to Section 14.2, payments of principal, Make-Whole Amount, if
any, and interest becoming due and payable on the Notes shall be made in New
York, New York, at the principal office of Chase Manhattan Bank. The Company may
at any time, by notice to each Holder, change the place of payment of the Notes
so long as such place of payment shall be either the principal office of the
Company in such jurisdiction or the principal office of a bank or trust company
in such jurisdiction.
14.2 Home Office Payment.
So long as any Purchaser or its nominee shall be a Holder, and
notwithstanding anything contained in Section 14.1 or in such Note to the
contrary, the Company will pay all sums becoming due on such Note for principal,
Make-Whole Amount, if any, and interest by the
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method and at the address specified for such purpose below such Purchaser's name
in Schedule A, or by such other method or at such other address as such
Purchaser or nominee shall have from time to time specified to the Company in
writing for such purpose, without the presentation or surrender of such Note or
the making of any notation thereon, except that upon written request of the
Company made concurrently with or reasonably promptly after payment or
prepayment in full of any Note, such Purchaser or nominee shall surrender such
Note for cancellation, reasonably promptly after any such request, to the
Company at its principal executive office or at the place of payment most
recently designated by the Company pursuant to Section 14.1. Prior to any sale
or other disposition of any Note, any Purchaser or its nominee will, at its
election, either endorse thereon the amount of principal paid thereon and the
last date to which interest has been paid thereon or surrender such Note to the
Company in exchange for a new Note or Notes pursuant to Section 13.2. The
Company will afford the benefits of this Section 14.2 to any Institutional
Investor that is the direct or indirect transferee of any Note purchased by each
Purchaser under this Agreement and that has made the same agreement relating to
such Note as each Purchaser has made in this Section 14.2.
15. EXPENSES, ETC.
15.1 Transaction Expenses.
Whether or not the transactions contemplated hereby are consummated,
the Company will pay all costs and expenses (including reasonable attorneys'
fees of a special counsel and, if reasonably required, local or other counsel)
incurred by each Purchaser or Holder in connection with such transactions and in
connection with any amendments, waivers or consents under or in respect of this
Agreement or the Notes (whether or not such amendment, waiver or consent becomes
effective), including, without limitation: (a) the costs and expenses incurred
in enforcing or defending (or determining whether or how to enforce or defend)
any rights under this Agreement or the Notes or in responding to any subpoena or
other legal process or informal investigative demand issued in connection with
this Agreement or the Notes, or by reason of being a Holder, and (b) the costs
and expenses, including financial advisors' fees, incurred in connection with
the insolvency or bankruptcy of the Company, any Restricted Subsidiary or any
Subsidiary Guarantor in connection with any work-out or restructuring of the
transactions contemplated hereby and by the Notes. The Company will pay, and
will save each Purchaser or other Holder harmless from, all claims in respect of
any fees, costs or expenses if any, of brokers and finders (other than those
retained by such Purchaser or other Holder).
15.2 Survival.
The obligations of the Company under this Section 15 will survive the
payment or transfer of any Note, the enforcement, amendment or waiver of any
provision of this Agreement, the Collateral Documents or the Notes, and the
termination of this Agreement and the Collateral Documents.
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16. SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ENTIRE AGREEMENT.
All representations and warranties contained herein shall survive the execution
and delivery of this Agreement and the Notes, the purchase or transfer by any
Purchaser of any Note or portion thereof or interest therein and the payment of
any Note, and may be relied upon by any subsequent Holder, regardless of any
investigation made at any time by or on behalf of any Purchaser or any other
Holder. All statements contained in any certificate or other instrument
delivered by or on behalf of the Company pursuant to this Agreement or any
Collateral Document shall be deemed representations and warranties of the
Company under this Agreement and such Collateral Document. Subject to the
preceding sentence, this Agreement, the Collateral Documents and the Notes
embody the entire agreement and understanding between the Purchasers and the
Company and supersede all prior agreements and understandings relating to the
subject matter hereof.
17. AMENDMENT AND WAIVER.
17.1 Requirements.
This Agreement and the Notes may be amended, and the observance of any
term hereof or of the Notes may be waived (either retroactively or
prospectively), with (and only with) the written consent of the Company and the
Required Holders, and the Notes may be amended and the observance of any term of
the Notes may be waived (either retroactively or prospectively), with and only
with the written consent of the Company and the Required Holders, except that
(a) no amendment or waiver of any of the provisions of Section 1, 2, 3, 4, 5, 6
or 21 hereof, or any defined term (as it is used therein), will be effective as
to each Purchaser unless consented to by each Purchaser in writing, and (b) no
such amendment or waiver may, without the written consent of the Holder of each
Note at the time outstanding affected thereby, (i) subject to the provisions of
Section 12 relating to acceleration or rescission, change the amount or time of
any prepayment or payment of principal of, or reduce the rate or change the time
of payment or method of computation of interest or of the Make-Whole Amount on,
the Notes, (ii) change the percentage of the principal amount of the Notes, the
Holders of which are required to consent to any such amendment or waiver or
(iii) amend any of Sections 8, 11(a), 11(b), 12, 17 or 20.
17.2 Solicitation of Holders of Notes.
(a) Solicitation -- the Company will provide each Holder of
the Notes (irrespective of the amount of Notes then owned by it) with sufficient
information, sufficiently far in advance of the date a decision is required, to
enable such Holder to make an informed and considered decision with respect to
any proposed amendment, waiver or consent in respect of any of the provisions
hereof or of the Notes or of the Collateral Documents. The Company will deliver
executed or true and correct copies of each amendment, waiver or consent
effected pursuant to the provisions of this Section 17 to each Holder of
outstanding Notes promptly following the date on which it is executed and
delivered by, or receives the consent or approval of, the requisite Holders of
Notes.
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(b) Payment -- the Company will not directly or indirectly
pay or cause to be paid any remuneration, whether by way of supplemental or
additional interest, fee or otherwise, or grant any security, to any Holder of
Notes as consideration for or as an inducement to the entering into by any
Holder of Notes of any waiver or amendment of any of the terms and provisions
hereof or of the Notes or of the Collateral Documents unless such remuneration
is concurrently paid, or security is concurrently granted, on the same terms,
ratably to each Holder of Notes then outstanding whether or not such Holder
consented to such waiver or amendment.
17.3 Binding Effect, etc.
Any amendment or waiver consented to as provided in this Section 17
applies equally to all Holders of Notes and is binding upon them and upon each
future Holder of Notes and upon the Company without regard to whether such Note
has been marked to indicate such amendment or waiver. No such amendment or
waiver will extend to or affect any obligation, covenant, agreement, Default or
Event of Default not expressly amended or waived or impair any right consequent
thereon. No course of dealing between the Company and any Holder nor any delay
in exercising any rights hereunder or under any Note shall operate as a waiver
of any rights of any Holder. As used herein, the term "this Agreement" and
references thereto shall mean this Agreement as it may from time to time be
amended or supplemented.
17.4 Notes Held by Company, etc.
Solely for the purpose of determining whether the Holders of the
requisite percentage of the aggregate principal amount of Notes then outstanding
approved or consented to any amendment, waiver or consent to be given under this
Agreement or the Notes, or have directed the taking of any action provided
herein or in the Notes to be taken upon the direction of the Holders of a
specified percentage of the aggregate principal amount of Notes then
outstanding, Notes directly or indirectly owned by the Company or any of its
Affiliates shall be deemed not to be outstanding.
18. NOTICES.
All notices and communications provided for hereunder shall be in
writing and sent (a) by telecopy if the sender on the same day sends a
confirming copy of such notice by a recognized overnight delivery service
(charges prepaid), or (b) by registered or certified mail with return receipt
requested (postage prepaid), or (c) by a recognized overnight delivery service
(with charges prepaid). Any such notice must be sent:
(i) if to a Purchaser or its nominee, to such
Purchaser or its nominee at the address specified for such communications in
Schedule A, or at such other address as such Purchaser or its nominee shall have
specified to the Company in writing,
(ii) if to any other Holder, to such Holder at such
address as such other Holder shall have specified to the Company in writing, or
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(iii) if to the Company,to the Company at its address
set forth at the beginning hereof to the attention of the Chief Financial
Officer, or if to the Company's website at www.chalonewinegroup.com, or at such
other address as the Company shall have specified to the Holder of each Note in
writing.
Notices under this Section 18 will be deemed given only when actually received.
19. REPRODUCTION OF DOCUMENTS.
This Agreement and all documents relating thereto, including, without
limitation, (a) consents, waivers and modifications that may hereafter be
executed, (b) documents received by each Holder at the Closing (except the Notes
themselves), and (c) financial statements, certificates and other information
previously or hereafter furnished to any Holder, may be reproduced by such
Holder by any photographic, photostatic, microfilm, microcard, miniature
photographic or other similar process and such Holder may destroy any original
document so reproduced. The Company agrees and stipulates that, to the extent
permitted by applicable law, any such reproduction shall be admissible in
evidence as the original itself in any judicial or administrative proceeding
(whether or not the original is in existence and whether or not such
reproduction was made by such Holder in the regular course of business) and any
enlargement, facsimile or further reproduction of such reproduction shall
likewise be admissible in evidence. This Section 19 shall not prohibit the
Company or any Holder from contesting any such reproduction to the same extent
that it could contest the original, or from introducing evidence to demonstrate
the inaccuracy of any such reproduction.
20. CONFIDENTIAL INFORMATION.
For the purposes of this Section 20, "CONFIDENTIAL INFORMATION" means
information delivered to each Holder by or on behalf of the Company or any
Subsidiary in connection with the transactions contemplated by or otherwise
pursuant to this Agreement that is proprietary in nature and that was clearly
marked or labeled or otherwise adequately identified when received by such
Holder as being confidential information of the Company or such Subsidiary,
provided that such term does not include information that (a) was publicly known
or otherwise known to such Holder prior to the time of such disclosure, (b)
subsequently becomes publicly known through no act or omission by such Holder or
any Person acting on such Holder's behalf, (c) otherwise becomes known to such
Holder other than through disclosure by the Company, any Subsidiary or any
Guarantor through disclosure by a Person who was otherwise permitted to make
such disclosure, or (d) constitutes financial statements delivered to such
Holder under Section 7.1 that are otherwise publicly available.
Each Holder will use its best efforts to maintain the confidentiality
of such Confidential Information in accordance with procedures adopted by such
Holder in good faith to protect confidential information of third parties
delivered to such Holder, PROVIDED THAT such Holder may deliver or disclose
Confidential Information to (i) each Holder's directors, trustees, officers,
employees, Purchasers, attorneys and affiliates (to the extent such disclosure
reasonably relates to the administration of the investment represented by each
Holder's Notes), (ii) each Holder's financial advisors and other professional
advisors who agree to hold confidential the Confidential
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Information substantially in accordance with the terms of this Section 20, (iii)
any other Holder, (iv) any Institutional Investor to which any Holder sells or
offers to sell such Note or any part thereof or any participation therein (if
such Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (v) any Person
from whom any Holder offers to purchase any security of the Company (if such
Person has agreed in writing prior to its receipt of such Confidential
Information to be bound by the provisions of this Section 20), (vi) any federal
or state regulatory authority having jurisdiction over any Holder, (vii) the
National Association of Insurance Commissioners or any similar organization, or
any nationally recognized rating agency that requires access to information
about such Holder's investment portfolio or (viii) any other Person to which
such delivery or disclosure may be necessary or appropriate (w) to effect
compliance with any law, rule, regulation or order applicable to any Holder, (x)
in response to any subpoena or other legal process, (y) in connection with any
litigation to which any Holder is a party or (z) if an Event of Default has
occurred and is continuing, to the extent any Holder may reasonably determine
such delivery and disclosure to be necessary or appropriate in the enforcement
or for the protection of the rights and remedies under your Notes and this
Agreement. Each Holder, by its acceptance of a Note, will be deemed to have
agreed to be bound by and to be entitled to the benefits of this Section 20 as
though it were a party to this Agreement.
21. SUBSTITUTION OF PURCHASER; PARTICIPATION.
(a) Each Purchaser shall have the right to substitute any
one of its Affiliates as the purchaser of the Notes that such Purchaser has
agreed to purchase hereunder, by written notice to the Company, which notice
shall be signed by both such Purchaser and such Affiliate, shall contain such
Affiliate's agreement to be bound by this Agreement and shall contain a
confirmation by such Affiliate of the accuracy with respect to it of the
representations set forth in Section 6. Upon receipt of such notice, wherever
the word "Purchaser" is used in this Agreement (other than in this Section 21),
such word shall be deemed to refer to such Affiliate in lieu of the previous
Purchaser. In the event that such Affiliate is so substituted as a purchaser
hereunder and such Affiliate thereafter transfers to any Purchaser all of the
Notes then held by such Affiliate, upon receipt by the Company of notice of such
transfer, wherever the word "Purchaser" is used in this Agreement (other than in
this Section 21), such word shall no longer be deemed to refer to such
Affiliate, but shall refer to the Purchaser, and the Purchaser shall have all
the rights of an original Holder under this Agreement.
(b) Any Holder may at any time sell to one or more Persons
not Affiliates of the Company (a "Participant") participating interests in any
loan evidenced by a Note issued hereunder held by such Holder (the "Originating
Holder"); provided, however, that (i) the Originating Holder's obligations under
this Agreement shall remain unchanged, (ii) the Originating Holder shall remain
solely responsible for the performance of such obligations, (iii) the Company
and the Subsidiary Guarantors shall deal solely and directly with the
Originating Holder in connection with the Originating Holder's rights and
obligations under this Agreement and the Notes held by it, and (iv) no Holder
shall transfer or grant any participating interest under which the Participant
has rights to approve any amendment to, or any consent or waiver with respect
to, this Agreement or any of the Notes. In the case of any such participation,
the
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Participant shall be entitled to the benefit of Section14.2, as though it were
also a Holder hereunder.
22. MISCELLANEOUS.
22.1 Successors and Assigns.
All covenants and other agreements contained in this Agreement by or on
behalf of any of the parties hereto bind and inure to the benefit of their
respective successors and assigns (including, without limitation, any subsequent
Holder) whether so expressed or not.
22.2 Payments Due on Non-Business Days.
Anything in this Agreement or the Notes to the contrary
notwithstanding, any payment of principal of or Make-Whole Amount or interest on
any Note that is due on a date other than a Business Day shall be made on the
next succeeding Business Day without including the additional days elapsed in
the computation of the interest payable on such next succeeding Business Day.
22.3 Severability.
Any provision of this Agreement that is prohibited or unenforceable in
any jurisdiction shall, as to such jurisdiction, be ineffective to the extent of
such prohibition or unenforceability without invalidating the remaining
provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall (to the full extent permitted by law) not invalidate or
render unenforceable such provision in any other jurisdiction.
22.4 Construction.
Each covenant contained herein shall be construed (absent express
provision to the contrary) as being independent of each other covenant contained
herein, so that compliance with any one covenant shall not (absent such an
express contrary provision) be deemed to excuse compliance with any other
covenant. Where any provision herein refers to action to be taken by any Person,
or which such Person is prohibited from taking, such provision shall be
applicable whether such action is taken directly or indirectly by such Person.
22.5 Counterparts.
This Agreement may be executed in any number of counterparts, each of
which shall be an original but all of which together shall constitute one
instrument. Each counterpart may consist of a number of copies hereof, each
signed by less than all, but together signed by all, of the parties hereto.
22.6 Governing Law; Jurisdiction and Service of Process.
This Agreement shall be construed and enforced in accordance with, and
the rights of the parties shall be governed by, the law of the State of New
York, excluding choice-of-law
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principles of the law of such State that would require the application of the
laws of a jurisdiction other than such State. The Company hereby irrevocably and
unconditionally agree that any suit, action or proceeding with respect to this
Agreement, or any proceeding to execute or otherwise enforce any judgment in
respect of any breach thereof, brought by any registered Holder of a Note
against the Company or any of its property, may be brought by such Holder of a
Note in the United States District Court for the Southern District of New York
or any New York State Court sitting in the Borough of Manhattan as such Holder
of a Note may in its sole discretion elect, and by the execution and delivery of
this Agreement, the Company irrevocably submits to the jurisdiction of each such
court; and agrees that process served either personally or by registered mail
shall constitute, to the extent permitted by law, adequate service of process in
any such suit. In addition, the Company hereby irrevocably waives, to the
fullest extent permitted by law, any objection which it may now or hereafter
have to the laying of venue in any suit, action or proceeding arising out of or
relating to this Agreement or any Note, brought in the said courts, and hereby
irrevocably waives any claim that any such suit, action or proceeding brought in
any such court has been brought in an inconvenient forum. Nothing herein shall
in any way be deemed to limit the ability of any registered Holder of a Note to
serve any such writs, process or summonses, in any manner permitted by
applicable law or to obtain jurisdiction over the Company in such other
jurisdiction, and in such manner, as may be permitted by applicable law.
22.7 Agents for Service of Process.
WITHOUT LIMITING THE FOREGOING, THE COMPANY HEREBY APPOINTS, IN THE
CASE OF ANY SUCH ACTION OR PROCEEDING BROUGHT IN THE COURTS OF OR IN THE STATE
OF NEW YORK, CT CORPORATION TO RECEIVE, FOR IT AND ON ITS BEHALF, SERVICE OF
PROCESS IN THE STATE OF NEW YORK WITH RESPECT THERETO, PROVIDED THE COMPANY MAY,
AND IN THE EVENT THAT CT CORPORATION IS AT ANY TIME NO LONGER DOMICILED IN THE
STATE OF NEW YORK, THE COMPANY SHALL, APPOINT CT CORPORATION OR ANY OTHER
PERSON, REASONABLY ACCEPTABLE TO THE REQUIRED HOLDERS, WITH OFFICES IN THE STATE
OF NEW YORK TO REPLACE SUCH PURCHASERS FOR SERVICE OF PROCESS UPON DELIVERY TO
THE HOLDERS OF A REASONABLY ACCEPTABLE AGREEMENT OF SUCH NEW PURCHASERS AGREEING
SO TO ACT. IF SERVICE OF PROCESS IS MADE BY ANY HOLDER OF A NOTE UPON SUCH
APPOINTEE, A COPY THEREOF SHALL ALSO BE PROVIDED TO THE COMPANY, BY REGISTERED
OR CERTIFIED MAIL, OR BY INTERNATIONALLY-RECOGNIZED EXPEDITED DELIVERY SERVICE;
PROVIDED THAT THE FAILURE OF SUCH HOLDER TO PROVIDE SUCH COPY TO THE COMPANY
SHALL NOT IMPAIR OR AFFECT IN ANY WAY THE VALIDITY OF SUCH SERVICE OF PROCESS OR
ANY JUDGMENT RENDERED IN ANY SUCH SUIT, ACTION, OR PROCEEDING. NOTHING HEREIN
SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF ANY HOLDER OF A NOTE TO SERVE
ANY SUCH WRITS, PROCESS OR SUMMONSES IN ANY MANNER PERMITTED BY APPLICABLE LAW,
OR TO OBTAIN JURISDICTION OVER THE COMPANY, IN SUCH OTHER JURISDICTION, AND IN
SUCH MANNER, AS MAY BE PERMITTED BY APPLICABLE LAW.
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22.8 Waiver of Jury Trial.
THE COMPANY AND THE HOLDERS HEREBY AGREE TO WAIVE THEIR RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE
COMPANY AND THE HOLDERS HEREBY AGREE THAT ANY SUCH CLAIM OR CAUSE OF ACTION
SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT IN ANY WAY LIMITING THE
FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY
JURY IS WAIVED BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM, OR
OTHER PROCEEDING WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR
ENFORCEABILITY OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION
HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN
DOCUMENTS. A COPY OF THIS SECTION 22.8 MAY BE FILED WITH ANY COURT AS WRITTEN
EVIDENCE OF THE WAIVER OF THE RIGHT TO TRIAL BY JURY AND CONSENT TO TRIAL BY
COURT. THIS SECTION 22.8 MAY NOT BE AMENDED, MODIFIED, TERMINATED OR WAIVED
EXCEPT BY A WRITING WHICH MAKES SPECIFIC REFERENCE TO THIS SECTION 22.8.
* * * * *
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If you are in agreement with the foregoing, please sign the form of
agreement on the accompanying counterpart of this Agreement and return it to the
Company, whereupon the foregoing shall become a binding agreement between you
and the Company.
Very truly yours,
THE CHALONE WINE GROUP, LTD.
By: /s/ THOMAS B. SELFRIDGE
_________________________________________
Thomas B. Selfridge, President & CEO
AMENDED AND RESTATED
NOTE PURCHASE AGREEMENT
AGSTAR FINANCIAL SERVICES, PCA, D/B/A FARM
CREDIT SERVICES COMMERCIAL FINANCE GROUP
BY: /s/ JAMEY M. GRAFING
_________________________________________
NAME: Jamey M. Grafing
_________________________________________
ITS: SVP - Syndicated Finance
_________________________________________
FARM CREDIT SERVICES OF AMERICA, PCA
BY: /s/ BRUCE P. ROUSE
_________________________________________
NAME: BRUCE P. ROUSE
ITS: V.P. - COMMERICAL LENDER
INFORMATION RELATING TO PURCHASERS
Principal Amount and Series
Name and Address of Purchaser of Notes to be Purchased
_____________________________ ___________________________
FARM CREDIT SERVICES OF AMERICA, PCA $ 5,000,000 Series A Notes
206 South 19th Street 15,000,000 Series C Notes
Omaha, Nebraska 68102
Attention: Bruce P. Rouse
Facsimile Number: (402) 348-3324
Confirmation Number: (402) 348-3284
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds at the opening of business on the
due date thereof (identifying each payment as "The Chalone Wine Group, Ltd
Adjustable Rate Senior Secured Notes, Series A, Due September 15, 2010, 157639
B* 5, principal, premium or interest" or "The Chalone Wine Group, Ltd.
Adjustable Rate Senior Secured Notes, Series C, Due September 15, 2010, PPN
157639 B# 1, principal, premium or interest") to:
Bank Name: AgAmerica FCB
Short Name: AGAMER FCB
Routing # (ABA): 125108298
Beneficiary Account Name: Farm Credit Services of America
Beneficiary Account Number: 81100-000 (Commercial Loan)
Further Credit Account Name: The Chalone Wine Group, Ltd.
Further Credit Account #: 89407-151 & 152
Contact: Judy Bachand (800) 348-0023 or Sue Bement (800) 348-0283 x3284
Contemporaneous with the above electronic funds transfer, mail or fax the
following information: (1) the full name, private placement number, interest
rate and maturity date of the Notes; (2) the allocation of payment between
principal, interest, premium and any special payment; and (3) the name and
address of the Bank from which such transfer was sent, to:
Farm Credit Services of America, PCA
206 South 19th Street
Omaha, Nebraska 68102
Attention: Sue Bement
Facsimile Number: (402) 348-3324
Confirmation Number: (402) 348-3284
All other notices and communications to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 47-0373522
SCHEDULE A
(to Note Purchase Agreement)
Principal Amount and Series
Name and Address of Purchaser of Notes to be Purchased
_____________________________ ___________________________
AGSTAR FINANCIAL SERVICES, PCA $10,000,000 Series B Notes
DBA FARM CREDIT SERVICES COMMERCIAL
FINANCE GROUP
1921 Premiere Drive
PO Box 4249
Mankato, MN 56002-4249
Attention: Jamey Grafing
Facsimile Number: (507) 344-5081
Confirmation Number: (507) 345- 5626
Payments
All payments on or in respect of the Notes to be by bank wire transfer of
Federal or other immediately available funds at the opening of business on the
due date thereof (identifying each payment as "The Chalone Wine Group, Ltd
Adjustable Rate Senior Secured Notes, Series B, Due September 15, 2010, PPN
157639 B@ 3, principal, premium or interest") to:
Bank Name: AgriBank St Paul
Routing Number: 0960 1697 2
Remitter: Purchasers Bank for Chalone Wine Group
Deadline: Wire must be sent to AgriBank by 2 p.m.
Notices
Contemporaneous with the above electronic funds transfer, mail or fax the
following information setting forth: (1) the full name, private placement
number, interest rate and maturity date of the Notes and including also the
identifying information: Chalone Loan # 1068700900, Chalone CIF # 1682954; (2)
the allocation of payment between principal, interest, premium and any special
payment; and (3) the name and address of the Bank from which such transfer was
sent, to the above address, Attention: Karen Doyen.
All other notices and communications to be addressed as first provided above.
Name of Nominee in which Notes are to be issued: None
Taxpayer I.D. Number: 41-1956284
A-2
DEFINED TERMS
As used herein, the following terms have the respective meanings set
forth below or set forth in the Section hereof following such term:
"ACCOUNTS AND INVENTORY COLLATERAL" means the Collateral described in
the granting clauses of the Security Agreement.
"ACQUISITION" means any transaction or series of related transactions
for the purpose of, or resulting, directly or indirectly, in (a) the acquisition
of all or substantially all of the assets of a Person, or any line or segment of
business or division of a Person, (b) the acquisition of in excess of 50% of the
capital stock, partnership interests, membership interests or equity of any
Person, or otherwise causing any Person to become a Subsidiary, or (c) a merger
or consolidation or any other combination with another Person (other than a
Person that is a Subsidiary) provided that (i) the Company or a Subsidiary is
the surviving entity or (ii) after giving effect to such merger or
consolidation, such other Person has become a Subsidiary of a Company
"ADDITIONAL SUBSIDIARY GUARANTOR" means each Subsidiary of the Company
that, subsequent to the Closing, from time to time guarantees any Funded Debt of
the Company or of another Subsidiary.
"ADJUSTABLE RATE" means, with respect to the Series A Notes, the Series
A Adjustable Rate, with respect to the Series B Notes, the Series B Adjustable
Rate or with respect to the Series C Notes, the Series C Adjustable Rate.
"AFFILIATE" means, at any time, and with respect to any Person, (a) any
other Person that at such time directly or indirectly through one or more
intermediaries Controls, or is Controlled by, or is under common Control with,
such first Person, and (b) any Person beneficially owning or holding, directly
or indirectly, 10% or more of any class of voting or equity interests of the
Company or any Subsidiary or any corporation of which the Company and its
Subsidiaries beneficially own or hold, in the aggregate, directly or indirectly,
10% or more of any class of voting or equity interests. As used in this
definition, "Control" means the possession, directly or indirectly, of the power
to direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise.
Unless the context otherwise clearly requires, any reference to an "Affiliate"
is a reference to an Affiliate of the Company.
"ATTRIBUTABLE INDEBTEDNESS" means, on any date, (a) in respect of any
Capital Lease of any Person, the capitalized amount thereof that would appear on
a balance sheet of such Person prepared as of such date in accordance with GAAP,
and (b) in respect of any Synthetic Lease Obligation, the capitalized amount of
the remaining lease payments under the relevant lease that would appear on a
balance sheet of such Person prepared as of such date in accordance with GAAP if
such lease were accounted for as a Capital Lease.
"BANK LENDERS" is defined in Section 1.4.
"BANK REVOLVER LENDERS" means those Bank Lenders which hold Revolving
Notes (as
SCHEDULE B
(to Note Purchase Agreement)
defined in the Credit Agreement) of the Company.
"BANK TERM LENDERS" means those Bank Lenders which hold Term Notes (as
defined in the Credit Agreement) of the Company.
"BUSINESS DAY" means any day other than a Saturday, a Sunday or a day
on which commercial banks in New York, New York are required or authorized to be
closed.
"CANOE RIDGE INTERCOMPANY LOAN AMOUNT" means the sum of (i) $7,000,000
PLUS (ii) on each anniversary of the Closing Date, 10% of the Canoe Ridge
Intercompany Loan Amount in effect immediately prior to such anniversary.
"CAPITAL LEASE" means, for any Person, any lease of property (whether
real, personal or mixed) which, in accordance with GAAP, would, at the time a
determination is made, be required to be recorded as a capital lease in respect
of which such Person is liable as lessee.
"CAPITAL STOCK" means (a) in the case of a corporation, capital stock,
(b) in the case of an association or business entity, any and all shares,
interests, participation, rights or other equivalents (however designated) of
capital stock, (c) in the case of a partnership, partnership interests (whether
general or limited), (d) in the case of a limited liability company, membership
interests and (e) any other interest or participation that confers on a Person
the right to receive a share of the profits and losses of, or distributions of
assets of, the issuing Person.
"CHANGE OF CONTROL" means (a) any "person" (as such term is used in
subsections 13(d) and 14(d) of the Exchange Act) or group of persons on or after
the Closing Date other than members of the Board of Directors of the Company as
of the date hereof and their "Affiliates" (as such term is used in Rule 405 of
the Securities Act), is or becomes the "beneficial owner" (as defined in Rule
13d-3 under said Act), directly or indirectly, of securities of the Company
representing 51% or more of the combined voting power of the Company's
then-outstanding voting securities, or (b) the Existing Directors for any reason
cease to constitute a majority of the Company's board of directors. "Existing
Directors" means (x) individuals constituting the Company's board of directors
on the Closing Date, and (y) any subsequent director whose election by the board
of directors or nomination for election by the Company's shareholders was
approved by a vote of at least a majority of the directors then in office, which
directors either were directors on the Closing Date or whose election or
nomination for election was previously so approved.
"CLOSING" is defined in Section 3.
"CLOSING DATE" is defined in Section 3.
"CODE" means the Internal Revenue Code of 1986, as amended from time to
time, and the rules and regulations promulgated thereunder from time to time.
"COLLATERAL" means the property described in the Collateral Documents,
and all other property now existing or hereafter acquired which may at any time
be or become subject to a
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Lien in favor of the Collateral Agent or the Secured Parties pursuant to the
Collateral Documents or otherwise, securing the payment and performance of the
Notes and the other Secured Obligations.
"COLLATERAL DOCUMENTS" means the Deeds of Trust, the Security
Agreement, the Patent and Trademark Security Agreement, any other agreement
pursuant to which the Company, the Guarantors or any other Person provides a
Lien on its assets in favor of the Collateral Agent for the benefit of the
Holders and all financing statements, fixture filings, patent, trademark and
copyright filings, assignments, acknowledgments and other filings, documents and
agreements made or delivered pursuant thereto.
"COMPANY" means The Chalone Wine Group, Ltd., a California corporation.
"COMPLIANCE CERTIFICATE" means a certificate of a Responsible Officer
of the Company, in substantially the form of Exhibit F, with such changes
thereto as the Holders may from time to time reasonably request.
"CONFIDENTIAL INFORMATION" is defined in Section 20.
"CONSOLIDATED EBIT" means, for any period, Consolidated Net Income
(computed without giving effect to any gains or losses from dispositions of
assets and other extraordinary items) PLUS Consolidated Interest Expense PLUS
income tax expense, in each case, which were deducted in determining
Consolidated Net Income of the Company and its Subsidiaries on a consolidated
basis as determined in accordance with GAAP.
"CONSOLIDATED EBITDA" means, for any period, Consolidated Net Income
(computed without giving effect to any gains or losses from dispositions of
assets and other extraordinary items) PLUS Consolidated Interest Expense PLUS
income tax expense plus depreciation expense, amortization expense and other
non-cash expenses, in each case, which were deducted in determining Consolidated
Net Income of the Company and its Subsidiaries on a consolidated basis as
determined in accordance with GAAP.
"CONSOLIDATED EBITDAR" means, for any period, Consolidated EBITDA PLUS
Consolidated Rent Expense which was deducted in determining Consolidated Net
Income of the Company and its Subsidiaries on a consolidated basis as determined
in accordance with GAAP.
"CONSOLIDATED INDEBTEDNESS" means as at any date of determination, the
total Indebtedness of the Company and its Subsidiaries on a consolidated basis
MINUS (1) accounts payable to trade creditors for goods and services on current
operating liabilities (not the result of the borrowing of money) incurred in the
ordinary course of the Company's or the Subsidiaries' business in accordance
with customary terms and paid within the specified time (unless contested in
good faith by appropriate proceedings and reserved for in accordance with GAAP)
and (2) until such time as the Indebtedness owing as of the date hereof by the
Company to the estate of Richard Graff is repaid in full, Indebtedness owing by
the Company to the estate of Richard Graff in a principal amount not to exceed
$1,000,000.
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"CONSOLIDATED INTEREST EXPENSE" means, for any period, interest expense
(including that attributable to Capital Leases) of the Company and its
Subsidiaries on a consolidated basis, including all commissions, discounts and
other fees and charges owed with respect to standby letters of credit, as
determined in accordance with GAAP.
"CONSOLIDATED NET INCOME" means, for any period, the net income of the
Company and its Subsidiaries on a consolidated basis for such period taken as a
single accounting period, as determined in accordance with GAAP.
"CONSOLIDATED RENT EXPENSE" means, for any period, operating lease
expense of the Company and its Subsidiaries on a consolidated basis, as
determined in accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH" means, as of any date of
determination, Consolidated Total Assets PLUS Subordinated Debt MINUS
Consolidated Total Liabilities; PROVIDED, HOWEVER, that there shall be excluded
from Consolidated Total Assets all assets which would be classified as
intangible assets in accordance with GAAP, including goodwill, organizational
expense, research and development expense, patent applications, patents,
trademarks, trade names, brands, copyrights, trade secrets, customer lists,
licenses, franchises and covenants not to compete.
"CONSOLIDATED TOTAL ASSETS" means, as of any date of determination, the
total assets of the Company and its Subsidiaries on a consolidated basis, as
determined in accordance with GAAP.
"CONSOLIDATED TOTAL LIABILITIES" means, as of any date of
determination, the total liabilities of the Company and its Subsidiaries on a
consolidated basis, as determined in accordance with GAAP.
"CREDIT AGREEMENT" means the Credit Agreement dated as of April 19,
2002, between the Company and Cooperatieve Centrale Raiffeisen-Boerenleenbank,
B.A., "Rabobank Nederland," New York Branch, as such Credit Agreement may be
amended, renewed or extended.
"CREDIT AGREEMENT GUARANTIES" means the Guaranties (as defined in the
Credit Agreement).
"CURRENT DEBT" means, with respect to any Person, all Debt of such
Person which by its terms or by the terms of any instrument or agreement
relating thereto matures on demand or within one year from the date of the
creation thereof and is not directly or indirectly renewable or extendible at
the option of the obligor in respect thereof to a date one year or more from
such date, and which shall include Current Maturities of Funded Debt.
"CURRENT MATURITIES OF FUNDED DEBT" means, at any time and with respect
to any item of Funded Debt, the portion of such Funded Debt outstanding at such
time which by the terms of such Funded Debt is due on demand or within one year
from such time (whether by sinking fund, other required prepayment or final
payment at maturity) and is not directly or indirectly renewable, extendible or
refundable at the option of the obligor under an agreement or firm commitment in
effect at such time to a date one year or more from such date.
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"DEEDS OF TRUST" means each Deed of Trust, Security Agreement,
Assignment of Leases and Rents and Fixture Filing and each Mortgage, Security
Agreement, Assignment of Leases and Rents and Fixture Filing, from the Company
or a Subsidiary Guarantor, as trustor or grantor, as the case may be, to the
trustee named therein and for the Collateral Agent, as beneficiary, in
substantially the form of Exhibit A.
"DEFAULT RATE" means that rate of interest that is the greater of (a)
2% per annum above the rate of interest stated in clause (a) of the first
paragraph of the Notes or (b) 2% over the rate of interest publicly announced by
Chase Manhattan Bank in New York, New York as its "base" or "prime" rate.
"DOLLARS" means lawful currency of the United States of America.
"DOMESTIC SUBSIDIARY" means a Subsidiary which is organized under the
laws of a State of the United States, Canada or Puerto Rico.
"EDNA VALLEY" means Edna Valley Vineyards, a California general
partnership.
"EDNA VALLEY INTERCOMPANY LOAN AMOUNT" means the sum of (i)
$20,000,000, plus (ii) on each anniversary of the Closing Date, 10% of the Edna
Valley Intercompany Loan Amount in effect immediately prior to such anniversary.
"ENVIRONMENTAL INDEMNITY" means the Environmental Indemnity of the
Company and the Subsidiary Guarantors, in substantially the form of Exhibit B.
"ENVIRONMENTAL LAWS" means any and all Federal, state, local, and
foreign statutes, laws, regulations, ordinances, rules, judgments, orders,
decrees, permits, concessions, grants, franchises, licenses, agreements or
governmental restrictions relating to pollution and the protection of the
environment or the release of any materials into the environment, including but
not limited to those related to hazardous substances or wastes, air emissions
and discharges to waste or public systems.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time, and the rules and regulations promulgated thereunder
from time to time in effect.
"ERISA AFFILIATE" means any trade or business (whether or not
incorporated) that is treated as a single employer together with the Company
under section 414 of the Code. "Event of Default" is defined in Section 11.
"EVENT OF LOSS" means with respect to any asset of the Company or its
Subsidiaries any of the following: (a) any loss, destruction or damage of such
asset; (b) any pending or threatened institution of any proceedings for the
condemnation or seizure of such asset or of any right of eminent domain; or (c)
any actual condemnation, seizure or taking, by exercise of the power of eminent
domain or otherwise, of such asset, or confiscation of such asset or requisition
of the use of such asset.
B-5
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
"FOREIGN SUBSIDIARY" means any Subsidiary other than a Domestic
Subsidiary.
"FUNDED DEBT" of any Person shall mean (a) all Debt of such Person, or
all Debt of such Person which has been incurred in connection with the
acquisition of assets, in each case having a final maturity of one or more than
one year from the date of origin thereof (or which is renewable or extendible at
the option of the obligor for a period or periods more than one year from the
date of origin), including all payments in respect thereof that are required to
be made within one year from the date of any determination of Funded Debt,
whether or not the obligation to make such payments shall constitute a current
liability of the obligor under GAAP, (b) all Capitalized Lease Obligations of
such Person, and (c) all Guaranties by such Person of Funded Debt of others.
"GAAP" means generally accepted accounting principles as in effect from
time to time in the United States of America.
"GOVERNMENTAL AUTHORITY" means
(a) the government of
(i) the United States of America or any State or
other political subdivision thereof, or
(ii) any jurisdiction in which the Company or any
Subsidiary conducts all or any part of its business, or which asserts
jurisdiction over any properties of the Company or any Subsidiary, or
(b) any entity exercising executive, legislative, judicial,
regulatory or administrative functions of, or pertaining to, any such
government.
"GROWERS' LIENS" means statutory Liens securing the payment of amounts
due from the Company or any Subsidiary Guarantor to any other Person on account
of any crops, produce or other farm products supplied by such Person to the
Company or such Subsidiary Guarantor, including but not limited to, Liens in
favor of growers arising pursuant to Article 9 (commencing with Section 55631),
Chapter 6, Division 20 of the California Food and Agricultural Code, as now in
effect or hereafter amended."
"GUARANTOR DOCUMENTS" means each Subsidiary Guarantee Agreement, the
Collateral Documents and all other certificates, documents, agreements and
instruments delivered to the Collateral Agent and the Holders under or in
connection with a Subsidiary Guarantee Agreement.
"GUARANTY" means, with respect to any Person, any obligation (except
the endorsement in the ordinary course of business of negotiable instruments for
deposit or collection) of such Person guaranteeing or in effect guaranteeing any
Debt, dividend or other obligation of any other Person in any manner, whether
directly or indirectly, including (without limitation) obligations incurred
through an agreement, contingent or otherwise, by such Person:
B-6
(a) to purchase such Debt or obligation or any property
constituting security therefor;
(b) to advance or supply funds (i) for the purchase or
payment of such Debt or obligation, or (ii) to maintain any working capital or
other balance sheet condition or any income statement condition of any other
Person or otherwise to advance or make available funds for the purchase or
payment of such Debt or obligation;
(c) to lease properties or to purchase properties or
services primarily for the purpose of assuring the owner of such Debt or
obligation of the ability of any other Person to make payment of the Debt or
obligation; or
(d) otherwise to assure the owner of such Debt or obligation
against loss in respect thereof.
In any computation of the Debt or other liabilities of the obligor under any
Guaranty, the Debt or other obligations that are the subject of such Guaranty
shall be assumed to be direct obligations of such obligor.
"GUARANTY OBLIGATION" means, as applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person with respect to any
Indebtedness, lease, dividend, letter of credit or other obligation (the
"primary obligations") of another Person (the "primary obligor"), including any
obligation of that Person (i) to purchase, repurchase or otherwise acquire such
primary obligations or any property constituting direct or indirect security
therefor, or (ii) to advance or provide funds (A) for the payment or discharge
of any such primary obligation, or (B) to maintain working capital or equity
capital of the primary obligor or otherwise to maintain the net worth or
solvency or any balance sheet item, level of income or financial condition of
the primary obligor, or (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary obligation
of the ability of the primary obligor to make payment of such primary
obligation, (iv) in connection with any synthetic lease or other similar off
balance sheet lease transaction, or (v) otherwise to assure or hold harmless the
holder of any such primary obligation against loss in respect thereof.
"HAZARDOUS MATERIAL" means any and all pollutants, toxic or hazardous
wastes or any other substances that pose a hazard to health or safety, the
removal of which may be required or the generation, manufacture, refining,
production, processing, treatment, storage, handling, transportation, transfer,
use, disposal, release, discharge, spillage, seepage, or filtration of which is
restricted, prohibited or penalized by any applicable law (including, without
limitation, asbestos, urea formaldehyde foam insulation and polycholorinated
biphenyls).
"HOLDER" means, with respect to any Note, the Person in whose name such
Note is registered in the register maintained by the Company pursuant to Section
13.1.
"INDEBTEDNESS" means, for any Person: (i) all indebtedness or other
obligations of such Person for borrowed money or for the deferred purchase price
of property or services; (ii) all obligations evidenced by notes, bonds,
debentures or similar instruments, including obligations
B-7
so evidenced incurred in connection with the acquisition of property, assets or
businesses; (iii) all indebtedness created or arising under any conditional sale
or other title retention agreement with respect to property acquired by such
Person (even though the rights and remedies of the seller or Holder under such
agreement in the event of default are limited to repossession or sale of such
property); (iv) all obligations under Capital Leases and Synthetic Lease
Obligations; (v) all reimbursement or other obligations of such Person under or
in respect of letters of credit and bankers acceptances, and all net obligations
in respect of Rate Contracts in an amount equal to the Swap Termination Values
thereof; (vi) all reimbursement or other obligations of such Person in respect
of any bank guaranties, shipside bonds, surety bonds and similar instruments
issued for the account of such Person or as to which such Person is otherwise
liable for reimbursement of drawings or payments; (vii) all Guaranty
Obligations; and (viii) all indebtedness of another Person secured by any Lien
upon or in property owned by the Person for whom Indebtedness is being
determined, whether or not such Person has assumed or become liable for the
payment of such indebtedness of such other Person. For all purposes hereof, the
Indebtedness of any Person shall include the Indebtedness of any partnership or
joint venture (other than a joint venture that is itself a corporation or
limited liability company) in which such Person is a general partner or a joint
venturer, unless such Indebtedness is expressly made non-recourse to such Person
(subject only to customary recourse exceptions acceptable to the Required
Holders). The amount of any Capital Lease or Synthetic Lease Obligation as of
any date shall be deemed to be the amount of Attributable Indebtedness in
respect thereof as of such date.
"INSTITUTIONAL INVESTOR" means (a) any original purchaser of a Note,
(b) any holder of a Note holding more than 5% of the aggregate principal amount
of the Notes then outstanding, and (c) any bank, trust company, savings and loan
association, national banking association or Farm Credit System institution,
acting for its own account or in a fiduciary capacity, or other financial
institution, any pension plan, any investment company, any insurance company,
any broker or dealer, or any other similar financial institution or entity,
regardless of legal form.
"INTELLECTUAL PROPERTY COLLATERAL" means the Collateral described in
the granting clauses of the Patent and Trademark Security Agreement.
"INTERCREDITOR AGREEMENT" is defined in Section 1.4.
"INVENTORY" means all "inventory" (as such term is defined in the UCC).
For purposes of this Agreement, bulk wine shall be deemed Inventory regardless
of whether bulk wine is properly classified as "inventory" under the UCC.
"INVESTMENT" means any investment, made in cash or by delivery of
property, by the Company or any of its Restricted Subsidiaries in (a) any
Person, whether by acquisition of Capital Stock, Debt or other obligations or
security, or by loan, guaranty, advance, capital contribution or otherwise, or
(b) any property.
"LEVERAGE RATIO" has the meaning specified in Section 10.4(a).
"LIEN" means, with respect to any Person, any mortgage, lien, pledge,
charge, security interest or other encumbrance, or any interest or title of any
vendor, lessor, Holder or other
B-8
secured party to or of such Person under any conditional sale or other title
retention agreement or Capital Lease, upon or with respect to any property or
asset of such Person (including in the case of Capital Stock, stockholder
agreements, voting trust agreements and all similar arrangements).
"LOAN DOCUMENTS" means this Agreement, the Notes, the Collateral
Documents, the Intercreditor Agreement, each Guaranty, the Guarantor Documents,
the Environmental Indemnity and all other certificates, documents, agreements
and instruments delivered to the Collateral Agent and the Holders under or in
connection with this Agreement.
"MAKE-WHOLE AMOUNT" is defined in Section 8.6.
"MATERIAL" means material in relation to the business, operations,
affairs, financial condition, assets, properties, or prospects of the Company
and its Restricted Subsidiaries taken as a whole.
"MATERIAL ADVERSE EFFECT" means any event, matter, condition or
circumstance which (i) has or would reasonably be expected to have a material
adverse effect on the business, properties, results of operations or condition
(financial or otherwise) of the Company and its Subsidiaries taken as a whole;
(ii) would materially impair the ability of the Company, or any other Person to
perform or observe its obligations under or in respect of the Loan Documents, or
(iii) affects the legality, validity, binding effect or enforceability of any of
the Loan Documents or the perfection or priority of any Lien granted to the
Collateral Agent for the benefit of the Holders under any of the Collateral
Documents.
"MAXIMUM INTERCOMPANY LOAN AMOUNT" means the sum of (i) $35,000,000
PLUS (ii) on each anniversary of the Closing Date, 10% of the Maximum
Intercompany Loan Amount then in effect immediately prior to such anniversary.
"Multiemployer Plan" means any Plan that is a "multiemployer plan" (as such term
is defined in section 4001(a)(3) of ERISA).
"NET ISSUANCE PROCEEDS" means, as to any issuance or other incurrence
of debt or any issuance of equity by any Person, cash proceeds received or
receivable by such Person in connection therewith, net of out-of-pocket costs
and expenses paid or incurred in connection therewith in favor of any Person not
an Affiliate of such Person.
"NET PROCEEDS" means, as to any sale, transfer or other disposition of
assets ("Disposition") by a Person, proceeds in cash, checks or other cash
equivalent financial instruments as and when received by such Person, net of:
(a) the direct costs relating to such Disposition excluding amounts payable to
such Person or any Affiliate of such Person, (b) sale, use or other transaction
taxes, and income taxes, paid or reasonably expected to be payable by such
Person as a direct result thereof, and (c) amounts required to be applied to
repay principal, interest and prepayment premiums and penalties on Indebtedness
secured by a Lien on the asset which is the subject of such Disposition. "NET
PROCEEDS" shall also include proceeds paid on account of any Event of Loss, net
of (i) all money actually applied or set aside within six months after the
receipt of such proceeds to repair or reconstruct the damaged property or
property
B-9
affected by the condemnation or taking, (ii) all of the costs and expenses
reasonably incurred in connection with the collection of such proceeds, award or
other payments, and (iii) any amounts retained by or paid to parties having
superior rights to such proceeds, awards or other payments.
"NOTES" is defined in Section 1.
"OFFICER'S CERTIFICATE" means a certificate of a Senior Financial
Officer or of any other officer of the Company or a Subsidiary as the context
shall require, whose responsibilities extend to the subject matter of such
certificate.
"OPERATING LEASE" means, for any Person, any lease of any property of
any kind by that Person as lessee which is not a Capital Lease.
"ORIGINAL SUBSIDIARY GUARANTEE AGREEMENT" is defined in Section 4.5.
"ORIGINAL SUBSIDIARY GUARANTOR" means a corporation which is a
Restricted Subsidiary listed on Schedule 5.4
"PATENT AND TRADEMARK SECURITY AGREEMENT" means the Patent and
Trademark Security Agreement between the Company and the Collateral Agent, in
substantially the form of Exhibit C.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"PERMITTED INVESTMENTS" means any of the following Dollar denominated
investments, maturing within one year from the date of acquisition, selected by
the Company:
(a) marketable direct obligations issued or unconditionally
guaranteed by the United States government or issued by any agency thereof and
backed by the full faith and credit of the United States;
(b) marketable direct obligations issued by any state of the
United States or any political subdivision of any such state or any public
instrumentality thereof and, at the time of acquisition, having the highest
credit rating obtainable from either S&P or Moody's;
(c) commercial paper or corporate promissory notes bearing
at the time of acquisition the highest credit rating either of S&P or Moody's
issued by United States, Australian, Canadian, European or Japanese bank holding
companies or industrial or financial companies (other than an Affiliate of the
Company or any Guarantor);
(d) certificates of deposit issued by and bankers
acceptances of and interest bearing deposits with any Lender, or with any United
States, Australian, Canadian, European or Japanese commercial banks having
capital and surplus of at least $500,000,000 or the equivalent and which issues
(or the parent of which issues) commercial paper or other short term securities
bearing the highest credit rating obtainable from either S&P or Moody's; and
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(e) money market funds organized under the laws of the
United States or any state thereof that invest solely in any of the foregoing
investments permitted under clauses (a), (b), (c) and (d).
"PERMITTED LIENS" means:
(a) Liens in favor of the Holders or the Collateral Agent
for the benefit of the Holders to secure the Notes;
(b) the existing Liens listed in Schedule 5.15 or incurred
in connection with the extension, renewal or refinancing of the Indebtedness
secured by such existing Liens, PROVIDED that any extension, renewal or
replacement Lien shall be limited to the property encumbered by the existing
Lien and the principal amount of the Indebtedness being extended, renewed or
refinanced does not increase;
(c) Liens for taxes, fees, assessments or other governmental
charges or levies, either not delinquent or being contested in good faith by
appropriate proceedings and which are adequately reserved for in accordance with
GAAP;
(d) Liens of materialmen, mechanics, warehousemen, artisans,
carriers or employees or other like Liens (including Growers' Liens and
prodution Liens) arising in the ordinary course of business and securing
obligations either not delinquent or being contested in good faith by
appropriate proceedings which are adequately reserved for in accordance with
GAAP;
(e) Liens consisting of deposits or pledges to secure the
payment of worker's compensation, unemployment insurance or other social
security benefits or obligations, or to secure the performance of bids, trade
contracts, leases (other than Capital Leases), public or statutory obligations,
surety or appeal bonds or other obligations of a like nature incurred in the
ordinary course of business (other than for Indebtedness or any Liens arising
under ERISA);
(f) easements, rights of way, servitudes or zoning or
building restrictions and other minor encumbrances on real property and
irregularities in the title to such property which do not in the aggregate
materially impair the use or value of such property or risk the loss or
forfeiture of title thereto;
(g) statutory landlord's Liens under leases to which the
Company or any of its Subsidiaries is a party;
(h) Liens arising solely by virtue of any statutory or
common law provision relating to banker's liens, rights of set-off or similar
rights and remedies as to deposit accounts or other funds maintained with a
creditor depository institution; PROVIDED that (i) such deposit account is not a
dedicated cash collateral account and is not subject to restrictions against
access by the Company in excess of those set forth by regulations promulgated by
the FRB, and (ii) such deposit account is not intended by the Company or any
Subsidiary to provide collateral to the depository institution;
B-11
(i) Liens securing Indebtedness incurred by the Company or
any Subsidiary which is permitted under Section 10.5(j); PROVIDED that (i) such
Liens do not at any time encumber any property other than the property financed
by such Indebtedness and (ii) the Indebtedness secured thereby does not exceed
the cost or fair market value, whichever is lower, of the property being
acquired on the date of acquisition;
(j) Liens on specific tangible assets of Persons which
become Subsidiaries after the date of this Agreement; PROVIDED, HOWEVER, that
(i) such Liens existed at the time the respective Persons became Subsidiaries
and were not created in anticipation thereof, (ii) any such Lien does not by its
terms cover any assets after the time such Person becomes a Subsidiary which
were not covered immediately prior thereto, (iii) any such Lien does not by its
terms secure any Indebtedness other than Indebtedness existing immediately prior
to the time such Person becomes a Subsidiary, and (iv) such Indebtedness is
permitted by Section 10.5(j); and
(k) Liens securing the obligations of the Company and its
Subsidiaries under the Credit Agreement, the Credit Agreement Guaranties and
related loan documents, subject to the Intercreditor Agreement.
"PERMITTED PREFERRED STOCK" means preferred stock of the Company,
subject to the following: such preferred stock shall not (a) have mandatory
redemption rights, or redemption at the option of the holder, sinking fund
payments, guaranteed return or exchange ability or conversions into debt
instruments or any other "debt-like" features other than any mandatory rights of
redemption effective not earlier than six months after September 15, 2010, and
(b) require the payment of any dividends thereon while any Event of Default
exists hereunder.
"PERMITTED SUBSIDIARY GUARANTOR GUARANTEES" means the Subsidiary
Guarantee Agreements and the Guaranties of the Debt evidenced by the Credit
Agreement entered into by Edna Valley and SHW.
"PERSON" means an individual, partnership, corporation, limited
liability company, association, trust, unincorporated organization, or a
government or agency or political subdivision thereof.
"PLAN" means an "employee benefit plan" (as defined in section 3(3) of
ERISA) that is or, within the preceding five years, has been established or
maintained, or to which contributions are or, within the preceding five years,
have been made or required to be made, by the Company or any ERISA Affiliate or
with respect to which the Company or any ERISA Affiliate may have any liability.
"PREFERRED STOCK" means any class of Capital Stock of a corporation
that is preferred over any other class of Capital Stock of such corporation as
to the payment of dividends or the payment of any amount upon liquidation or
dissolution of such corporation.
"PREMISES" means any and all real property, including all buildings and
improvements now or hereafter located thereon and all appurtenances thereto, now
or hereafter owned, leased, occupied or used by the Company and its
Subsidiaries.
B-12
"PRIMARY TRADEMARKS" means the following trademarks: ACACIA, CARMENET,
CHALONE VINYARD, GAVILAN, SAGELANDS, STATON HILLS, MISTY RIDGE and PHOENIX.
"Production Liens" means statutory Liens securing the rights of Persons who have
rendered services for the storage, protection, improvement, safekeeping,
carriage, alteration, repair, harvest or crushing of any grapes or Inventory,
including without limitation, artisans and service liens under California Civil
Code Section 3051, thresher's liens under California Civil Code Section 3061,
and harvestors liens under California Civil Code Section 3061.5.
"PROPERTY" or "PROPERTIES" means, unless otherwise specifically
limited, real or personal property of any kind, tangible or intangible, choate
or inchoate.
"QPAM EXEMPTION" means Prohibited Transaction Class Exemption 84-14
issued by the United States Department of Labor.
"RATE CONTRACTS" means interest rate swaps, caps, floors and collars,
currency swaps, or other similar financial products designed to provide
protection against fluctuations in interest, currency or exchange rates.
"REAL ESTATE COLLATERAL" means the Collateral described in the granting
clauses of the Deeds of Trust.
"RECEIVABLE DEBTOR" means any Person obligated on a Receivable.
"RECEIVABLES" means all rights to payment arising out of the sale or
lease of goods or the performance of services in the ordinary and usual course
of business, however evidenced.
"REQUIRED HOLDERS" means, at any time, the holders of at least a
majority in principal amount of the Notes at the time outstanding (exclusive of
Notes then owned by the Company or any of its Affiliates).
"REQUIREMENT OF LAW" means, as to any Person, any law (statutory or
common), treaty, code, decree, order, rule or regulation or determination of any
arbitrator or of a Governmental Authority, in each case applicable to or binding
upon the Person or any of its property or to which the Person or any of its
property is subject.
"RESPONSIBLE OFFICER" means any Senior Financial Officer and any other
officer of the Company with responsibility for the administration of the
relevant portion of this Agreement.
"RESTRICTED PAYMENTS" has the meaning set forth in Section 10.7 hereof.
"RESTRICTED SUBSIDIARY" means any Domestic Subsidiary which has not
been designated as an Unrestricted Subsidiary.
B-13
"SALE AND LEASEBACK TRANSACTION" means a transaction or series of
transactions pursuant to which the Company or any Restricted Subsidiary shall
sell or transfer to any Person (other than the Company or a Wholly-Owned
Subsidiary) any property, whether now owned or hereafter acquired, and, as part
of the same transaction or series of transactions, the Company or any Restricted
Subsidiary shall rent or lease as lessee (other than pursuant to a Capital
Lease), or similarly acquire the right to possession or use of, such property or
one or more properties which it intends to use for the same purpose or purposes
as such property.
"SECURED OBLIGATIONS" has the meaning set forth in the Intercreditor
Agreement.
"SECURED PARTIES" means the Purchasers and the Bank Lenders.
"SECURITIES ACT" means the Securities Act of 1933, as amended from time
to time.
"SECURITY" has the meaning set forth in section 2(a)(1) of the
Securities Act.
"SECURITY AGREEMENT" means the Security Agreement between the Company
and the Collateral Agent, in substantially the form of Exhibit D. "Senior
Financial Officer" means the chief financial officer, principal accounting
officer, treasurer or comptroller of the Company.
"SERIES A ADJUSTABLE RATE" means the rate per annum to be borne by the
Series A Notes during the following time periods:
During the time period when
Consolidated Indebtedness to
Consolidated EBITDAR coverage
shall be between the following Interest Rate
levels: Per Annum
5.25 - 6.00x 9.35%
4.75 - 5.24x 9.20%
4.25 - 4.74x 9.05%
3.75 - 4.24x 8.90%
3.25 - 3.74x 8.75%
<3.25 8.60%
"SERIES B ADJUSTABLE RATE" means the rate per annum to be borne by the
Series B Notes during the following time periods:
During the time period when
Consolidated Indebtedness to
Consolidated EBITDAR coverage
shall be between the following Interest Rate
levels: Per Annum
B-14
5.25 - 6.00x 9.38%
4.75 - 5.24x 9.23%
4.25 - 4.74x 9.08%
3.75 - 4.24x 8.93%
3.25 - 3.74x 8.78%
<3.25 8.63%
"SERIES C ADJUSTABLE RATE" means the rate per annum to be borne by the
Series C Notes during the following time periods:
During the time period when
Consolidated Indebtedness to
Consolidated EBITDAR coverage
shall be between the following Interest Rate
levels: Per Annum
5.25 - 6.00x 9.50%
4.75 - 5.24x 9.35%
4.25 - 4.74x 9.20%
3.75 - 4.24x 9.05%
3.25 - 3.74x 8.90%
<3.25 8.75%
"SHW" means SHW Equity Co., a Washington corporation.
"SHW INTERCOMPANY LOAN AMOUNT" means the sum of (i) $8,000,000 plus
(ii) on each anniversary of the Closing Date, 10% of the SHW Intercompany Loan
Amount in effect immediately prior to such anniversary.
"SOLVENT" means, as to any Person at any time, that (i) the fair value
of the property of such Person is greater than the amount of such Person's
liabilities (including disputed, contingent and unliquidated liabilities) as
such value is established and liabilities evaluated for purposes of Section
101(32) of the Bankruptcy Code; (ii) the present fair saleable value of the
property of such Person is not less than the amount that will be required to pay
the probable liability of such Person on its debts as they become absolute and
matured; (iii) such Person is able to realize upon its property and pay its
debts and other liabilities (including disputed, contingent and unliquidated
liabilities) as they mature in the normal course of business; (iv) such Person
does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature; and (v) such Person is not engaged in business or a transaction, and is
not about to engage in business or a transaction, for which such Person's
property would constitute unreasonably small capital.
"SPECIFIED ASSETS" means the assets of the Company and its Subsidiaries
identified on Schedule 10.9 hereto which are being held for sale.
"SPECIFIED LOAN TO VALUE EVENT" means, in connection with a sale,
transfer or other
B-15
disposition of any Term Debt Priority Collateral, any circumstance where the
outstanding principal amount of the Term Debt on the date of determination
thereof equals of exceeds 70% of the fair market value (as determined by an
appraisal reasonably acceptable to the Required Holders performed within three
(3) years of the date of determination thereof) of the Term Debt Priority
Collateral which is to remain subject to the Collateral Documents after giving
effect to such sale, transfer or other disposition.
"SUBORDINATED DEBT" means any Indebtedness of the Company or any
Subsidiary incurred after the date hereof in accordance with Section
10.04(a)(viii).
SUBSIDIARY" means, as to any Person, any corporation, association or
other business entity in which such Person or one or more of its Subsidiaries or
such Person and one or more of its Subsidiaries owns sufficient equity or voting
interests to enable it or them (as a group) ordinarily, in the absence of
contingencies, to elect a majority of the directors (or Persons performing
similar functions) of such entity, and any partnership or joint venture if more
than a 50% interest in the profits or capital thereof is owned by such Person or
one or more of its Subsidiaries or such Person and one or more of its
Subsidiaries (unless such partnership can and does ordinarily take major
business actions without the prior approval of such Person or one or more of its
Subsidiaries). The term "Subsidiary" also shall include Edna Valley so long as
(i) the financial results of Edna Valley are consolidated with those of the
Company in accordance with GAAP, and (ii) the Company continues to act as the
managing partner of Edna Valley. Unless the context otherwise clearly requires,
any reference to a "Subsidiary" is a reference to a Subsidiary of the Company.
"SUBSIDIARY GUARANTEE AGREEMENT" means an agreement substantially in
the form of the Subsidiary Guarantee Agreement attached hereto as Exhibit 4.5.
"SUBSIDIARY GUARANTOR" means each of Edna Valley Vineyard, Canoe Ridge
Vineyard LLC, SHW Equity Company, Staton Hills Winery Company Ltd. and each
other Subsidiary that becomes party to a Subsidiary Guarantee Agreement.
"SUBSIDIARY GUARANTOR" means any Original Subsidiary Guarantor or
Additional Subsidiary Guarantor which executes and delivers a Subsidiary
Guarantee Agreement and so long as such Person's obligations under the
Subsidiary Guarantee Agreement remain in full force and effect and to the extent
that the obligations of such Person under the provisions of the Subsidiary
Guarantee Agreement have not, at the time, been terminated pursuant to the terms
hereof.
"SWAP TERMINATION VALUE" means, in respect of any one or more Rate
Contracts, after taking into account the effect of any legally enforceable
netting agreement relating to such Rate Contracts, (i) for any date on or after
the date such Rate Contracts have been closed out and termination value(s)
determined in accordance therewith, such termination value(s), and (ii) for any
date prior to the date referenced in clause (a) the amount(s) determined as the
mark-tomarket value(s) for such Rate Contracts, as determined by the Company
based upon one or more mid-market or other readily available quotations provided
by any recognized dealer in such Rate Contracts (which may include any Holder).
B-16
"SYNTHETIC LEASE OBLIGATION" means the monetary obligation of a Person
under (a) a socalled synthetic, off-balance sheet or tax retention lease, or (b)
an agreement for the use or possession of property creating obligations that do
not appear on the balance sheet of such Person but which, upon the insolvency or
bankruptcy of such Person, would be characterized as the indebtedness of such
Person (without regard to accounting treatment).
"TERM DEBT" shall have the meaning assigned thereto in the
Intercreditor Agreement.
"TERM DEBT PRIORITY COLLATERAL" shall have the meaning assigned thereto
in the Intercreditor Agreement.
"UPDATE CERTIFICATE" means a certificate of a Responsible Officer of
the Company in substantially the form of Exhibit G, with such changes thereto as
the Holders may from time to time reasonably request.
"UNRESTRICTED SUBSIDIARY" means each Subsidiary which is designated as
an Unrestricted Subsidiary on Schedule 5.4 and any other Subsidiary which is
hereafter designated as an Unrestricted Subsidiary by the Board of Directors of
the Company. The Board of Directors of the Company may, after 30 days prior
written notice is provided to the Holders designated any Unrestricted Subsidiary
to be a Restricted Subsidiary or designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if, in each case, at the date of such designation and
after giving effect thereto, no Default or Event of Default shall have occurred
and be continuing.
"WHOLLY-OWNED SUBSIDIARY" means, at any time, any Subsidiary one
hundred percent (100%) of all of the equity interests (except directors'
qualifying shares) and voting interests of which are owned by any one or more of
the Company and the Company's other Wholly-Owned Subsidiaries at such time.
"WINE DIVIDEND CREDITS" means annual credits provided by the Company to
shareholders owning 100 or more shares of the Company's common stock, which
credits may be applied by each such shareholder, for a period not to exceed one
year following such shareholder's receipt of such credits, towards up to 50% of
the purchase price of mail-order or other direct purchases of wine from the
Company.
B-17
CORPORATE CHANGES
None.
SCHEDULE 4.10
(to Note Purchase Agreement)
SUBSIDIARIES
SUBSIDIARIES (EACH SUCH SUBSIDIARY BEING ALSO A RESTRICTED SUBSIDIARY):
NAME OWNERSHIP INTEREST
SHW Equity Co., a Washington corporation 100%
Staton Hills Winery Company Limited, a 100% owned by SHW Equity Co.
Washington corporation
Canoe Ridge Winery, Inc., a Washington 100%
corporation
Canoe Ridge Vineyard, LLC, a Washington 100% (50.5% owned through Canoe
limited liability company Ridge Winery, Inc.)
AFFILIATES: Les Domaines Barons de Rothschild (Lafite)
Phyllis S. Hojel
SCHEDULE 5.4
(to Note Purchase Agreement)
SENIOR OFFICERS: DIRECTORS:
Christophe Salin, Chairman Christophe Salin
Thomas B. Selfridge, President and Chief Executive Thomas B. Selfridge
Officer
Robert B. Farver, Vice President, Sales and Cristina G. Banks
Distribution
Shawn Conroy Blom, Chief Financial Officer Mark A. Hojel
Paul Novak, Vice President, Marketing Yves-Andre Istel
C. Richard Kramlich
George E. Myers
James H. Niven
Phillip M. Plant
Eric De Rothschild
W. Philip Woodward
5.4-2
FINANCIAL STATEMENTS
Consolidated Statement of Income, Statement of Cash Flow, Statement of Changes
in Shareholder Equity and Balance Sheet for the nine-month transition period
ended December 31, 2001 and for the years ended March 31, 2001, March 31, 2000,
March 31, 1999, March 31, 1998 and March 31, 1997.
SCHEDULE 5.5
(to Note Purchase Agreement)
LITIGATION
As disclosed in the Company's Form 10-K filed for the nine-month transition
period ended December 31, 2001, the Company received notice dated August 28,
1998 from the California Department of Alcoholic Beverage Control ("ABC") that
it was accused, along with 36 other companies (most of them wineries) of
violations of Section 25502(a)(2) of the California Business and Professions
Code which prohibits wine growers and others from giving "something of value" to
retailers. The accusation arises from the appearance of paid advertisements of
the Company and other wineries in catalogues distributed by a certain retailer.
The notice of violation requested each of the noticed companies who agreed to
the accusation to stipulate to a ten (10) day suspension of its license or,
consent to the payment of a fine not greater than $10,000 in lieu of the
suspension. The matter was tried to an administrative law judge appointed by the
ABC on July 14, 1999. The judge found for the ABC and the ABC adopted the
judge's decision. The Company, together with 16 other wine companies, filed an
appeal with the Alcoholic Beverage Control Appeals Board, an independent body
that hears appeals from ABC decisions. The matter was submitted to the ABC
appeals board for a decision to be rendered within 90 days pursuant to the May
24, 2001 hearing date. The appeals board ruled against the ABC. The ABC does not
agree with the ruling of the ABC appeals board and has submitted the case to the
First District Court of Appeals in San Francisco for review.
SCHEDULE 5.8
(to Note Purchase Agreement)
LICENSES
None.
SCHEDULE 5.11
(to Note Purchase Agreement)
EXISTING DEBT; EXISTING LIENS
Amounts owed pursuant to that Credit Agreement between Chalone Wine Group, Ltd.
and Cooperatieve Centrale Raiffeisen - Boerenleenbank B.A., "Rabobank
Nederland," New York Branch, dated March 31, 1999, as amended.
Amounts owed pursuant to that Secured Purchase Money Promissory Note (Secured by
Deed of Trust) dated July 1, 1996 in favor of Richard H. Graff, Trustee, Graff
1993 Trust Dated June 10, 1993 by The Chalone Wine Group, Ltd., in an original
principal amount of $942,503. As of April 15, 2002, the remaining principal
balance due is approximately $890,000.
Amounts owed pursuant to that Promissory Note and Loan Agreement Variable Rate
dated July 17, 1996 in favor of Central Coast Federal Land Bank Association,
FLCA by Edna Valley Vineyard, in an original principal amount of $1,839,275.
Amounts owed pursuant to the senior unsecured notes (Series A, B, C) between
Agstar Financial Services, Farm Credit Services of America and The Chalone Wine
Group, Ltd., dated September 15, 2000, as amended.
Other accounts payable, accrued liabilities and general office equipment leases
in the ordinary course of business and barrel leases with De Lage Landen.
SCHEDULE 5.15
(to Note Purchase Agreement)
SPECIFIED ASSETS
SALE OF CARMENET BRAND AND VINTAGE LANE FACILITY: The Company has engaged a
broker to confidentially market the Carmenet brand and Vintage Lane facility.
SALE OF RICHARD GRAFF HOME AND SURROUNDING VINEYARD: The Graff home is on a
separate parcel on the backside of the Chalone property site. The home is
surrounded by approximately 10 acres of vineyards. The property is in escrow
with a full cash offer of $1.195 million and is scheduled to close within the
next 90 to 120 days.
SALE OF SUSCOL VINEYARD: The Company has begun to actively market this property.
SCHEDULE 10.9
(to Note Purchase Agreement)
FORM OF SERIES A NOTE
THE CHALONE WINE GROUP, LTD.
ADJUSTABLE RATE SENIOR SECURED NOTE, SERIES A, DUE SEPTEMBER 15, 2010
No. [_____] [Date]
$[_______] PPN 157639 B* 5
FOR VALUE RECEIVED, the undersigned, The Chalone Wine Group, Ltd
(herein called the "Company"), a corporation organized and existing under the
laws of the State of California, hereby promises to pay to
[__________________________], or registered assigns, the principal sum of
[__________________________] DOLLARS on September 15, 2010, with interest
(computed on the basis of a 360-day year of twelve 30-day months) (a) on the
unpaid balance thereof at the Series A Adjustable Rate from the date hereof,
payable monthly in arrears, on the 15th day of each month, commencing with
October 15, until the principal hereof shall have been paid in full, and (b) to
the extent permitted by law on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Make-Whole Amount (as defined in the Note Purchase Agreement
referred to below), payable monthly as aforesaid (or, at the option of the
registered holder hereof, on demand), at a rate per annum from time to time
equal to the greater of (i) 2% over the then applicable Series A Adjustable Rate
and (ii) 2% over the rate of interest publicly announced by Chase Manhattan Bank
from time to time in New York, New York as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America in New York, New York at the principal office of Chase Manhattan Bank,
or at such other place as the Company shall have designated by written notice to
the holder of this Note as provided in the Note Purchase Agreement referred to
below.
This Note is one of a series of Senior Secured Notes (herein called the
"Notes") issued pursuant to the Note Purchase Agreement, dated as of April 19,
2002 (as from time to time amended, the "Note Purchase Agreement"), between the
Company and the Purchasers named therein and is entitled to the benefits
thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i)
to have agreed to the confidentiality provisions set forth in Section 20 of the
Note Purchase Agreement and (ii) to have made the representation set forth in
Section 6.2 of the Note Purchase Agreement.
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the
EXHIBIT 1-A
(to Note Purchase Agreement)
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company will not be affected by any notice to the contrary.
This Note is subject to optional prepayment, in whole or from time to
time in part, at the times and on the terms specified in the Note Purchase
Agreement, but not otherwise. This Note is subject to mandatory prepayment at
the times and on the terms specified in the Note Purchase Agreement.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
The payment of all principal of, premium, if any, and interest on this
Note and the other Notes outstanding under the Note Purchase Agreement has been
unconditionally guaranteed by certain Subsidiaries of the Company pursuant to
separate and several Subsidiary Guarantee Agreements (as defined in the Note
Purchase Agreement). Reference is hereby made thereto for a statement of the
rights and benefits accorded thereby.
This Note is equally and ratably secured by the Collateral Documents
(as defined in the Note Purchase Agreement). Reference is hereby made to the
Collateral Documents for a description of the collateral thereby mortgaged,
warranted, bargained, sold, released, conveyed, assigned, transferred, pledged
and hypothecated, the nature and extent of the security for the Notes, the
rights of the holders of the Notes, the Collateral Agent (as defined in the Note
Purchase Agreement) in respect of such security and otherwise.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of New York,
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
THE CHALONE WINE GROUP, LTD.
By:___________________________________________
Its:__________________________________________
1-A-2
FORM OF SERIES B NOTE
THE CHALONE WINE GROUP, LTD.
ADJUSTABLE RATE SENIOR SECURED NOTE, SERIES B, DUE SEPTEMBER 15, 2010
No. [_____] [Date]
$[_______] PPN 157639 B@ 3
FOR VALUE RECEIVED, the undersigned, The Chalone Wine Group, Ltd
(herein called the "Company"), a corporation organized and existing under the
laws of the State of California, hereby promises to pay to
[_____________________________], or registered assigns, the principal sum of
[_____________________________] DOLLARS on September 15, 2010, with interest
(computed on the basis of a 360-day year of twelve 30-day months) (a) on the
unpaid balance thereof at the Series B Adjustable Rate from the date hereof,
payable monthly in arrears, on the 15th day of each month, commencing with
October 15, 2000, until the principal hereof shall have been paid in full, and
(b) to the extent permitted by law on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Make-Whole Amount (as defined in the Note Purchase Agreement
referred to below), payable monthly as aforesaid (or, at the option of the
registered holder hereof, on demand), at a rate per annum from time to time
equal to the greater of (i) 2% over the then applicable Series B Adjustable Rate
and (ii) 2% over the rate of interest publicly announced by Chase Manhattan Bank
from time to time in New York, New York as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America in New York, New York at the principal office of Chase Manhattan Bank,
or at such other place as the Company shall have designated by written notice to
the holder of this Note as provided in the Note Purchase Agreement referred to
below.
This Note is one of a series of Senior Secured Notes (herein called the
"Notes") issued pursuant to the Note Purchase Agreement, dated as of April 19,
2002 (as from time to time amended, the "Note Purchase Agreement"), between the
Company and the Purchasers named therein and is entitled to the benefits
thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i)
to have agreed to the confidentiality provisions set forth in Section 20 of the
Note Purchase Agreement and (ii) to have made the representation set forth in
Section 6.2 of the Note Purchase Agreement.
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the Company may treat the person in whose name this
Note is registered as the owner hereof for the
EXHIBIT 1-B
(to Note Purchase Agreement)
purpose of receiving payment and for all other purposes, and the Company will
not be affected by any notice to the contrary.
This Note is subject to optional prepayment, in whole or from time to
time in part, at the times and on the terms specified in the Note Purchase
Agreement, but not otherwise. This Note is subject to mandatory prepayment at
the times and on the terms specified in the Note Purchase Agreement.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
The payment of all principal of, premium, if any, and interest on this
Note and the other Notes outstanding under the Note Purchase Agreement has been
unconditionally guaranteed by certain Subsidiaries of the Company pursuant to
separate and several Subsidiary Guarantee Agreements (as defined in the Note
Purchase Agreement). Reference is hereby made thereto for a statement of the
rights and benefits accorded thereby.
This Note is equally and ratably secured by the Collateral Documents
(as defined in the Note Purchase Agreement). Reference is hereby made to the
Collateral Documents for a description of the collateral thereby mortgaged,
warranted, bargained, sold, released, conveyed, assigned, transferred, pledged
and hypothecated, the nature and extent of the security for the Notes, the
rights of the holders of the Notes, the Collateral Agent (as defined in the Note
Purchase Agreement) in respect of such security and otherwise.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of New York,
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
THE CHALONE WINE GROUP, LTD.
By:__________________________________________
Its:_________________________________________
1-B-2
FORM OF SERIES C NOTE
THE CHALONE WINE GROUP, LTD.
ADJUSTABLE RATE SENIOR SECURED NOTE, SERIES C, DUE SEPTEMBER 15, 2010
No. [_____] [Date]
$[________] PPN 157639 B# 1
FOR VALUE RECEIVED, the undersigned, The Chalone Wine Group, Ltd
(herein called the "Company"), a corporation organized and existing under the
laws of the State of California, hereby promises to pay to
[__________________________], or registered assigns, the principal sum of
[__________________________] DOLLARS September 15, 2010, with interest (computed
on the basis of a 360-day year of twelve 30-day months) (a) on the unpaid
balance thereof at the Series C Adjustable Rate from the date hereof, payable
monthly in arrears, on the 15th day of each month, commencing with October 15,
2001, until the principal hereof shall have been paid in full, and (b) to the
extent permitted by law on any overdue payment (including any overdue
prepayment) of principal, any overdue payment of interest and any overdue
payment of any Make-Whole Amount (as defined in the Note Purchase Agreement
referred to below), payable monthly as aforesaid (or, at the option of the
registered holder hereof, on demand), at a rate per annum from time to time
equal to the greater of (i) 2% over the then applicable Series C Adjustable Rate
and (ii) 2% over the rate of interest publicly announced by Chase Manhattan Bank
from time to time in New York, New York as its "base" or "prime" rate.
Payments of principal of, interest on and any Make-Whole Amount with
respect to this Note are to be made in lawful money of the United States of
America in New York, New York at the principal office of Chase Manhattan Bank,
or at such other place as the Company shall have designated by written notice to
the holder of this Note as provided in the Note Purchase Agreement referred to
below.
This Note is one of a series of Senior Secured Notes (herein called the
"Notes") issued pursuant to the Note Purchase Agreement, dated as of April 19,
2002 (as from time to time amended, the "Note Purchase Agreement"), between the
Company and the Purchasers named therein and is entitled to the benefits
thereof. Each holder of this Note will be deemed, by its acceptance hereof, (i)
to have agreed to the confidentiality provisions set forth in Section 20 of the
Note Purchase Agreement and (ii) to have made the representation set forth in
Section 6.2 of the Note Purchase Agreement.
This Note is a registered Note and, as provided in the Note Purchase
Agreement, upon surrender of this Note for registration of transfer, duly
endorsed, or accompanied by a written instrument of transfer duly executed, by
the registered holder hereof or such holder's attorney duly authorized in
writing, a new Note for a like principal amount will be issued to, and
registered in the name of, the transferee. Prior to due presentment for
registration of transfer, the
EXHIBIT 1-C-1
(to Note Purchase Agreement)
Company may treat the person in whose name this Note is registered as the owner
hereof for the purpose of receiving payment and for all other purposes, and the
Company will not be affected by any notice to the contrary.
This Note is subject to optional prepayment, in whole or from time to
time in part, at the times and on the terms specified in the Note Purchase
Agreement, but not otherwise. This Note is subject to mandatory prepayment at
the times and on the terms specified in the Note Purchase Agreement.
If an Event of Default, as defined in the Note Purchase Agreement,
occurs and is continuing, the principal of this Note may be declared or
otherwise become due and payable in the manner, at the price (including any
applicable Make-Whole Amount) and with the effect provided in the Note Purchase
Agreement.
The payment of all principal of, premium, if any, and interest on this
Note and the other Notes outstanding under the Note Purchase Agreement has been
unconditionally guaranteed by certain Subsidiaries of the Company pursuant to
separate and several Subsidiary Guarantee Agreements (as defined in the Note
Purchase Agreement). Reference is hereby made thereto for a statement of the
rights and benefits accorded thereby.
This Note is equally and ratably secured by the Collateral Documents
(as defined in the Note Purchase Agreements). Reference is hereby made to the
Collateral Documents for a description of the collateral thereby mortgaged,
warranted, bargained, sold, released, conveyed, assigned, transferred, pledged
and hypothecated, the nature and extent of the security for the Notes, the
rights of the holders of the Notes, the Collateral Agent (as defined in the Note
Purchase Agreements) in respect of such security and otherwise.
This Note shall be construed and enforced in accordance with, and the
rights of the parties shall be governed by, the law of the State of New York,
excluding choice-of-law principles of the law of such State that would require
the application of the laws of a jurisdiction other than such State.
THE CHALONE WINE GROUP, LTD.
By:________________________________________
Its:_______________________________________
1-C-2
DESCRIPTION OF CLOSING OPINION OF COUNSEL TO THE COMPANY
The closing opinion of Farella Braun & Martel LLP, counsel to the Company,
called for by Section 4.4(a) of the Note Purchase Agreement, shall be dated the
date of Closing and addressed to the Purchasers, shall be satisfactory in form
and substance to the Purchasers and shall be to the effect that:
1. The Company is a corporation, duly organized, validly existing
and in good standing under the laws of the State of California, has the
corporate power and the corporate authority to execute and perform the Note
Purchase Agreement and to issue the Notes and has the full corporate power and
the corporate authority to conduct the activities in which it is now engaged and
is duly licensed or qualified and is in good standing as a foreign corporation
in each jurisdiction in which the character of the properties owned or leased by
it or the nature of the business transacted by it makes such licensing or
qualification necessary.
2. Each Restricted Subsidiary is a corporation or other legal
entity, duly organized, validly existing and in good standing under the laws of
its jurisdiction of formation and is duly licensed or qualified and is in good
standing in each jurisdiction in which the character of the properties owned or
leased by it or the nature of the business transacted by it makes such licensing
or qualification necessary and all of the issued and outstanding shares of
Capital Stock or equivalent equity interest of each such Restricted Subsidiary
have been duly issued, are fully paid and non-assessable and are owned by the
Company, by one or more Restricted Subsidiaries, or by the Company and one or
more Subsidiaries.
3. The Note Purchase Agreement has been duly authorized by all
necessary corporate or other legal entity action on the part of the Company, has
been duly executed and delivered by the Company and constitute the legal, valid
and binding contract of the Company enforceable in accordance with its terms,
subject to bankruptcy, insolvency, fraudulent conveyance or similar laws
affecting creditors' rights generally, and general principles of equity
(regardless of whether the application of such principles is considered in a
proceeding in equity or at law).
4. The Notes have been duly authorized by all necessary corporate
action on the part of the Company, have been duly executed and delivered by the
Company and constitute the legal, valid and binding obligations of the Company
enforceable in accordance with their terms, subject to bankruptcy, insolvency,
fraudulent conveyance or similar laws affecting creditors' rights generally, and
general principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law).
5. No approval, consent or withholding of objection on the part of,
or filing, registration or qualification with, any governmental body, Federal,
state or local, is necessary in connection with the execution, delivery and
performance of the Note Purchase Agreement or the Notes.
EXHIBIT 4.4(a)
(to Note Purchase Agreement)
6. The issuance and sale of the Notes and the execution, delivery
and performance by the Company of the Note Purchase Agreement do not conflict
with or result in any breach of any of the provisions of or constitute a default
under or result in the creation or imposition of any Lien upon any of the
property of the Company pursuant to the provisions of the Articles of
Incorporation or By-laws, or equivalent formation documents, of the Company or
any agreement or other instrument to which the Company is a party or by which
the Company may be bound.
7. The issuance, sale and delivery of the Notes under the
circumstances contemplated by the Note Purchase Agreement does not, under
existing law, require the registration of the Notes under the Securities Act of
1933, as amended, or the qualification of an indenture under the Trust Indenture
Act of 1939, as amended.
8. The issuance of the Notes and the use of the proceeds of the
sale of the Notes in accordance with the provisions of and contemplated by the
Note Purchase Agreement do not violate or conflict with Regulation T, U or X of
the Board of Governors of the Federal Reserve System.
9. There is no litigation pending or, to the best knowledge of such
counsel, threatened which in such counsel's opinion could reasonably be expected
to have Material Adverse Effect on the Company's business or assets or which
would impair the ability of the Company to issue and deliver the Notes or to
comply with the provisions of the Note Purchase Agreement.
10. The Company is not an "investment company" or a company
"controlled" by an "investment company", as such terms are defined in the
Investment Company Act of 1940, as amended.
11. The Company has the power to submit, and pursuant to the
Agreement, has legally, validly, effectively and irrevocably submitted, to the
non-exclusive jurisdiction of the courts of the State of New York and of the
courts of the United States of America having jurisdiction in the State of New
York in respect of any legal action or proceeding arising out of the Agreement
or the Notes.
12. The choice of New York as the governing law of the Agreement and
the Notes is valid and will be recognized and applied by the courts of New York
and of the United States.
13. The Company is not, nor will it become, solely by reason of
entering into or performing its respective obligations under the Agreement or
the carrying out of any of the transactions contemplated thereby, a "public
utility company" or a "holding company" under the Public Utility Holding Company
Act of 1935, as amended.
14. Each Subsidiary Guarantor is a corporation or other legal
entity, duly formed, validly existing and in good standing under the laws of the
United States, has the corporate or other legal entity power and authority to
execute and perform the Subsidiary Guarantee Agreement to which it is a party
and has the full corporate or other legal entity power and authority to conduct
the activities in which it is now engaged and is duly licensed or qualified and
is in good standing as a foreign corporation or other legal entity in each
jurisdiction in which
4.4(a)-2
the character of the properties owned or leased by it or the nature of the
business transacted by it makes such licensing or qualification necessary.
15. To ensure the legality, validity, enforceability or
admissibility into evidence of the Agreement and the Notes, it is not necessary
that said documents or any other documents be registered, notarized, filed or
recorded with any court or other authority or that any stamp or similar tax be
paid with respect thereto.
16. The obligations of the Company under the Agreement and the
Notes, and the obligations of the Original Subsidiary Guarantors under the
Original Subsidiary Guarantee Agreements, rank PARI PASSU in right of payment
with all other Debt (actual or contingent) of the Company which is not secured
or the subject of any statutory trust or preference or which is not expressly
subordinated in right of payment to any other Debt thereof. Collateral Document
opinions to come.
17. The opinion of such counsel shall cover such other matters
relating to the sale of the Notes as the Purchasers may reasonably request. With
respect to matters of fact on which such opinion is based, such counsel shall be
entitled to rely on appropriate certificates of public officials and officers of
the Company.
4.4(a)-3
DESCRIPTION OF SPECIAL COUNSEL'S CLOSING OPINION
The closing opinion of Davis Wright Tremaine LLP, special counsel
Washington local real estate to the Purchasers, called for by Section 4.4(b) of
the Agreement, shall be dated the Closing Date and addressed to the Purchasers,
shall be satisfactory in form and substance to the Purchasers.
With respect to matters of fact upon which such opinion is based, Davis
Wright Tremaine LLP may rely on appropriate certificates of public officials and
officers of the Company and the Original Subsidiary Guarantors.
EXHIBIT 4.4(b)
(to Note Purchase Agreement)
FORM OF SUBSIDIARY GUARANTEE AGREEMENT
See attached representative form of Guarantee.
EXHIBIT 4.5
(to Note Purchase Agreement)
AMENDED AND RESTATED SUBSIDIARY GUARANTEE AGREEMENT
RE: AMENDED AND RESTATED NOTE PURCHASE AGREEMENT
OF
THE CHALONE WINE GROUP, LTD.
THIS AMENDED AND RESTATED SUBSIDIARY GUARANTEE AGREEMENT dated as of April 19,
2002 (the or this "GUARANTY") is by __________________________ ("SUBSIDIARY
GUARANTOR").
R E C I T A L S:
A. The Chalone Wine Group, Ltd., a California corporation (the
"COMPANY"), is the owner, directly and indirectly, of 100% of the outstanding
membership interest in the Subsidiary Guarantor.
B. Farm Credit Services of America, PCA and AgStar Financial
Services, PCA, dba Farm Credit Services Commercial Finance Group (together with
their permitted successors and assigns, the "PURCHASERS"), and the Company have
entered into a Note Purchase Agreement dated as of September 15, 2000, as
amended by the First Amendment dated as of February 9, 2001(the "ORIGINAL NOTE
AGREEMENT"), pursuant to which the Company has issued to the Purchasers the
Company's $5,000,000 8.90% Senior Guaranteed Notes, Series A, Due September 15,
2010; $10,000,000 8.93% Senior Guaranteed Notes, Series B, Due September 15,
2010; and $15,000,000 9.05% Senior Guaranteed Notes, Series C, Due September 15,
2010 (collectively, the "ORIGINAL NOTES"). The Subsidiary Guarantor has executed
and delivered that certain Subsidiary Guarantee Agreement dated as of February
26, 2001 (the "ORIGINAL SUBSIDIARY GUARANTEE AGREEMENT") under and pursuant to
which the Subsidiary Guarantor guaranteed to the Purchasers the full and prompt
payment of all amounts due under and with respect to, and performance by the
Company of the terms and provisions of, the Original Notes and the Original Note
Agreement.
C. The Subsidiary Guarantor has requested that Purchasers amend
and restate the Original Note Agreement and Original Notes, and the Purchasers
are willing to enter into and execute that certain Amended and Restated Note
Purchase Agreement each dated April 19, 2002 (as the same may hereafter be
amended, modified and/or restated from time to time, the "NOTE AGREEMENT") and
are willing to amend and restate the Original Notes pursuant to the terms
thereof (as so amended and restated, the "NOTES"), on the condition (among
others) that the Subsidiary Guarantor execute and deliver this Amended and
Restated Guarantee Agreement. All capitalized terms used herein without
definition shall have the same meanings herein as such terms have in the Note
Agreement unless otherwise defined herein or the context shall otherwise
require.
D. The Subsidiary Guarantor has agreed to execute and deliver this
Amended and Restated Subsidiary Guarantee Agreement to and for the benefit of
the Purchasers. This Amended and Restated Subsidiary Guarantee Agreement amends
and restates the Original Subsidiary Guarantee Agreement in its entirety.
E. The Subsidiary Guarantor has determined that the execution and
delivery of this Amended and Restated Subsidiary Guarantee Agreement is in
furtherance of its purposes and in the best interests of it and its members, and
that it will derive substantial benefit, whether directly or indirectly, from
the performance by the Company of the obligations under the Note Agreement,
having regard for all relevant facts and circumstances.
NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the receipt whereof is hereby acknowledged, the
Subsidiary Guarantor does hereby covenant and agree with the Purchasers as
follows:
1. GUARANTY OF NOTES AND NOTE AGREEMENT
(a) Subject to Section 1(b), below, the Subsidiary Guarantor
does hereby irrevocably, absolutely and unconditionally (i) guarantee unto the
Purchasers the prompt payment in full when due, whether by lapse of time,
acceleration or otherwise, of (A) all indebtedness, obligations and liabilities
of the Company under or in connection with or evidenced by (x) the Note
Agreement, or (y) the Notes heretofore or hereafter issued under the Note
Agreement, in each case whether now existing or hereafter arising, due or to
become due, direct or indirect, absolute or contingent, and howsoever evidenced,
held or acquired and (B) all costs, expenses and charges, legal and otherwise,
incurred by the Purchasers in collecting or enforcing any of such indebtedness,
obligations and liabilities or in realizing on or protecting any security
therefor, including, without limitation, the guaranty afforded hereunder (all of
such indebtedness, obligations, liabilities, expenses and charges identified in
the immediately foregoing clauses (A) and (B) being hereinafter referred to as
the "OBLIGATIONS") and (ii) agree to cause the full and prompt performance and
observance of each and all of the Company's obligations under and pursuant to
the Notes, the Note Agreement and each and every agreement, certificate or other
document executed or delivered in connection with the execution of the Note
Agreement.
(b) The obligations of the Subsidiary Guarantor hereunder
shall be limited to the lesser of (i) the Obligations guaranteed hereunder, or
(ii) a maximum aggregate amount equal to the largest amount that would not
render its obligations hereunder subject to avoidance as a fraudulent transfer
or conveyance under Section 548 of Title 11 of the United States Code or any
applicable provisions of comparable state law (collectively, the "FRAUDULENT
TRANSFER LAWS"), if and to the extent the Subsidiary Guarantor (or a trustee on
its behalf) has properly invoked the protections of the Fraudulent Transfer Laws
in each case after giving effect to all other liabilities of the Subsidiary
Guarantor, contingent or otherwise, that are relevant under the Fraudulent
Transfer Laws.
-2-
2. GUARANTY OF PAYMENT AND PERFORMANCE
This is a guaranty of payment and performance, and not of collection,
and the Subsidiary Guarantor hereby waives any right to require that any action
on or in respect of the Obligations or the Note Agreement be brought against the
Company. The Purchasers may, at their option, proceed hereunder against the
Subsidiary Guarantor in the first instance to collect monies when due, the
payment of which is guaranteed hereby, without first proceeding against the
Company or any other Person and without first resorting to any direct or
indirect security for the Obligations or for this Amended and Restated
Subsidiary Guarantee Agreement, if any, or to any other remedy. The liability of
the Subsidiary Guarantor hereunder shall in no way be affected or impaired by
any acceptance by the Purchasers of any direct or indirect security for, or
other guaranties of, any indebtedness, liability or obligation of the Company or
any other Person to the Purchasers or by any failure, delay, neglect or omission
by the Purchasers to realize upon or protect any such indebtedness, liability or
obligation or any notes or other instruments evidencing the same or any direct
or indirect security therefor or by any approval, consent, waiver, or other
action taken, or omitted to be taken by the Purchasers.
3. GENERAL PROVISIONS RELATING TO THE GUARANTY.
(a) The Subsidiary Guarantor hereby consents and agrees that
the Purchasers, with or without any further notice to or assent from the
Subsidiary Guarantor may, without in any manner affecting the liability of the
Subsidiary Guarantor, and upon such terms and conditions as the Purchasers may
deem advisable:
(1) extend in whole or in part ( by renewal or
otherwise), modify, change, compromise, release or extend the duration of the
time for the performance or payment of any indebtedness, liability or obligation
of the Company or of any other Person secondarily or otherwise liable for any
indebtedness, liability or obligations of the Company on the Obligations, or
waive any default with respect thereto, or waive, modify, amend or change any
provision of any other instruments; or
(2) sell, release, surrender, modify, impair, exchange
or substitute any and all property, of any nature and from whomsoever received,
held by, or on behalf of, the Purchasers as direct or indirect security, if any,
for the payment or performance of any indebtedness, liability or obligation of
the Company or of any other Person secondarily or otherwise liable for any
indebtedness, liability or obligation of the Company on the Obligations; or
(3) settle, adjust or compromise any claim of the
Company against any other Person secondarily or otherwise liable for any
indebtedness, liability or obligation of the Company on the Obligations.
The Subsidiary Guarantor hereby ratifies and confirms any such
extension, renewal, change, sale, release, waiver, surrender, exchange,
modification, amendment, impairment, substitution, settlement, adjustment or
compromise and agrees that the same shall be binding upon it, and hereby waives
any and all defenses, counterclaims or offsets which it might or could
-3-
have by reason thereof, it being understood that the Subsidiary Guarantor shall
at all times be bound by this Guaranty and remain liable hereunder.
(b) The Subsidiary Guarantor hereby waives: (1) notice of
acceptance of this Amended and Restated Subsidiary Guarantee Agreement by the
Purchasers or of the creation, renewal or accrual of any liability of the
Company, present or future, or of the reliance of the Purchasers upon this
Amended and Restated Subsidiary Guarantee Agreement (it being understood that
the Obligations shall conclusively be presumed to have been created, contracted
or incurred in reliance upon the execution of this Amended and Restated
Subsidiary Guarantee Agreement); (2) demand of payment by the Purchasers from
the Company or any other Person indebted in any manner on or for any of the
indebtedness, liabilities or obligations hereby guaranteed; and (3) presentment
for the payment by the Purchasers or any other Person of the Notes or any other
instrument, protest thereof and notice of its dishonor to any party thereto and
to the Subsidiary Guarantor. The obligations of the Subsidiary Guarantor under
this Amended and Restated Subsidiary Guarantee Agreement and the rights of the
Purchasers to enforce such obligations by any proceedings, whether by action at
law, suit in equity or otherwise, shall not be subject to any reduction,
limitation, impairment or termination, whether by reason of any claim of any
character whatsoever or otherwise and shall not be subject to any defense,
set-off, counterclaim (other than any compulsory counterclaim), recoupment or
termination whatsoever.
(c) The obligations of the Subsidiary Guarantor hereunder
shall be binding upon the Subsidiary Guarantor and its successors and assigns,
and shall remain in full force and effect irrespective of:
(1) the genuineness, validity, regularity or
enforceability of the Obligations, the Note Agreement or any other instruments
relating thereto or any of the terms of any thereof, the continuance of any
obligation on the part of the Company or any other Person on the Obligations or
under the Note Agreement or the power or authority or the lack of power or
authority of the Company to issue or incur the Obligations or execute and
deliver the Note Agreement or the Notes or to perform any of its obligations
thereunder or the existence or continuance of the Company or any other Person as
a legal entity; or
(2) any default, failure or delay, willful or otherwise,
in the performance by the Company or any other Person of any obligations of any
kind or character whatsoever of the Company or any other Person (including,
without limitation, the obligations and undertakings of the Company or any other
Person under the Obligations, the Note Agreement or the Notes); or
(3) any creditors' rights, bankruptcy, receivership or
other insolvency proceeding of the Company or any other Person or in respect of
the property of the Company or any other Person or any merger, consolidation,
reorganization, dissolution, liquidation or winding up of the Company or any
other Person; or
(4) impossibility or illegality of performance on the
part of the Company or any other Person of its obligations under the
Obligations, the Note Agreement, the Notes or any other instruments; or
-4-
(5) in respect of the Company or any other Person, any
change of circumstances, whether or not foreseen or foreseeable, whether or not
imputable to the Company or any other Person, or other impossibility of
performance through fire, explosion, accident, labor disturbance, floods,
droughts, embargoes, wars (whether or not declared), civil commotions, acts of
God or the public enemy, delays or failure of suppliers or carriers, inability
to obtain materials, action of any Federal or state regulatory body or agency,
change of law or any other causes affecting performance, or any other force
majeure, whether or not beyond the control of the Company or any other Person
and whether or not of the kind hereinbefore specified; or
(6) any attachment, claim, demand, charge, lien, order,
process, encumbrance or any other happening or event or reason, similar or
dissimilar to the foregoing, or any withholding or diminution at the source, by
reason of any taxes, assessments, expenses, indebtedness, obligations or
liabilities of any character, foreseen or unforeseen, and whether or not valid,
incurred by or against any Person, or any claims, demands, charges or liens of
any nature, foreseen or unforeseen, incurred by any Person, or against any sums
payable under this Amended and Restated Subsidiary Guarantee Agreement, so that
such sums would be rendered inadequate or would be unavailable to make the
payments herein provided; or
(7) any order, judgment, decree, ruling or regulation
(whether or not valid) of any court of any nation or of any political
subdivision thereof or any body, agency, department, official or administrative
or regulatory agency of any thereof or any other action, happening, event or
reason whatsoever which shall delay, interfere with, hinder or prevent, or in
any way adversely affect, the performance by any party of its respective
obligations under the Obligations, the Note Agreement or the Notes or any
instrument relating thereto; or
(8) the failure of the Subsidiary Guarantor to receive
any benefit from or as a result of its execution, delivery and performance of
this Amended and Restated Subsidiary Guarantee Agreement; or
(9) any failure or lack of diligence in collection or
protection, failure in presentment or demand for payment, protest, notice of
protest, notice of default and of nonpayment, any failure to give notice to the
Subsidiary Guarantor of failure of the Company or any other Person to keep and
perform any obligation, covenant or agreement under the terms of the Obligations
or the Note Agreement or failure to resort for payment to the Company or to any
other Person or to any other guaranty or to any property, security or liens, if
any, or other rights or remedies; or
(10) the acceptance of any security or other guaranty,
the advance of additional money to the Company or any other Person, the renewal
or extension of the Obligations or amendments, modifications, consents or
waivers with respect to the Obligations or the Note Agreement, or the sale,
release, substitution or exchange of any security, if any, for the Obligations
or for this Amended and Restated Subsidiary Guarantee Agreement including,
without limitation, the release of collateral, if any, or
-5-
(11) any defense whatsoever that the Company or any
other Person might have to the payment of the Obligations, or to the performance
or observance of any of the provisions of the Note Agreement, whether through
the satisfaction or purported satisfaction by the Company or any other Person of
its debts due to any cause such as bankruptcy, insolvency, receivership, merger,
consolidation, reorganization, dissolution, liquidation, winding-up or
otherwise; or
(12) any act or failure to act with regard to the
Obligations or the Note Agreement or anything which might vary the risk of the
Subsidiary Guarantor; or
(13) any other circumstance which might otherwise
constitute a defense available to, or a discharge of, the Subsidiary Guarantor
in respect of the obligations of the Subsidiary Guarantor under this Amended and
Restated Subsidiary Guarantee Agreement;
PROVIDED that the specific enumeration of the above-mentioned acts, failures or
omissions shall not be deemed to exclude any other acts, failures or omissions,
though not specifically mentioned above, it being the purpose and intent of this
Amended and Restated Subsidiary Guarantee Agreement that the obligations of the
Subsidiary Guarantor shall be absolute and unconditional and shall not be
discharged, impaired or varied except by the payment in full of the Obligations
in accordance with their respective terms whenever the same shall become due and
payable, at the place specified in and all in the manner and with the effect
provided in the Notes and the Note Agreement. Without limiting the foregoing, it
is understood that repeated and successive demands may be made and recoveries
may be had hereunder as and when, from time to time, the Company shall default
under the terms of the Notes or the Note Agreement and that notwithstanding
recovery hereunder for or in respect of any given default or defaults by the
Company under the Notes or the Note Agreement, this Amended and Restated
Subsidiary Guarantee Agreement shall remain in full force and effect and shall
apply to each and every subsequent default.
(d) To the extent of any payments made under this Amended
and Restated Subsidiary Guarantee Agreement, the Subsidiary Guarantor making
such payment shall be subrogated to the rights of the holders of the Obligations
in respect of whose Obligations such payment was made, but the Subsidiary
Guarantor covenants and agrees that such right of subrogation shall be
subordinate in right of payment to the rights of any holder of the Obligations
for which full payment has not been made or provided for and, to that end, the
Subsidiary Guarantor agrees not to claim or enforce any such right of
subrogation or any right of set-off or any other right which may arise on
account of any payment made by the Subsidiary Guarantor in accordance with the
provisions of this Amended and Restated Subsidiary Guarantee Agreement unless
and until all of the Notes and all other Obligations have been fully paid and
discharged.
(e) The Subsidiary Guarantor agrees that to the extent the
Company or any other Person makes any payment on any Obligation, which payment
or any part thereof is subsequently invalidated, voided, declared to be
fraudulent or preferential, set aside, recovered, rescinded or is required to be
retained by or repaid to a trustee, receiver, or any other Person under any
bankruptcy code, common law, or equitable cause, then and to the extent of such
payment, the obligation or the part thereof intended to be satisfied shall be
revived and continued
-6-
in full force and effect with respect to the Subsidiary Guarantor's obligations
hereunder, as if said payment had not been made. The liability of the Subsidiary
Guarantor hereunder shall not be reduced or discharged, in whole or in part, by
any payment to the Purchasers from any source that is thereafter paid, returned
or refunded in whole or in part by reason of the assertion of a claim of any
kind relating thereto, including, but not limited to, any claim for breach of
contract, breach of warranty, preference, illegality, invalidity, or fraud
asserted by any account debtor or by any other Person.
(f) The Purchasers shall not be under any obligation (1) to
marshall any assets in favor of the Subsidiary Guarantor or in payment of any or
all of the liabilities of the Company under or in respect of the Obligations or
the obligations of the Subsidiary Guarantor hereunder or (2) to pursue any other
remedy that the Subsidiary Guarantor may or may not be able to pursue itself and
that may lighten such Subsidiary Guarantor's burden, any right to which the
Subsidiary Guarantor hereby expressly waives.
4. GUARANTOR COVENANTS.
(a) REPORTING COVENANTS. So long as any Obligations shall
remain unsatisfied, the Subsidiary Guarantor agrees that it shall furnish to the
Purchasers: (i) prompt written notice of any condition or event which has
resulted, or that could reasonably be expected to result, in a Material Adverse
Effect; and (ii) such other information respecting the operations, properties,
business or condition (financial or otherwise) of the Subsidiary Guarantor or
its Subsidiaries, if any, as the Purchasers may from time to time reasonably
request.
(b) ADDITIONAL AFFIRMATIVE COVENANTS. So long as any
Obligations shall remain unsatisfied, the Subsidiary Guarantor agrees that:
(i) PRESERVATION OF EXISTENCE, ETC. The Subsidiary
Guarantor shall, and shall cause each of its Subsidiaries, if
any, to, maintain and preserve its legal existence, its rights
to transact business and all other rights, franchises and
privileges necessary or desirable in the normal course of its
business and operations and the ownership of its properties.
(ii) FURTHER ASSURANCES AND ADDITIONAL ACTS. The
Subsidiary Guarantor shall execute, acknowledge, deliver, file,
notarize and register at its own expense all such further
agreements, instruments, certificates, documents and assurances
and perform such acts as the Purchasers shall reasonably deem
necessary or appropriate to effectuate the purposes of this
Amended and Restated Subsidiary Guarantee Agreement and promptly
provide the Purchasers with evidence of the foregoing
satisfactory in form and substance to it.
(c) NEGATIVE COVENANTS. So long as any Obligations shall
remain unsatisfied, the Subsidiary Guarantor agrees that:
(i) RESTRICTIONS ON FUNDAMENTAL CHANGES. The
Subsidiary Guarantor shall not merge with or consolidate into,
or acquire all or
-7-
substantially all of the assets of, any Person, or sell,
transfer, lease or otherwise dispose of (whether in one
transaction or in a series of transactions) all or substantially
all of its assets, except that any wholly owned Subsidiary of
the Subsidiary Guarantor may merge with, consolidate into or
transfer all or substantially all of its assets to another such
wholly-owned Subsidiary or to the Subsidiary Guarantor and in
connection therewith such Subsidiary may be liquidated or
dissolved.
(ii) DISTRIBUTIONS. The Subsidiary Guarantor shall
not grant or otherwise agree to or suffer to exist any
consensual restrictions on its ability to pay dividends and make
other distributions to the Company, or to pay any Indebtedness
owed to the Company or transfer properties and assets to the
Company, except that any consensual restrictions existing as of
the date hereof and disclosed in writing to the Purchasers shall
be permitted hereunder.
5. NOTICES.
All communications provided for herein shall be in writing, delivered
or mailed prepaid by registered or certified mail or overnight air courier, or
by facsimile communication at the addresses set forth below, or to such other
address as such Person may designate to the other Persons named below by notice
given in accordance with this Section:
If to the Purchasers: To the addresses for notices set
forth on Schedule A of the Note
Agreement
If to the Subsidiary Guarantor: c/o the Company to the address
for notices set forth in Section
18 of the Note Agreement
If to the Company: To the address for notices set
forth in Section 18 of the Note
Agreement
6. AMENDMENTS AND MODIFICATIONS; SOLICITATION OF NOTEHOLDERS.
(a) This Amended and Restated Subsidiary Guarantee Agreement
may only be amended and/or modified by an instrument in writing signed by the
Subsidiary Guarantor and by the holder or holders of at least 51% in aggregate
principal amount of the Notes then outstanding; provided, that without the
written consent of the holders of all of the Notes then outstanding, no such
waiver, modification, alteration or amendment shall be effective which will
reduce the scope of the guaranty set forth in this Amended and Restated
Subsidiary Guarantee Agreement or amend the requirements of Sections 1, 2 or 3
hereof or amend this Section 6. No such amendment or modification shall extend
to or affect any obligation not expressly amended or modified or impair any
right consequent thereon.
(b) The Subsidiary Guarantor will not solicit, request or
negotiate for or with
-8-
respect to any proposed waiver or amendment of any of the provisions of this
Amended and Restated Subsidiary Guarantee Agreement, the Note Agreement unless
each Holder of the Notes (irrespective of the amount of Notes then owned by it)
shall be informed thereof by the Subsidiary Guarantor and shall be afforded the
opportunity of considering the same and shall be supplied by the Subsidiary
Guarantor with a copy of the proposed waiver or amendment and such other
information regarding such amendment or waiver as any Holder of the Notes shall
reasonably request to enable it to make an informed decision with respect
thereto. Executed or true and correct copies of any waiver or amendment effected
pursuant to the provisions of this Section 6 shall be delivered by the
Subsidiary Guarantor to each Holder of outstanding Notes within 30 days
following the date on which the same shall have been executed and delivered by
the Holder or Holders of the requisite percentage of the outstanding Notes. The
Subsidiary Guarantor will not, directly or indirectly, pay or cause to be paid
any remuneration, whether by way of supplemental or additional interest, fee of
otherwise, to any Holder of the Notes as consideration for or as an inducement
to the entering into by any Holder of the Notes of any waiver or amendment of
any of the terms and provisions of this Amended and Restated Subsidiary
Guarantee Agreement or the Note Agreement unless such remuneration is
concurrently paid, on the same terms, ratably to the Holders of all of the Notes
then outstanding.
7. MISCELLANEOUS.
(a) No remedy herein conferred upon or reserved to the
Purchasers is intended to be exclusive of any other available remedy or
remedies, but each and every such remedy shall be cumulative and shall be in
addition to every other remedy given under this Amended and Restated Subsidiary
Guarantee Agreement now or hereafter existing at law or in equity. No delay or
omission to exercise any right or power accruing upon any default, omission or
failure of performance hereunder shall impair any such right or power or shall
be construed to be a waiver thereof but any such right or power may be exercised
from time to time and as often as may be deemed expedient. In order to entitle
the Purchasers to exercise any remedy reserved to them under this Amended and
Restated Subsidiary Guarantee Agreement, it shall not be necessary for the
Purchasers to physically produce their Notes in any proceedings instituted by
them or to give any notice, other than such notice as may be herein expressly
required.
(b) This Amended and Restated Subsidiary Guarantee Agreement
shall be binding upon the Subsidiary Guarantor, its successors and assigns and
shall inure, together with the rights and remedies of the Purchasers hereunder,
to the benefit of the Purchasers and their successors and assigns; provided,
however, that the Subsidiary Guarantor may not assign its rights or delegate its
duties hereunder without the Purchasers' prior written consent. Without limiting
the generality of the foregoing, but subject to the terms and conditions of the
Note Agreement, the Purchasers may assign or otherwise transfer any indebtedness
held by them secured by this Amended and Restated Subsidiary Guarantee Agreement
to any other Person or entity, and such other Person or entity shall thereupon
become vested with all the benefits in respect thereof granted to the Purchasers
herein or otherwise, subject, however, to the provisions of the Note Agreement.
The Company hereby releases the Purchasers from any liability for any act or
omission relating to this Amended and Restated Subsidiary Guarantee Agreement,
except the Purchasers' gross negligence or willful misconduct.
(c) In the event that any provision hereof shall be deemed
to be invalid by reason
-9-
of the operation of any law or by reason of the interpretation placed thereon by
any court, this Amended and Restated Subsidiary Guarantee Agreement shall be
construed as not containing such provision, but only as to such jurisdictions
where such law or interpretation is operative, and the invalidity of such
provision shall not affect the validity of any remaining provision hereof, and
any and all other provisions hereof which are otherwise lawful and valid shall
remain in full force and effect.
(d) This Amended and Restated Subsidiary Guarantee Agreement
shall be deemed to have been made in the State of New York and shall be governed
by and construed in accordance with the laws of the State of New York, without
regard to principles of conflicts of law. The headings in this instrument are
for convenience of reference only and shall not limit or otherwise affect the
meaning of any provision hereof.
(e) THE GUARANTORS HEREBY AGREE TO WAIVE, AND THE AGENT AND
THE LENDERS BY THEIR ACCEPTANCE HEREOF HEREBY AGREE TO WAIVE, THEIR RESPECTIVE
RIGHTS TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING
OUT OF OR RELATED TO THIS GUARANTY, THE OTHER GUARANTOR DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY IN ANY ACTION, PROCEEDING OR OTHER
LITIGATION OF ANY TYPE BROUGHT BY ANY OF THE PARTIES AGAINST ANY OTHER PARTY OR
PARTIES, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE. THE
GUARANTORS HEREBY AGREE, AND THE AGENT AND THE LENDERS BY THEIR ACCEPTANCE
HEREOF HEREBY AGREE, THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A
COURT TRIAL WITHOUT A JURY. WITHOUT IN ANY WAY LIMITING THE FOREGOING, THE
GUARANTORS FURTHER AGREE, AND THE AGENT AND THE LENDERS BY THEIR ACCEPTANCE
HEREOF FURTHER AGREE, THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED
BY OPERATION OF THIS SECTION AS TO ANY ACTION, COUNTERCLAIM, OR OTHER PROCEEDING
WHICH SEEKS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY OF
THIS GUARANTY OR THE OTHER GUARANTORS DOCUMENTS OR ANY PROVISION HEREOF OR
THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THE GUARANTY AND THE OTHER GUARANTOR DOCUMENTS.
A COPY OF THIS SECTION 7(E) MAY BE FILED WITH ANY COURT AS WRITTEN EVIDENCE OF
THE WAIVER OF THE RIGHT TO TRIAL BY JURY AND CONSENT TO TRIAL BY COURT.
(f) THE GUARANTORS ACKNOWLEDGE THAT THEY AS INDIVIDUAL
ENTITIES HAVE EITHER OBTAINED THE ADVICE OF LEGAL COUNSEL OR HAVE HAD THE
OPPORTUNITY TO OBTAIN SUCH ADVICE IN CONNECTION WITH THE TERMS AND PROVISIONS OF
THIS GUARANTY. THE GUARANTORS ACKNOWLEDGE AND AGREE THAT EACH OF THE WAIVERS AND
CONSENTS SET FORTH HEREIN ARE MADE WITH FULL KNOWLEDGE OF THEIR SIGNIFICANCE AND
CONSEQUENCES. ADDITIONALLY, THE GUARANTORS ACKNOWLEDGE AND AGREE THAT BY
EXECUTING THIS
-10-
GUARANTY, THEY ARE WAIVING CERTAIN RIGHTS, BENEFITS, PROTECTIONS AND DEFENSES TO
WHICH THEY MAY OTHERWISE BE ENTITLED UNDER APPLICABLE LAW, INCLUDING UNDER THE
PROVISIONS OF THE CALIFORNIA CIVIL CODE AND CALIFORNIA CODE OF CIVIL PROCEDURE
REFERRED TO IN THIS AGREEMENT TO THE EXTENT SUCH LAWS ARE APPLICABLE, AND THAT
ALL SUCH WAIVERS HEREIN ARE EXPLICIT, KNOWING WAIVERS. THE GUARANTORS FURTHER
ACKNOWLEDGE AND AGREE THAT THE AGENT AND THE LENDERS ARE RELYING ON SUCH WAIVERS
IN CREATING THE GUARANTEED OBLIGATIONS, AND THAT SUCH WAIVERS ARE A MATERIAL
PART OF THE CONSIDERATION WHICH THE AGENT AND THE LENDERS ARE RECEIVING FOR
CREATING THE GUARANTEED OBLIGATIONS.
(g) The obligations of the Subsidiary Guarantor hereunder
shall remain in full force and effect until all the Obligations have been paid
and satisfied in full.
-11-
IN WITNESS WHEREOF, the Subsidiary Guarantor has caused this Amended
and Restated Subsidiary Guarantee Agreement to be duly executed and attested as
of the date first above written.
[Subsidiary Guarantor]
By: The Chalone Wine Group, Ltd.,
a California corporation
Its Managing Member
By: _____________________________
Thomas B. Selfridge,
President and CEO
REPRESENTATION AND WARRANTIES OF ORIGINAL SUBSIDIARY GUARANTORS
Such Subsidiary Guarantor represents and warrants to each Purchaser as
follows:
1. SUBSIDIARIES. Such Subsidiary Guarantor has, directly and
indirectly, good and marketable title to all of the shares it purports to own of
the stock of each of its subsidiaries, free and clear in each case of any Lien.
All such shares have been duly issued and are fully paid and non-assessable.
2. ORGANIZATION AND AUTHORITY. Such Subsidiary Guarantor, and each
of its subsidiaries,
(a) is a corporation or general partnership, duly
incorporated, or duly organized, as the case may be, amalgamated or continued,
validly existing and in good standing and has duly made all registrations and
filings required given the nature of its business under the laws of its
jurisdiction of incorporation or organization and has paid all taxes as are
necessary to maintain its corporate or partnership existence, as the case may
be;
(b) has all requisite power and authority and all necessary
licenses and permits to own and operate its properties and to carry on its
business as now conducted, where failure to do so would materially affect
adversely the business, properties, profits or financial condition of such
Subsidiary Guarantor or any of its subsidiaries; and
(c) is duly licensed or qualified and is in good standing as
a foreign corporation in each jurisdiction wherein the nature of the business
transacted by it or the nature of the property owned or leased by it makes such
licensing or qualification necessary, where failure to do so would materially
affect adversely the business, properties, profits or financial condition of
such Subsidiary Guarantor or any of its subsidiaries.
3. FULL DISCLOSURE. Neither the Subsidiary Guarantee Agreement, the
Collateral Documents to which such Subsidiary Guarantor is a signatory nor any
other written statement furnished by such Subsidiary Guarantor to such Purchaser
in connection with the negotiation of the Subsidiary Guarantee Agreement and the
Collateral Documents to which such Subsidiary Guarantor is a signatory, contains
any untrue statement of a material fact or omits a material fact necessary to
make the statements contained therein or herein not misleading. There is no fact
peculiar to such Subsidiary Guarantor or its subsidiaries which such Subsidiary
Guarantor has not disclosed to such Purchaser in writing which materially
affects adversely nor, so far as such Subsidiary Guarantor can now foresee, will
materially affect adversely the properties, business, profits or financial
condition of such Subsidiary Guarantor and its subsidiaries, taken as a whole.
4. PENDING LITIGATION. There are no proceedings pending or, to the
knowledge of such Subsidiary Guarantor, threatened against or affecting such
Subsidiary Guarantor or any of its subsidiaries in any court or before any
governmental authority or arbitration board or tribunal are reasonably likely to
materially affect adversely the properties, business, profits or financial
condition of such Subsidiary Guarantor and its subsidiaries.
EXHIBIT 10.11(a)
(to the Note Purchase Agreement)
5. TITLE TO PROPERTIES. Such Subsidiary Guarantor and each of its
subsidiaries has good and marketable title in fee simple (or its equivalent
under applicable law) to all material parcels of real property and has good
title to all the other material items of property it purports to own, except as
sold or otherwise disposed of in the ordinary course of business and except for
Liens permitted by this Agreement.
6. PATENTS AND TRADEMARKS. Such Subsidiary Guarantor and each of
its subsidiaries owns, possesses or has the right to use all the patents,
trademarks, trade names, service marks, copyright, licenses and rights with
respect to the foregoing necessary for the present and planned future conduct of
its business, without any known conflict with the rights of others.
7. COMPLIANCE IS LEGAL AND AUTHORIZED.Compliance by such Subsidiary
Guarantor with all of the provisions of the Subsidiary Guarantee Agreement and
the Collateral Documents to which such Subsidiary Guarantor is a signatory--
(a) is within the corporate or partnership powers, as the
case may be, of such Subsidiary Guarantor;
(b) will not violate any provisions of any law or any order
of any court or governmental authority or agency and will not conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute a default under the charter or other organizational documents of such
Subsidiary Guarantor or any indenture or other agreement or instrument to which
such Subsidiary Guarantor is a party or by which it may be bound or result in
the imposition of any Liens or encumbrances on any property of such Subsidiary
Guarantor; and
(c) has been duly authorized by proper corporate or
partnership action, as the case may be, on the part of such Subsidiary Guarantor
(no action by the stockholders or partners of such Subsidiary Guarantor being
required by law, by the charter or other organizational documents of such
Subsidiary Guarantor or otherwise), and such Subsidiary Guarantee Agreement and
Collateral Documents have been duly executed and delivered by such Subsidiary
Guarantor and constitute the legal, valid and binding obligations, contracts and
agreements of such Subsidiary Guarantor enforceable in accordance with its
terms.
8. NO DEFAULTS. Neither such Subsidiary Guarantor nor any of its
subsidiaries is in default in the payment of principal or interest on any Debt
or is in default under any instrument or instruments or agreements under and
subject to which any Debt has been issued, and no event has occurred and is
continuing under the provisions of any such instrument or agreement which with
the lapse of time or the giving of notice, or both, would constitute an event of
default thereunder.
9. GOVERNMENTAL CONSENT. No approval, consent or withholding of
objection on the part of, or filing, registration or qualification with, any
governmental department, regulatory authority or court under the laws of the
United States or any agency or authority thereof, state, Federal or local, is
necessary in connection with the lawful execution and delivery by such
Subsidiary Guarantor of its Guaranty or compliance by such Subsidiary Guarantor
with any of the provisions of such Subsidiary Guarantee Agreement and the
Collateral Documents including, without limitation, payments to be made under
such Subsidiary Guarantee Agreement.
10.11(a)-2
10. TAXES. Such Subsidiary Guarantor and its subsidiaries have
filed all tax returns that are required to have been filed in any jurisdiction,
and have paid all taxes shown to be due and payable on such returns and all
other taxes and assessments levied upon them or their properties, assets, income
or franchises, to the extent such taxes and assessments have become due and
payable and before they have become delinquent, except for any taxes and
assessments (i) the amount of which is not individually or in the aggregate
material, or (ii) the amount, applicability or validity of which is currently
being contested in good faith by appropriate proceedings and with respect to
which such Subsidiary Guarantor or a subsidiary has established adequate
reserves in accordance with GAAP. Such Subsidiary Guarantor knows of no basis
for any other tax or assessment that could reasonably be expected to have a
material adverse effect. The charges, accruals and reserves on the books of such
Subsidiary Guarantor and its subsidiaries in respect of Federal, state or other
taxes for all fiscal periods are adequate. The Federal income tax liabilities of
such Subsidiary Guarantor and its subsidiaries have been paid for all fiscal
years up to and including the fiscal year ended March 31, 2000.
11. EMPLOYEE-RELATED MATTERS. (a) Each pension plan maintained by
such Subsidiary Guarantor or any of its subsidiaries complies in all material
respects with all applicable statutes and governmental rules and regulations.
Such Subsidiary Guarantor and each of its subsidiaries has satisfied their
respective funding obligations as required by applicable law for all pension
plans maintained by them. All tax returns and reports required to be filed by or
with respect to such Subsidiary Guarantor's and each of its subsidiaries'
pension plans in all applicable jurisdictions have been filed. Such plans are
(to the extent required under applicable law, rule or regulation) registered
under, and are in compliance with, applicable federal legislation and all
reports, returns and filings required to be made thereunder have been made. Such
plans have been at all times administered in accordance with their terms and the
provisions of applicable law. Neither such Subsidiary Guarantor nor any of its
subsidiaries has incurred a liability in connection with the winding-up of a
pension plan or the withdrawal from a multiemployer plan which would have a
Material adverse effect on the properties, business, profits or condition
(financial or otherwise) of such Subsidiary Guarantor and each of its
subsidiaries taken as a whole or impair the ability of such Subsidiary Guarantor
or any of its subsidiaries to perform its respective obligations contained in
the Subsidiary Guarantee Agreement and the Collateral Documents to which such
Subsidiary Guarantor is a signatory. There are no controversies pending or, to
the knowledge of such Subsidiary Guarantor, threatened or anticipated between
such Subsidiary Guarantor and any of its employees which would have a material
adverse effect on the properties, business, profits or condition (financial or
otherwise) of such Subsidiary Guarantor or any of its subsidiaries or would
materially impair the ability of such Subsidiary Guarantor or any of its
subsidiaries to perform its obligations contained in the Subsidiary Guarantee
Agreement and the Collateral Documents to which such Subsidiary Guarantor is a
signatory and there are no material labor disputes, grievances, arbitration
proceedings or any strikes, work stoppages or slow downs pending or, to such
Subsidiary Guarantor's knowledge, threatened by such Subsidiary Guarantor's
employees and representatives.
(b) The consummation of the transactions provided for in the
Subsidiary Guarantee Agreement and the Collateral Documents to which such
Subsidiary Guarantor is a signatory and compliance by such Subsidiary Guarantor
with the provisions thereof will not involve any
10.11(a)-3
prohibited transaction within the meaning of ERISA or Section 4975 of the
Internal Revenue Code of 1986, as amended. No Reportable Event has occurred and
is continuing with respect to any Plan. Neither such Subsidiary Guarantor nor
any ERISA Affiliate has withdrawn from any Plan or Multiemployer Plan or
instituted steps to do so and no steps have been instituted to terminate any
Plan. No condition exists or event or transaction has occurred in connection
with any Plan which could result in the incurrence by such Subsidiary Guarantor
or any ERISA Affiliate of any material liability, fine or penalty. No Plan
maintained by such Subsidiary Guarantor or any ERISA Affiliate, nor any trust
created thereunder, has incurred any "accumulated funding deficiency" as defined
in Section 302 of ERISA nor does the present value of all benefits vested under
all Plans exceed, as of the last annual valuation date, the value of the assets
of the Plans allocable to such vested benefits. Neither such Subsidiary
Guarantor nor any ERISA Affiliate has any contingent liability with respect to
any post-retirement "welfare benefit plan" (as such term is defined in ERISA)
except as has been disclosed to the Purchasers.
12. COMPLIANCE WITH LAW. Neither such Subsidiary Guarantor nor any
of its subsidiaries (a) is in violation of any law, ordinance, franchise,
governmental rule or regulation to which it is subject; or (b) has failed to
obtain any license, permit, franchise or other governmental authorization
necessary to the ownership of its property or to the conduct of its business,
which violation or failure to obtain would materially adversely affect the
business, prospects, profits, properties or condition (financial or otherwise)
of such Subsidiary Guarantor and its subsidiaries, taken as a whole, or impair
the ability of such Subsidiary Guarantor to perform its obligations contained in
the Subsidiary Guarantee Agreement and the Collateral Documents to which such
Subsidiary Guarantor is a signatory. Neither such Subsidiary Guarantor nor any
of its subsidiaries is in default with respect to any order of any court or
governmental authority or arbitration board or tribunal.
13. COMPLIANCE WITH ENVIRONMENTAL LAWS. Neither such Subsidiary
Guarantor nor any of its subsidiaries is in violation of any applicable United
States Federal, state, or local laws, statutes, rules, regulations or ordinances
relating to public health, safety or the environment, including, without
limitation, relating to releases, discharges, emissions or disposals to air,
water, land or ground water, to the withdrawal or use of ground water, to the
use, handling or disposal of polychlorinated biphenyls (PCBs), asbestos or urea
formaldehyde, to the treatment, storage, disposal or management of hazardous
substances (including, without limitation, petroleum, crude oil or any fraction
thereof, or other hydrocarbons), pollutants or contaminants, to exposure to
toxic, hazardous or other controlled, prohibited or regulated substances which
violation could materially affect adversely the business, profits, properties or
financial condition of such Subsidiary Guarantor and its subsidiaries, taken as
a whole. Such Subsidiary Guarantor does not know of any liability or class of
liability of such Subsidiary Guarantor or any of its subsidiaries under the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Section 9601 et seq.), or the Resource Conservation and
Recovery Act of 1976, as amended (42 U.S.C. Section 6901 et seq.).
14. ABSENCE OF FOREIGN OR ENEMY STATUS. (a) No Subsidiary Guarantor
nor any of their subsidiaries on the date hereof, is (i) an "enemy" or an "ally
of enemy" within the meaning of Section 2 of the Trading with the Enemy Act,
(ii) a "national" of a foreign country designated in Executive Order 8389, as
amended or of any "designated enemy country" as defined in
10.11(a)-4
Executive Order No. 9095, as amended, of the President of the United States of
America, in each case within the meaning of said Executive Orders, as amended,
or of any regulation issued thereunder, or (iii) a "national of any designated
foreign country" within the meaning of the Foreign Assets Control Regulations or
of the Cuban Assets Control Regulations of the United States of America.
(b) The execution and delivery of the Subsidiary Guarantee Agreement
and the Collateral Documents by any Subsidiary Guarantor as contemplated hereby
will not violate the Foreign Assets Control Regulations, the Foreign Funds
Control Regulations, the Transaction Control Regulations, the Cuban Assets
Control Regulations, the Iranian Assets Control Regulations, the Libyan
Sanctions Regulations, the South African Transactions Regulations, or the Iraqi
Sanctions Regulations of the United States Treasury Department (each as set
forth in 31 C.F.R., Subtitle B, Chapter V, as amended).
15. CONSOLIDATED AND INTEGRATED BUSINESS. The Company and its
Restricted Subsidiaries share centralized administration of the winery functions
of each entity including finance, sales and marketing. Such centralized
administration is performed at the Company's Napa office. This facility also
includes a central distribution center in which substantially all of the
Company's and its Restricted Subsidiaries' wines are stored prior to shipping.
Sales and marketing of all of the Company's and Restricted
Subsidiaries' wines within the State of California are made through the
Company's own sales forces and one or more wholesalers. The Company uses a
single broker for all wholesale California sales of the Company and its
Restricted Subsidiaries. Furthermore, all of the Company's and Restricted
Subsidiaries' wineries are operated under the overall supervision of the
Company's Chief Executive Officer.
The Company and each Subsidiary Guarantor prepare consolidated
financial statements and do their financial reporting on a consolidated basis.
16. SOLVENCY AND CONSIDERATION. (a) Such Subsidiary Guarantor is
solvent, has capital not unreasonably small in relation to its business or any
contemplated or undertaken transaction and has assets having a value both at
fair valuation and at present fair salable value greater than the amount
required to pay its debts as they become due and greater than the amount that
will be required to pay its probable liability on its existing debts as they
become absolute and matured. Such Subsidiary Guarantor does not intend to incur,
or believes or should have believed that it will incur, debts beyond its ability
to pay such debts as they become due. Such Subsidiary Guarantor will not be
rendered insolvent by the execution and delivery of, and performance of its
obligations under, the Subsidiary Guarantee Agreement and the Collateral
Documents to which such Subsidiary Guarantor is a signatory. such Subsidiary
Guarantor does not intend to hinder, delay or defraud its creditors by or
through the execution and delivery of, or performance of its obligations under,
the Subsidiary Guarantee Agreement and the Collateral Documents to which such
Subsidiary Guarantor is a signatory.
(b) Each Subsidiary Guarantor for itself has determined that the
execution and delivery of the Subsidiary Guarantee Agreement and the Collateral
Documents to which such
10.11(a)-5
Subsidiary Guarantor is a signatory is in furtherance of its corporate purposes
and is in its best interest and that it will derive substantial benefit, whether
directly or indirectly, from the making of such Subsidiary Guarantee Agreement
and the Collateral Documents (i) by, among other things, (1) enabling its direct
or indirect parent company to obtain financing deemed necessary and beneficial
by such parent company for general, consolidated corporate purposes and (2)
enabling it to increase its capitalization on a consolidated basis and (ii) in
accordance with its participation in the consolidated and integrated business
described in paragraph 15 hereof.
17. SUBSIDIARY GUARANTEE AGREEMENT to Rank Pari Passu.The Subsidiary
Guarantee Agreement to which such Subsidiary Guarantor is a party and all other
obligations thereunder are direct and unsecured obligations of such Subsidiary
Guarantor ranking PARI PASSU as against all other present and future Debt
(actual or contingent) of such Subsidiary Guarantor which is not secured or the
subject of any statutory trust or preference or which is not expressed to be
subordinate or junior in rank to any other Debt of such Subsidiary Guarantor.
18. INVESTMENT COMPANY ACT. Such Subsidiary Guarantor is not, and is
not directly or indirectly controlled by or acting on behalf of any Person which
is, required to register as an "investment company" under the Investment Company
Act of 1940, as amended.
19. PUBLIC UTILITY HOLDING COMPANY ACT. Such Subsidiary Guarantor
is not, nor will it become, solely by reason of entering into or performing its
obligations under the Subsidiary Guarantee Agreement to which it is a party or
the carrying out of any of the transactions contemplated thereby, a "public
utility company" or a "holding company" under the Public Utility Holding Company
Act of 1935, as amended.
10.11(a)-6
FORM OF DEED OF TRUST
See attached representative form of Deed of Trust.
EXHIBIT A
(to Note Purchase Agreement)
RECORDING REQUESTED BY: )
NORTH AMERICAN TITLE COMPANY )
AND WHEN RECORDED MAIL TO: )
McDermott, Will & Emery )
227 West Monroe Street, Suite 4400 ' )
Chicago, Illinois 60606 )
Attention: Elizabeth L. Majers, Esq. )
________________________________________________________________________________
(Space Above For Recorder's use only)
DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS
AND FIXTURE FILING
Dated as of April 19, 2002
From
THE CHALONE WINE GROUP, LTD.
(the "Company")
To
North American Title Company, as Trustee
For the Benefit of
C60PERATIEVE CENTRALE RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK INTERNATIONAL", NEW YORK
BRANCH,
as collateral agent (the "Collateral Agent")
THIS DEED OF TRUST CONSTITUTES A FIXTURE FILING UNDER SECTION 9502 OF THE
UNIFORM COMMERCIAL CODE OF THE STATE OF CALIFORNIA ("UCC") AND APPLIES TO ALL
GOODS AND PERSONAL PROPERTY WHICH, UNDER CALIFORNIA LAW, ARE OR ARE TO BECOME
FIXTURES ON THE REAL PROPERTY LOCATED IN THE COUNTY OF MONTEREY, STATE OF
CALIFORNIA, AND MORE PARTICULARLY DESCRIBED ON ANNEX A WHICH IS ATTACHED HERETO
AND INCORPORATED HEREIN BY THIS REFERENCE.
THE NAMES OF THE DEBTOR AND THE SECURED PARTY, THE MAILING ADDRESS OF THE
SECURED PARTY FROM WHICH INFORMATION CONCERNING THE SECURITY INTEREST MAY BE
OBTAINED, THE MAILING ADDRESS OF THE DEBTOR AND A STATEMENT INDICATING THE
TYPES, OR DESCRIBING THE ITEMS, OF COLLATERAL, ARE AS DESCRIBED HEREIN, IN
COMPLIANCE WITH THE REQUIREMENTS OF UCC.
THIS DEED OF TRUST SECURES PROMISSORY NOTES WHICH PROVIDE FOR VARIABLE RATES OF
INTEREST.
THIS DEED OF TRUST IS ENTERED INTO BY THE PARTIES HERETO EXPRESSLY SUBJECT TO
THE TERMS AND CONDITIONS OF THE INTERCREDITOR AND COLLATERAL AGREEMENT (AS
DEFINED HEREIN) AND THE RIGHTS OF COLLATERAL AGENT SET FORTH THEREIN, WHICH MAY
RESULT IN THE SUBORDINATION THERETO OF ANY LIEN OR OTHER CLAIM BY ANY JUNIOR
LIENHOLDER OR JUNIOR DEED OF TRUST BENEFICIARY WITH AN INTEREST SECURED BY THE
COLLATERAL DESCRIBED HEREIN.
Tax statements for the Collateral described herein and situated in the State of
California should be sent to:
The Chalone Wine Group, Ltd. 621 Airpark Road
Napa, California 94558
TABLE OF CONTENTS
Page
Recitals.......................................................................1
Section 1 Definitions ...................................................7
Section 2. General Covenants and Warranties .............................11
Section 2.1. Agreement and Deed of Trust Covenants ................. .....11
Section 2.2. Ownership of Collateral................................ ......12
Section 2.3 Further Assurances............................................12
Section 2.4. Payment of Principal, Premium and Interest ..................12
Section 2.5. Maintenance of Collateral, Other Liens, Compliance with Laws,
Environmental Matters, Etc . .................................12
Section 2.6. Insurance. .................................................16
Section 2.7. Payment of Taxes and Other Charges; Contests Thereof..........18
Section 2.8. Limitation on Liens ..........................................19
Section 2.9. Advances......................................................19
Section 2.10. Recordation...................................................20
Section 2.11. After-Acquired Property. .....................................20
Section 2.12. Indemnification; Waiver of Offset.............................20
Section 3.1. Possession, Use and Release of Collateral ...................22
Section 3.1. Company's Right of Possession ................................22
Section 3.2. Disposition of Certain Trade Property ........................22
Section 3.3. Release of Trade Property ....................................23
Section 3.4. Release of Collateral - Loss, Damage to or Destruction of the
Collateral and Prepayment of the Notes........................24
Section 3.5. Eminent Domain................................................24
Section 4. Application of Insurance and Certain Other Moneys Received by
the Collateral Agent..........................................24
Section 4.1. Insurance Proceeds and Condemnation Awards....................24
Section 4.2. Title Insurance...............................................25
Section 4.3. Other Proceeds................................................26
Section 4.4. Application if Event of Default Exists .......................26
Section 4.5. Investment of Collateral .....................................26
Section 5. Defaults and Remedies THEREFOR ...............................26
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TABLE OF CONTENTS
(CONTINUED)
Page
Section 5.1. Events of Default ............................................26
Section 5.2. Remedies .....................................................26
Section 5.3. Application of Proceeds ......................................30
Section 5.4. Waiver of Extension, Appraisement and Stay Laws ..............30
Section 5.5. Effect of Discontinuance of Proceedings ......................31
Section 5.6. Delay or Omission Not a Waiver ...............................31
Section 5.7. Costs and Expenses of Foreclosure ............................31
Section 5.8. Notes to Become Due Upon Sale by Collateral Agent ............31
Section 5.9. Remedies Subject to Applicable Law ...........................32
Section 6. Miscellaneous.................................................32
Section 6.1. Successors and Assigns ......................................32
Section 6.3. Addresses for Notices and Demands.............................32
Section 6.4. Headings and Table of Contents ...............................32
Section 6.5. Release.......................................................32
Section 6.6. Counterparts..................................................33
Section 6.7. Agency........................................................33
Section 6.8. Substitute Trustee ...........................................33
Section 6.9. Governing.....................................................33
Section 6.10. Time..........................................................34
Section 6.11. Future Advances ..............................................34
Section 6.12. Waiver of Jury Trial ........................................ 34
Section 6.13. Special California Provisions ................................34
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THIS DEED OF TRUST, SECURITY AGREEMENT, ASSIGNMENT OF RENTS AND FIXTURE
FILING dated as of APRIL 19, 2002 (the or this "DEED OF TRUST"), is from THE
CHALONE WINE GROUP, LTD., a California corporation (the "COMPANY"), having its
principal office at 621 Airpark Road, Napa, California 94558, to North American
Title Company ("TRUSTEE'), for the benefit of C66PERATIEVE CENTRALE
RAIFFEISENBOERENLEENBANK B.A., "RABOBANK INTERNATIONAL, NEW YORK BRANCH, in its
capacity as Collateral Agent for the ratable benefit of the Secured Parties
under and pursuant to that certain Intercreditor and Collateral Agency
Agreement (together with its permitted successors and assigns, the "COLLATERAL
AGENT') whose post office address is 245 Park Avenue, New York, New York 10167.
RECITALS:
A. Reference is made to those separate and several Note Purchase
Agreements, each dated as of September 15, 2000 (collectively, the "ORIGINAL
NOTE AGREEMENTS"), entered into by the Company with each of the Purchasers
listed on Schedule A thereto (collectively, the "NOTEHOLDERS "), under and
pursuant to which the Noteholders purchased $5,000,000 8.75% Senior Guaranteed
Notes, Series A, due September 15, 2010, $10,000,000 Senior Guaranteed Notes,
Series B, due September 15, 2010 and $15,000,000 Senior Guaranteed Notes, Series
C, due September 15, 2010 (collectively, the "ORIGINAL SENIOR NOTES') of the
Company. The Company has requested that the Noteholders amend and restate the
Original Note Agreements, amend and restate the Original Senior Notes, and the
Noteholders are willing to enter into and execute those certain Amended and
Restated Note Purchase Agreements each dated April 19, 2002 (as the same may
hereafter be amended, modified and/or restated from time to time, collectively,
the "AMENDED AND RESTATED NOTE AGREEMENTS ") and are willing to amend and
restate the Original Senior Notes pursuant to the terms thereof (as so amended,
the "AMENDED AND RESTATED SENIOR SECURED NOTES "), on the condition (among
others) that the Company enter into this Deed of Trust.
B. Reference is hereby made to that certain Credit Agreement dated as
of April 19, 2002 (as the same may hereafter be amended, modified and/or
restated from time to time, the "CREDIT AGREEMENT") by and among the Company,
Cooperatieve Centrale RaiffeisenBoerenleenbank B.A., "Rabobank International,"
New York Branch, as administrative agent (the "AGENT ") and the lenders from
time to time party thereto (the "LENDERS ") under and pursuant to which the
Lenders have extended term loans and revolving loans to the Company and made
available a letter of credit subfacility and swingline loans and which loans are
evidenced by, among other things, certain promissory notes (collectively, the
"CREDIT AGREEMENT NOTES ").
C. Pursuant to the Intercreditor and Collateral Agency Agreement dated
as of April 19, 2002, as the same may be amended, modified or restated from time
to time, (the "INTERCREDITOR AND AGENCY AGREEMENT "), entered into by the
Noteholders, the Company, the Lenders, the Agent and the Collateral Agent, the
Agent was appointed as collateral agent to act on behalf of the Secured Parties
(as hereinafter defined) regarding the Collateral (as hereinafter defined), the
obligations of the Company to the Noteholders under the Amended and Restated
Note Agreements and the Amended and Restated Senior Secured Notes and the
obligations of the Company to the Lenders and the Agent under the Credit
Agreement and the Credit Agreement Term Notes, are to be secured by this Deed of
Trust.
D. All principal, premium and interest and all fees and additional
amounts and other sums at any time due and owing from and all other obligations
of any nature of the Company now or hereafter existing, or required to be paid
by the Company under the terms of the Amended and Restated Senior Secured
Notes, the Amended and Restated Note Agreements, the Credit Agreement, the
Credit Agreement Notes, the Intercreditor and Agency Agreement, this Deed of
Trust, or any other document, mortgage or security agreement executed and
delivered by the Company pursuant to the Amended and Restated Note Agreements,
the Credit Agreement or the Intercreditor and Agency Agreement and any
extensions, renewals or modifications of any of the above are hereinafter
sometimes referred to as the "SECURED OBLIGATIONS ".
E. The Company is duly authorized under all applicable provisions of
law, its charter and bylaws, to issue the Amended and Restated Senior Secured
Notes and the Credit Agreement Notes and to execute and deliver this Deed of
Trust and to mortgage, convey, assign and grant a security interest in the
Collateral (as hereinafter defined) to the Trustee, its successors and assigns,
for the benefit of the Collateral Agent, and its successors and assigns as
security for the Secured Obligations and all corporate action and all consents,
approvals and other authorizations and all other acts and things necessary to
make this Deed of Trust the valid, binding and legal instrument for the security
of the Secured Obligations have been done and performed.
Now, THEREFORE, THIS DEED OF TRUST WITNESSETH that the Company, in
consideration of the premises, the purchase and acceptance of the Amended and
Restated Secured Notes by the Noteholders and of the Credit Agreement Notes by
the Lenders, and of the sum of Ten Dollars received by the Company from the
Trustee and the Collateral Agent and other good and valuable consideration,
receipt whereof is hereby acknowledged, and in order to secure the payment of
all of the Secured Obligations, does hereby warrant, mortgage, pledge, assign,
bargain, hypothecate, convey, grant, transfer, grant a first perfected security
interest in and set over unto the Trustee, and its successors and assigns in
trust, with power of sale and right of entry, for the benefit of and as an agent
for the Collateral Agent, its successors and assigns, all of its estate, right,
title and interest in and to all and singular the following described
properties, rights, interest and privileges and all of the Company's estate,
right, title and interest therein, thereto and thereunder, if any (all of which
properties hereby mortgaged, assigned, pledged and in which a first perfected
security interest has been granted or intended so to be are hereinafter
collectively referred to as the "COLLATERAL"):
GRANTING CLAUSE FIRST
COLLATERAL
The parcels of land in Monterey County in the State of California
described in Annex A attached hereto and made a part hereof ("LAND'), together
with the entire interest of the Company in and to all buildings, structures,
improvements and appurtenances now standing, or at any time hereafter
constructed or placed, upon such land, including all right, title and interest
of the Company, if any, in and to all building material, building equipment and
fixtures of every kind and nature whatsoever on said land or in any building,
structure or improvement now or
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hereafter standing on said land which are classified as fixtures under
applicable law and which are used in connection with the operation, maintenance
or protection of said buildings, structures and improvements as such (including,
without limitation, all boilers, air conditioning, ventilating, plumbing,
heating, lighting and electrical systems and apparatus, all communications
equipment and intercom systems and apparatus, all sprinkler equipment and
apparatus and all elevators and escalators) and the reversion or reversions,
remainder or remainders, in and to said land, and together with the entire
interest of the Company in and to all and singular the tenements, hereditaments,
easements, rights of way, rights, privileges and appurtenances to said land,
belonging or in anywise appertaining thereto, including, without limitation, the
entire right, title and interest of the Company in, to and under any streets,
ways, alleys, gores or strips of land adjoining said land, and all claims or
demands whatsoever of the Company either in law or in equity, in possession or
expectancy, of, in and to said land, it being the intention of the parties
hereto that, so far as may be permitted by law, all property of the character
hereinabove described, which is now owned or is hereafter acquired by the
Company and is affixed or attached or annexed to said land, shall be and remain
or become and constitute a portion of said land and the security covered by and
subject to the Lien of this Deed of Trust, together with all accessions, parts
and appurtenances appertaining or attached thereto and all substitutions,
renewals or replacements of and additions, improvements, accessions and
accumulations to any and all thereof, and together with all rights, powers,
privileges, options and other benefits of the Company, as lessor, under any
leases including the right to collect any and all rents, profits or other income
and the present and continuing right to make claim for, collect, receive and
receipt for any and all of such rents, profits or other income (all of which
properties are hereinafter referred to as the "REAL PROPERTY "). The assignment
of rents set forth in the proceeding sentence is intended by the parties hereto
to be effective to create a present security interest in all existing and future
rents, profits or other income arising from or related to the Land under
California Civil Code Section 2938, as amended from time to time.
GRANTING CLAUSE SECOND
TRADE PROPERTY
All materials, furniture, furnishings, machinery, fixtures and
equipment now or hereafter erected on or affixed to the Collateral and
including, but not limited to, all heating, plumbing, lighting, water heating,
cooking, laundry, refrigerating, incinerating, communications, ventilating and
air conditioning equipment, building signs, disposals, dishwashers, telephone
systems, sprinkler systems, fire extinguishing apparatus and equipment, water
tanks, engines, machines, boilers, dynamos, stokers, elevators, motors,
cabinets, shades, blinds, partitions, window screens, screen doors, storm
windows, awnings, drapes, rugs and other floor coverings, furniture,
furnishings, radios and television sets and wiring and antennae therefor, and
all fixtures, accessions and appurtenances thereto, and all renewals or
replacements of or substitutions for any of the foregoing, together with all
other goods, equipment, furnishings, fixtures, machinery and furniture owned by
the Company now or hereafter attached or affixed to or used in and about the
building or buildings now erected or hereafter to be erected on the Collateral,
or otherwise located on the Collateral, and all fixtures, accessions and
appurtenances thereto, and all renewals or replacements of or substitutions for
any of the foregoing (all of which properties are hereinafter referred to as
"TRADE PROPERTY ").
GRANTING CLAUSE THIRD
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CONDEMNATION AWARDS AND PAYMENTS
All judgments, awards of damages, settlements and other compensation
heretofore or hereafter made resulting from condemnation proceedings or the
taking of the Collateral or any part thereof or any improvements now or at any
time hereafter located thereon or any easement or other appurtenance thereto
under the power of eminent domain, or any similar power or right (including any
award from the United States Government at any time after the allowance of the
claim therefor, the ascertainment of the amount thereof and the issuance of the
warrant for the payment thereof), whether permanent or temporary, or for any
damage (whether caused by such taking or otherwise) to said Collateral or any
part thereof or the improvements thereon or any part thereof, or to any rights
appurtenant thereto, including severance and consequential damage, and any
award for change of grade of streets (collectively, "CONDEMNATION AWARDS ").
GRANTING CLAUSE FOURTH
Subject to the satisfaction in full of all indebtedness outstanding
under the Revolving Credit Agreement Notes, a collateral security interest in
all of the Company's right, title and interest in and to the General
Intangibles related to the Collateral (as defined in the Credit Agreement) of
the Company.
GRANTING CLAUSE FIFTH
PROCEEDS
All proceeds of the conversion, voluntary or involuntary, of any of the
foregoing into cash or other liquidated claims, including, without limitation,
all proceeds and payments of insurance related to the Collateral.
EXCEPTED PROPERTY
There is, however, to the extent included in the Lien and operation of
this Deed of Trust, expressly excepted and excluded from the Lien and operation
of this Deed of Trust, and expressly excepted and excluded from the Collateral,
the Credit Agreement Collateral of the Company, now owned or hereafter acquired
(herein called "EXCEPTED PROPERTY ").
SUBJECT HOWEVER, as to all property or rights in property at any time
subject to the Lien hereof (whether now owned or hereafter acquired), to
Permitted Encumbrances, as DEFINED IN SECTION 1 hereof.
To HAVE AND To HOLD the Collateral unto the Trustee and the successors
and assigns forever, in trust, with power of sale for the purpose of securing
performance of each agreement, covenant and warranty of the Company contained in
the Amended and Restated Note Agreements, the Amended and Restated Senior
Secured Notes, the Credit Agreement, the Credit Agreement Term Notes, the
Intercreditor and Agency Agreement, this Deed of Trust, and the other Security
Documents and payment of the Secured Obligations. It is understood and agreed
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that this Deed of Trust is to secure the obligation of the Company to repay,
without preference or priority, all Secured Obligations.
PROVIDED, NEVERTHELESS, and these presents are upon the express
condition that if the Company performs the covenants herein contained and the
Secured Obligations are paid in full and all other sums due or payable
hereunder, under the Amended and Restated Note Agreements, the Credit Agreement,
the Intercreditor and Agency Agreement or under the other Security Documents,
the estate, right and interest of the Trustee in the property hereby conveyed
and granted a first perfected security interest in shall cease and this Deed of
Trust shall become null and void, but otherwise to remain in full force and
effect.
It is agreed and understood by the parties hereto that:
1. The Secured Obligations are also secured by the other
Security Documents. The other Security Documents are intended to and
shall constitute security for the entire indebtedness represented by
the Amended and Restated Senior Secured Notes, the Credit Agreement
Term Notes and all other Secured Obligations without allocation.
2. Any part of the Collateral, and any other security
described in the other Security Documents or any other mortgage or
other instrument now or hereafter given to secure the Secured
Obligations, may be released pursuant to the terms of the Security
Documents, or by or at the direction of the Secured Parties without
affecting the Lien hereof on the Collateral and any Person acquiring
any direct or indirect interest in the Collateral or in any collateral
described in the other Security Documents or any other mortgage, deed
of trust, or other instrument now or hereafter given to secure the
Secured Obligations shall take the same subject to all of the
provisions hereof.
3. The Company for itself and all who may claim through or
under it waives to the extent permitted by law any and all right to
have the property and estates comprising the Collateral or any other
property of the Company constituting security for the Secured
Obligations marshaled upon any foreclosure of the Lien hereof, or to
have the Collateral hereunder and the property covered by any other
mortgage or deed of trust securing the Secured Obligations marshaled
upon any foreclosure of any of said mortgages or deeds of trust, and
agrees that any court having jurisdiction to foreclose such Lien may
order the Collateral sold as an entirety.
4. Upon the occurrence and during the continuance of an Event
of Default hereunder the Collateral Agent has, among other things, the
right to foreclose on the Collateral and dispose of the same, in
accordance with applicable law. The Trustee's deed (if permitted by
law) or Sheriffs deed or other instrument of conveyance, transfer or
release (which, if permitted by law, may be executed by the Collateral
Agent in its own name or as attorney-in-fact for the Company and the
Collateral Agent is hereby irrevocably appointed attorney-in-fact for
the Company to, in the event that an Event of Default hereunder shall
have occurred and be continuing, so execute such deed or other
instruments of conveyance, transfer or release) shall be effective (if
all prerequisites required by law have been accomplished) to convey and
transfer to the grantee an
-5-
indefeasible title to the property covered thereby, discharged of all rights of
redemption (to the extent permitted by law) by the Company or any Person
claiming under it, and to bar forever all claims by the Company or the Trustee
or the Collateral Agent to the property covered thereby and no grantee from the
Trustee, the Collateral Agent, or Sheriff shall be under any duty to inquire as
to the authority of the Trustee, the Collateral Agent, or Sheriff to execute the
same, or to see to the application of the purchase money.
5. This Deed of Trust constitutes a financing statement filed as a
fixture filing under UCC ss. 9502(4)(c) in the official records of the county in
which the Collateral is located with respect to any and all fixtures included
within the term "Collateral" and with respect to any goods or other personal
property that may now be or hereafter become such a fixture. PARTS OF THE
PERSONAL PROPERTY ARE, OR ARE TO BECOME, FIXTURES ON THE PROPERTY.
(a) Company and Collateral Agent agree that the filing of a
financing statement in the records normally having to do with personal
property shall never be construed as in any way derogating from or
impairing this Deed of Trust and the intention of the parties that
everything used in connection with the production of income from the
Collateral or adapted for use therein or which is described or
reflected in this Deed of Trust is, and at all times and for all
purposes and in all proceedings both legal or equitable shall be
regarded as, part of the real estate subject to the lien hereof,
irrespective of whether (i) any such item is physically attached to
improvements located on such real property or (ii) any such item is
referred to or reflected in any financing statement so filed at any
time. Similarly, the mention in any such financing statement of (A) the
rights in or the proceeds of any fire or hazard insurance policy or (B)
any award in eminent domain proceedings for taking or for loss of value
or for any cause of action or proceeds thereof in connection with any
damage or injury to the Collateral or any part thereof shall never be
construed as in any way altering any of the rights of Collateral Agent
as determined by this instrument or impugning the priority of
Collateral Agent's lien granted hereby or by any other recorded
document, but such mention in such financing statement is declared to
be for the protection of Collateral Agent in the event any court shall
at any time hold with respect to the matters set forth above that
notice of Collateral Agent's priority of interest, to be effective
against a particular class of persons, including, without limitation,
the federal government and any subdivision or entity of the federal
government, must be filed in the personal property records or other
commercial code records.
(b) It is understood and agreed that, in the event that (A)
Company intends to purchase any goods which may become fixtures to the
Collateral, or any part thereof (except as permitted under Section
10.04(e) of the Credit Agreement and Section 10.09 of the Amended and
Restated Note Agreement), and (B) such goods will be subject to a
security interest held by a seller or any other party (other than
Permitted Liens), Company shall, before executing any security
agreement or other document evidencing such security interest, obtain
the prior written approval of Collateral Agent, and all requests for
such written approval shall be in writing and contain the following
information:
-6-
(i) A description of the Collateral to be replaced,
added to, installed or substituted;
(ii) The address at which the Collateral will be
replaced, added to, installed or substituted; and
(iii) The name and address of the proposed holder and
proposed amount of the security interest; and any failure
of Company to obtain such approval shall be a material
breach of Company's covenants under this Deed of Trust,
and shall, at the option of Collateral Agent, entitle
Collateral Agent to all rights and remedies provided for
herein upon default. No consent by Collateral Agent
pursuant to this paragraph shall be deemed to constitute
an agreement to subordinate any right of Collateral Agent
in fixtures or other property covered by this Deed of
Trust.
SECTION 1. DEFINITIONS.
The following terms shall have the following meanings for all purposes
of this Deed of Trust:
"ACCOUNT", "CHATTEL PAPER", "DOCUMENTS"; "EQUIPMENT", "GENERAL
INTANGIBLES", "INSTRUMENTS", "INVENTORY", "PATENTS", "SECURITIES", "TRADEMARKS"
AND "TRADENAMES " SHALL each have the meaning set forth in the Uniform
Commercial Code.
"ADVANCE OVERDUE RATE" shall mean that rate of interest that is the
lesser of (a) the highest amount allowed by law and (b) the sum of (i) the
greatest of (1) the Series A Adjustable Rate, (2) the Series B Adjustable Rate
and (3) the Series C Adjustable Rate, plus (ii) 2%.
"AGENT" shall mean Cooperative Centrale Raiffeisen - Boerenleenbank
B.A. "Rabobank International", New York branch, as agent for the Lenders.
"AMENDED AND RESTATED NOTE AGREEMENTS" shall have the meaning assigned
thereto in the Recitals hereof.
"AMENDED AND RESTATED SENIOR SECURED NOTES " SHALL have the meaning
assigned thereto in the Recitals hereof.
"BUSINESS DAY" means any day other than a Saturday, Sunday, or other
day on which banks in San Francisco, California or New York, New York are
required by law to close or are customarily closed.
"CERCLA " SHALL mean the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended.
-7-
"CLOSING DATE" shall have the meaning assigned thereto in the
Intercreditor and Agency Agreement.
"COLLATERAL" shall have the meaning assigned thereto in the paragraph
immediately preceding the Granting Clause First hereof.
"COLLATERAL AGENT " SHALL have the meaning assigned thereto in the
Intercreditor and Agency Agreement.
"COMPANY" shall mean The Chalone Wine Group, Ltd., a California
corporation, and its successors and assigns.
"CONDEMNATION AWARDS" shall have the meaning assigned thereto in
Granting Clause Third hereof.
"CREDIT AGREEMENT " SHALL have the meaning assigned thereto
in the Recitals hereof.
"CREDIT AGREEMENT COLLATERAL" shall mean all "Collateral" as defined
in the Credit Agreement Security Agreement, including without limitation, the
following assets of the Company, as each such capitalized tern is defined in
the Credit Agreement Security Agreement:
(a) all Accounts;
(b) all Inventory;
(c) all Operating Accounts of the Company and all funds
certificates, Documents, Instruments, checks, drafts, wire transfer receipts,
and other earnings, profits or other Proceeds from time to time representing,
evidencing, deposited into, or held in the Operating Accounts;
(d) all Margin Accounts of the Company, the initial and
maintenance margin maintained in any Margin Accounts, the credit balances
therein and all Instruments, securities entitlements, money and other
investment property held therein and all other funds and other earnings,
profits or other Proceeds from time to time representing, evidencing, deposited
into or held in the Margin Accounts;
(e) all Chattel Paper, Instruments, Documents, Payment
Intangibles and other General Intangibles evidencing title to, or the right to
possession of, arising from the sale or other disposition of, necessary for or
used in connection with, the production, manufacture, sale or other disposition
of, or otherwise relating to or arising from or in connection with the property
described in clauses (a) through (d) above; and
(f) all other products and Proceeds,in cash or otherwise,
of any of the property described in the foregoing clauses (a)through (e) above.
"CREDIT AGREEMENT NOTES " SHALL have the meaning assigned thereto in
the Recitals hereof.
-8-
"CREDIT AGREEMENT SECURITY AGREEMENT" shall mean the Security
Agreement dated as of April 19, 2002 by and among the Company, the Agent and
certain lenders as such agreement may be amended or modified in accordance with
its terms.
"DEFAULT" shall mean any event which would constitute an Event of
Default if all requirements in connection therewith for the giving of notice,
the lapse of time and the happening of any further condition, event or act had
been satisfied.
"ENVIRONMENTAL CLAIM "shall mean all claims, however asserted, by any
Governmental Authority or other Person alleging potential liability or
responsibility for violation of any Environmental Law, or for release or injury
to the environment.
"ENVIRONMENTAL LAW shall have the meaning assigned thereto in the
Amended and Restated Note Agreements.
"EVENT OF DEFAULT" shall have the meaning specified in SECTION
5.1 hereof.
"EXCLUDED TAXES " SHALL have the meaning specified in SECTION
2.1 hereof.
"GAAP" shall have the meaning assigned thereto in the Amended and
Restated Note Agreements.
"GOVERNMENTAL APPROVALS " SHALL mean any written permit, license,
variance, certification, consent, no action letter, clearance, exemption or
other approval granted by a Governmental Authority.
"GOVERNMENTAL AUTHORITY" shall mean any international, foreign,
federal, state, regional, county, local or other governmental authority.
"HAZARDOUS SUBSTANCE shall have the meaning assigned thereto in the
Amended and Restated Note Agreements.
"IMPOSITIONS" shall have the meaning assigned thereto in SECTION 2.7(a)
hereof.
"INDEBTEDNESS shall have the meaning assigned thereto in the Amended
and Restated Note Agreements.
"INTERCREDITOR AND AGENCY AGREEMENT" shall have the meaning assigned
thereto in the Recitals hereof.
"LENDERS" shall have the meaning assigned thereto in the paragraph
immediately preceding the Recitals hereof.
"LIEN " SHALL mean any interest in property securing an obligation owed
to, or a claim by, a Person other than the owner of the property, whether such
interest is based on the common law, statute or contract, and including but not
limited to the security interest lien arising from a mortgage, encumbrance,
pledge, conditional sale or trust receipt or a lease consignment or bailment for
security purposes. The term "Lien" shall include reservations, exceptions,
-9-
encroachments, easements, rights-of-way, covenants, conditions, restrictions,
leases and other title exceptions and encumbrances (including, with respect to
stock, stockholder agreements, voting trust agreements, buy-back agreements and
all similar arrangements) affecting property.
"MAKE WHOLE PREMIUM " SHALL have the meaning assigned thereto in the
Amended and Restated Note Agreements.
"MATERIAL ADVERSE EFFECT" shall mean a material adverse effect on (a)
the properties, business, prospects, profits or condition (financial or
otherwise) of the Company and their respective Subsidiaries taken as a whole,
or (b) the ability of the Company to perform their respective obligations
contained in the Operative Agreements, or (c) the validity or enforceability of
the Operative Agreements, or (d) the validity or perfection of the security
interests granted under and pursuant to the Security Documents.
"MORTGAGED PROPERTY" shall have the meaning assigned thereto in the
Amended and Restated Note Agreements.
"NOTE DOCUMENTS " SHALL mean the Amended and Restated Note
Agreements, the Amended and Restated Senior Secured Notes, the Intercreditor
and Agency Agreement, this Deed of Trust and all other mortgages, security
agreements, documents, certificates and instruments relating to, arising out
of, or in any way connected therewith or any of the transactions contemplated
thereby.
"NOTES" and "NOTE" shall mean the Amended and Restated Senior Secured
Notes and the Credit Agreement Term Notes, collectively.
"OFFICER'S CERTIFICATE " shall have the meaning assigned thereto in
the Amended and Restated Note Agreements.
"OPERATIVE AGREEMENTS" shall have the meaning assigned thereto in the
Amended and Restated Note Agreements.
"ORIGINAL NOTE AGREEMENTS" shall have the meaning assigned thereto in
the Recitals hereof.
"PERMITTED INVESTMENTS" MEANS any of the following Dollar
denominated investments, maturing within one year from the date of acquisition,
selected by the Company:
(a) marketable direct obligations issued or unconditionally
guaranteed by the United States government or issued by any agency
thereof and backed by the full faith and credit of the United States;
(b) marketable direct obligations issued by any state of the
United States or any political subdivision of any such state or any
public instrumentality thereof and, at the time of acquisition, having
the highest credit rating obtainable from either S&P or Moody's;
(c) commercial paper or corporate promissory notes bearing at
the time of
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acquisition the highest credit rating either of S&P or Moody's issued
by United States, Australian, Canadian, European or Japanese bank
holding companies or industrial or financial companies (other than an
Affiliate of the Company or any Guarantor);
(d) certificates of deposit issued by and bankers acceptances
of and interest bearing deposits with any Lender, or with any United
States, Australian, Canadian, European or Japanese commercial banks
having capital and surplus of at least $500,000,000 or the equivalent
and which issues (or the parent of which issues) commercial paper or
other short term securities bearing the highest credit rating
obtainable from either S&P or Moody's; and
(e) money market funds organized under the laws of the United
States or any state thereof that invest solely in any of the foregoing
investments permitted under clauses (a), (b), (c) and (d).
"PERMITTED LIENS " shall have the meaning assigned thereto in the
Amended and Restated Note Agreements.
"PERSON " shall mean an individual, partnership, limited liability
company, corporation, trust or unincorporated organization, or a government or
agency or political subdivision thereof.
"RCRA " shall mean the Resource Conservation and Recovery Act, as
amended.
"REPLACEMENT ITEMS OF TRADE PROPERTY" shall have the meaning assigned
thereto in SECTION 3.3(A)(I) hereof.
"RESPONSIBLE OFFICER" shall have the meaning assigned thereto in
the Amended and Restated Note Agreements.
"SECURED OBLIGATIONS" shall have the meaning assigned thereto
in Recitals hereof.
"SECURED PARTIES " shall mean the Lenders and the holders from time
to time of the Notes.
"SECURITY DOCUMENTS " shall have the meaning assigned thereto in
the Amended and Restated Note Agreements.
"SUBSIDIARY " shall have the meaning assigned thereto in the Amended
and Restated Note Agreements.
"TRADE PROPERTY" shall have the meaning assigned thereto in Granting
Clause Second of this Deed of Trust.
"TRUSTEE " shall have the meaning assigned thereto in the paragraph
immediately preceding the Recitals hereof.
"UNIFORM COMMERCIAL CODE" shall mean the Uniform Commercial Code as in
effect in the State of California, as amended.
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SECTION 2. GENERAL COVENANTS AND WARRANTIES.
The Company covenants, warrants and agrees as follows:
SECTION 2.1. AGREEMENT AND DEED OF TRUST COVENANTS. Each and
all of the terms, provisions, restrictions, covenants and agreements set forth
in the Amended and Restated Note Agreements, the Credit Agreement and the
Intercreditor and Agency Agreement and in each and every supplement thereto or
amendment thereof which at any time or from time to time may be executed and
delivered by the parties thereto or their successors and assigns, to the extent
then in effect, are incorporated herein by reference to the same extent as
though each and all of said terms, provisions, restrictions, covenants and
agreements were fully set out herein and as though any amendment or supplement
to the Amended and Restated Note Agreements, the Credit Agreement or the
Intercreditor and Agency Agreement was fully set out in an amendment or
supplement to this Deed of Trust; and the Company does hereby covenant and
agree well and truly to abide by, perform and be governed and restricted by
each and all of the matters provided for by the Amended and Restated Note
Agreements, the Credit Agreement and the Intercreditor and Agency Agreement and
so incorporated herein to the same extent and with the same force and effect as
if each and all of said terms, provisions, restrictions, covenants and
agreements so incorporated herein by reference were set out and repeated herein
at length. Without limiting the foregoing, the Company covenants and agrees to
pay all taxes, assessments and governmental charges or levies imposed upon this
Deed of Trust or the Secured Obligations (other than income and franchise taxes
of the Trustee, the Collateral Agent, or of the Secured Parties (the "EXCLUDED
TAXES ")) to the extent provided in the documents set forth above. If any such
sums shall be advanced by the Trustee, the Collateral Agent, or any Secured
Party, they shall bear interest, shall be paid and shall be secured as provided
in SECTION 2.9 hereof.
SECTION 2.2. OWNERSHIP OF COLLATERAL. The Company covenants
and warrants that it has fee simple title to the Collateral and good and
marketable title to the other Collateral hereinbefore conveyed to the Trustee
free and clear of all liens, charges and encumbrances whatever except Permitted
Encumbrances, and the Company has full right, power and authority to convey,
transfer, mortgage and grant a first perfected security interest in the same to
the Trustee for the uses and purposes in this Deed of Trust set forth; and the
Company will warrant and defend the title to the Collateral against all claims
and demands whatsoever except Permitted Encumbrances.
SECTION 2.3. FURTHER ASSURANCES. The Company will, at its own
expense, do, execute, acknowledge and deliver all and every further reasonable
act, deed, conveyance, transfer and assurance necessary or proper for (a) the
better assuring, conveying, assigning and confirming unto the Collateral Agent
all of the Collateral, or property intended so to be, whether now owned or
hereafter acquired and (b) the perfection of the first security interest
(subject to the Permitted Exceptions) provided for in the Collateral whether
now owned or hereafter acquired. The Collateral Agent, as secured party, may
file one or more financing statements disclosing its security interest in any
or all of the Collateral with the Company's signature appearing thereon. The
Company also hereby grants the Collateral Agent, as such secured party, a power
of attorney to execute any such financing statement, or amendments and
supplements to financing statements, on behalf of the Company without notice
thereof to the Company, which
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power of attorney is coupled with an interest and is irrevocable until the
Secured Obligations have been fully satisfied.
SECTION 2.4. PAYMENT OF PRINCIPAL, PREMIUM AND INTEREST. The
Company will duly and punctually pay the principal of, and premium and interest
on all Notes secured hereby according to the terms thereof.
SECTION 2.5. MAINTENANCE OF COLLATERAL, OTHER LIENS,
COMPLIANCE WITH LAWS, ENVIRONMENTAL MATTERS, ETC. Without limiting the
provisions of the Amended and Restated Note Agreements, the Credit Agreement
and the Intercreditor and Agency Agreement,
(a) The Company shall (1) subject to SECTION 3.2, PROMPTLY repair,
restore, replace or rebuild any material buildings, improvements or Trade
Property now or hereafter on the Collateral which may become damaged or be
destroyed, (2) keep the Collateral in good condition and repair, ordinary wear
and tear excepted, without waste, and free from all claims, liens, charges and
encumbrances (except for taxes not yet delinquent and claims, liens, charges
and encumbrances that are being contested under and in compliance with SECTION
2.7(C) hereof) other than Permitted Encumbrances, (3) pay when due any
indebtedness which may be secured by a Lien or charge on the Collateral and
upon request provide satisfactory evidence of the discharge of such Lien to the
Collateral Agent (unless such payment is being contested under and in
compliance with SECTION 2.7(E) hereof), (4) comply with all requirements of law
or municipal ordinances, including without limitation all Environmental Laws,
with respect to the Collateral and the use thereof, failure to comply with
which would be reasonably likely to result in any material interference with
the use or operation of the Collateral by the Company or would materially
adversely affect the assets, business, operations, income or condition
(financial or otherwise) of the Company and its Subsidiaries, taken as a whole,
and (5) make no material alterations in said Collateral except as required by
law or municipal ordinance; PROVIDED that the Company may make such other
material alterations so long as such alterations are completed in compliance
with the requirements of paragraphs (b) and (c) of this SECTION 2.5.
(b) The Company may, at its expense, (1) construct upon the Collateral
additional buildings, structures, drainage systems, irrigation systems,
trellises, and other improvements and (2) install, assemble and place upon the
Collateral any items of Trade Property, signs, furniture, furnishings,
equipment, machinery and other tangible personal property used or useful in the
Company's business, in each case upon compliance with the provisions of
paragraph (a) of this SECTION 2.5. All such buildings, structures and other
improvements shall be and remain part of the realty and shall be subject to
this Deed of Trust with respect thereto.
(c) Any repair, restoration, rebuilding, substitution, replacement,
modification, alteration of or addition to the Collateral pursuant to SECTION
2.5(B) hereof must not materially impair the market value, structural integrity
or usefulness of the Collateral for use in the ordinary course of business;
shall be performed in a good and workmanlike manner and be expeditiously
completed in compliance in all material respects with all laws, ordinances,
orders, rules, regulations and requirements applicable thereto, failure to
comply with which could be reasonably likely to result in any material
interference with the use or operation of the Collateral by the Company or
would materially adversely affect the assets, business, operations, income or
condition (financial or otherwise) of the Company and its Subsidiaries, taken
as a whole,
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including to the extent necessary to maintain in full force and effect the
policies of insurance required by SECTION 2.6 hereof. All costs and expenses of
each such repair, restoration, rebuilding, substitution, replacement, the
discharge of all liens filed against the Collateral arising out of the same,
together with all costs and expenses necessary to obtain any permits or licenses
required in connection therewith shall be promptly paid by the Company (except
to the extent such costs and expenses are being contested under and in
compliance with SECTION 2.7(C) hereof).
(d) The Company:
(1) shall, as soon as reasonably practicable, maintain the
Collateral in compliance in all respects with any applicable
Environmental Law, except such failures to comply as would not
reasonably be likely to result in a Material Adverse Effect;
(2) shall obtain and maintain in full force and effect all
Governmental Approvals required for its operations at or on the
Collateral by any applicable Environmental Law, except for such
Governmental Approvals the failure to obtain or maintain which would
not be reasonably likely to have a Material Adverse Effect;
(3) as soon as reasonably practicable, cure any violation of
applicable Environmental Laws by any Person at the Collateral, except
such failures to cure as would not reasonably be likely to result in a
Material Adverse Effect;
(4) shall not, and shall not permit any other Person to, own
or operate on the Collateral any (i) landfill or dump or (ii) hazardous
waste treatment, storage or disposal facility as defined pursuant to
RCRA or any comparable state law;
(5) shall not use, generate, treat, store, release or dispose
Hazardous Substances at or on the Collateral except in the ordinary
course of its business and in compliance with Environmental Laws,
except such use, generation, treatment, storage, release or disposal of
Hazardous Substances at or on the Collateral as would not reasonably be
likely to result in a Material Adverse Effect;
(6) shall within twenty (20) Business Days notify the
Collateral Agent in writing of and provide any reasonably requested
documents upon learning of any of the following which arise in
connection with the Collateral:
(A) any liability for response or corrective action,
natural resource damage or other harm pursuant to CERCLA, RCRA
or any comparable state law which is reasonably likely to
result in a Material Adverse Effect;
(B) any Environmental Claim which is reasonably likely
to result in a Material Adverse Effect;
(C) any violation of an Environmental Law or release
or disposal of a Hazardous Substance which is reasonably
likely to result in a Material Adverse Effect;
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(D) any restriction on the ownership, occupancy, use
or transferability of the Collateral arising pursuant to any
(i) release, threatened release or disposal of a Hazardous
Substance or (ii) Environmental Law which is reasonably likely
to result in a Material Adverse Effect; or,
(E) any other environmental, natural resource, health
or safety condition, which would reasonably be expected to
have a Material Adverse Effect; and,
(7) at its expense, will conduct any investigation, study,
sampling and testing, and undertake any cleanup, removal, remedial or
other response action necessary to remove, clean up or abate any
material quantity of Hazardous Substance released or disposed at or on
the Collateral as required by any applicable Environmental Law and any
binding order or directive from a Governmental Authority having
jurisdiction, except to the extent the Company is reasonably
contesting any Environmental Law or any order or directive from a
Governmental Authority, so long as (i) such contest is in good faith
and by appropriate proceedings, (ii) adequate reserves are maintained
in accordance with GAAP and (iii) no forfeiture will result from a
failure to comply with the contested requirement.
(e) The Company at its own expense and at the reasonable written
request of the Collateral Agent shall provide reasonably expeditiously an
environmental report of reasonable scope, form and depth by a consultant
reasonably acceptable to the Collateral Agent as to any matter for which notice
is required to be provided pursuant to SECTION 2.5(D)(7) above or which may
reasonably be believed by the Collateral Agent to form the basis of a material
Environmental Claim in connection with the Collateral. If such a requested
environmental report is not delivered within seventy-five (75) days after
receipt of the Collateral Agent's request, then the Collateral Agent may arrange
for same, and the Company hereby grants to the Collateral Agent and its
representatives access to the Collateral and a license to undertake such an
assessment. The reasonable cost of any assessment arranged for by the Collateral
Agent pursuant to this provision will be payable by the Company on demand and
added to the obligations secured by the Security Documents.
(f) The Company may use and operate the Collateral for any lawful
purpose not inconsistent with the provisions of the Amended and Restated Note
Agreements or the Credit Agreement.
(g) In accordance with California Code of Civil Procedure Section
726.5, Collateral Agent may waive its lien against the Collateral or any portion
thereof, to the extent such property is found to be environmentally impaired,
and may exercise any and all rights and remedies of an unsecured creditor
against Company and all of Company's assets and property for the recovery of any
deficiency, including, without limitation, seeking an attachment order under
California Code of Civil Procedure Section 483.010. No such waiver shall be
final or binding on Collateral Agent unless and until a final money judgment is
obtained against Company. As between Collateral Agent and Company, for purposes
of California Code of Civil Procedure Section 726.5, Company shall have the
burden of proving that the release or threatened release was not knowingly or
negligently caused or contributed to, or knowingly or willfully permitted or
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acquiesced to by Company or any related party (or any affiliate or agent of
Company or any related party) and that Company made written disclosure thereof
to Collateral Agent or that Collateral Agent otherwise obtained actual knowledge
thereof prior to the making of the Credit Agreement. Notwithstanding anything to
the contrary contained in the Deed of Trust or any of the Security Documents,
Company shall be fully and personally liable for all judgments and awards
entered against Company pursuant to California Code of Civil Procedure 726.5 and
such liability shall not be limited by the original principal amount of the
obligations secured by this Deed of Trust. Company's obligations hereunder shall
survive the foreclosure, deed in lieu of foreclosure, release, reconveyance or
any other transfer of the Collateral or this Deed of Trust. For the purposes of
any action brought under this Deed of Trust, Company hereby waives the defense
of laches and any applicable statute of limitations. For purposes of California
Code of Civil Procedure 726.5, the acts, knowledge and notice of each "726.5
Party" shall be attributed to and be deemed to have been performed by the party
or parties then obligated on or liable for payment of the Indebtedness. As used
herein, "726.5 Party" shall mean Company, any partner thereof, any successor
owner to Company of all or any portion of the Collateral, any related party of
Company or any such successor and any affiliate or agent of Company, any such
successor or any such related party.
SECTION 2.6. INSURANCE. The Company will maintain, and will cause each
Subsidiary to maintain, insurance coverage with financially sound and reputable
domestic insurers in such forms and amounts and against such risks as are
customary for companies of established reputation engaged in the same or a
similar business and owning and operating similar properties as the Collateral.
Without limiting the foregoing, the Company agree that they will, to the extent
available, continuously maintain the following described policies of insurance:
(i) Property insurance, including business interruption
insurance, against loss and damage by all risks of physical loss or
damage, including fire, windstorm, builders risk (including
construction and repair period coverage) and other risks covered by the
so called "all risks" form of property insurance policy with
replacement cost endorsements (excluding therefrom flood and earthquake
coverage); PROVIDED, HOWEVER, that the amount of such insurance with
respect to the Collateral shall not at any time be less than a blanket
limit of $70,000,000 in the aggregate; and PROVIDED FURTHER that such
insurance POLICY SHALL provide that NOT more than $1,000,000 may be
deductible FROM the LOSS payable with respect to any casualty;
(ii) fiduciary liability insurance with such terms as are
customary for companies of established size and reputation engaged in
substantially the same business as the Company and similarly situated;
PROVIDED, HOWEVER, that the amount of such insurance shall not be less
than $1,000,000; and PROVIDED, FURTHER, that such insurance shall
provide with respect to the Company that not more than $100,000 may be
deductible from any loss payable and that with respect to individuals
that not more than $100,000 may be deductible from any loss payable
with respect to any casualty;
(iii) surety bonds (securing leases, permits franchises,
taxes, notary public, judicial and other bonds) in amounts and with
such terms as are customary for companies of established size and
reputation engaged in substantially the same business as the Company
and similarly situated;
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(iv) workers compensation insurance and employer's liability
insurance, for all employees of the Company engaged on or with respect
to any of the Collateral and with such terms as are customary for
companies of established size and reputation engaged in substantially
the same business as the Company and similarly situated, or if such
limits are established by law, in such amounts;
(v) boiler and machinery insurance covering pressure vessels,
air tanks, boilers, machinery, pressure pipings, heating air
conditioning and elevator equipment and escalator equipment, PROVIDED
the improvements contain equipment of such nature and insurance against
loss or occupancy or use arising from any such breakdown, in such
amounts and with such terms as are customary for companies of
established size and reputation engaged in substantially the same
business as the Company and similarly situated;
(vi) insurance insuring against public liability for loss or
damage (including bodily injury) to the Persons or Property of others
from such risks and in such amounts as are customary for companies of
established size and reputation engaged in substantially the same
business as the Company and similarly situated (including construction
and repair period coverage); PROVIDED, HOWEVER, that in no event shall
the amount of such insurance be less than an aggregate of $15,000,000
under single limit liability for such loss; and provided, further, that
such Insurance policy shall provide that not more than $1,000,000 may
be deductible from any loss payable; and
(vii) other insurance against such risks as is customary to be
carried by companies of established size and reputation engaged in
substantially the same business as the Company and similarly situated
and owning Properties in the state in which the Collateral is located.
(b) Form of Policies. Any insurance policies carried in accordance with
this SECTION 2.6 shall be written by companies of recognized international or
national standing authorized to do business in the State of California and: (i)
shall with respect to the insurance described in clauses (i) and (vi) above,
name the Trustee, the Collateral Agent and each Noteholder and each Bank AS an
additional insured, as their interests may appear, (ii) in the case of policies
covering loss or damage to the Collateral, shall provide that such losses, if
any, shall be payable solely to the Collateral Agent under a standard mortgagee
clause reasonably satisfactory to the Collateral Agent, (iii) shall provide that
the Trustee's and Collateral Agent's interest shall be insured regardless of any
breach or violation by the Company of any warranties, declarations or conditions
contained in such policies, (iv) as to the interest of the Trustee and the
Collateral Agent therein, shall not be invalidated by the use or operation of
the Collateral for purposes which are not permitted by such policies, nor by any
foreclosure or other proceedings relating to the Collateral, (v) except with
respect to the insurance described in clause (iv) of SECTION 2.6(A), the
insurers shall waive any right of subrogation of the insurers to any set-off or
counterclaim or any other deduction, whether by attachment or otherwise, in
respect of any liability of the Company, (VI) if any premium or installment is
not paid when due, or if such insurance would lapse or be cancelled, terminated
or materially changed for any reason whatsoever shall provide that the insurers
WILL promptly notify the Collateral Agent and any such lapse, cancellation,
termination or change shall not be effective as to the Trustees for thirty days
after receipt of such
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notice, and (vii) appropriate certification shall be made to the Collateral
Agent by each insurer with respect thereto. Provided no Default or Event of
Default has occurred or is continuing, the loss, if any, under any policy
pertaining to loss by reason of damage to or destruction of any portion of any
of the Collateral shall be adjusted with the insurance companies by the
Company, subject to the approval of the Collateral Agent if the loss exceeds
$1,500,000; PROVIDED that such approval shall not unreasonably be withheld or
delayed. The loss so adjusted shall be paid to the Collateral Agent pursuant to
said loss payable clause unless said loss is $1,500,000 or less in which case
said loss shall be paid directly to the Company unless a Default or Event of
Default has occurred and is continuing, in which event any such loss shall be
paid to the Collateral Agent.
The Company shall furnish the Collateral Agent with certificates or
other satisfactory evidence of MAINTENANCE OF the insurance required hereunder
and, with respect to any renewal policy or policies, shall furnish certificates
evidencing such renewal not less than 30 days prior to the expiration date of
the original policy or renewal policies or if not so available, immediately
upon the receipt thereof, and shall furnish insurance binders evidencing such
renewal immediately upon receipt thereof. All such policies shall provide that
the same shall not be cancelled without at least 30 days' prior written notice
to the Collateral Agent and the Company.
Upon the request of Trustee, Collateral Agent or any Secured Party,
the Company shall furnish the Collateral Agent from time to time with full
INFORMATION AS to the insurance carried by it and, if so requested, copies of
all such insurance policies. The Company shall also furnish to Collateral Agent
from time to time upon the request of the Trustee, Collateral Agent or any
Secured Party a certificate of the Company's insurance broker or other
insurance specialist stating that all premiums then due on the policies
relating to insurance on the Collateral have been .paid, that such policies are
in full force and effect and that such insurance coverage and such policies
comply with all the requirements of this subsection. Receipt of notice of
termination or cancellation of any such insurance policies or reduction of
coverages or amounts thereunder shall entitle the Collateral Agent to renew any
such policies, cause the coverages and amounts thereof to be maintained at
levels required pursuant to this Section 2.6 or otherwise to obtain similar
insurance in place of such policies, in each case at the expense of the
Company.
SECTION 2.7. PAYMENT OF TAXES AND OTHER CHARGES; CONTESTS THEREOF.
(a) Subject to SECTION 2.7(C) BELOW, and without limiting the
provisions of the Amended and Restated Note Agreements and the Credit
Agreement, the Company will pay and discharge, before the same shall become
delinquent, together with interest and penalties thereon, if any, (1) all
taxes, assessments (INCLUDING ASSESSMENTS for benefits from public works or
improvements whenever begun or completed), levies, fees, water and sewer rents
and charges, and all other governmental charges, general and special, ordinary
and extraordinary, and whether or not within the contemplation of the parties
hereto, which are at any time levied upon or assessed against it or the
Collateral or any part thereof or upon this Deed of Trust or the Secured
Obligations secured hereby, or upon the revenues, rents, issues, income and
profits in respect of the Collateral, or arising in respect of the occupancy,
use or possession thereof, but excluding the Excluded Taxes, which failure to
pay would result in the creation of a Lien upon the Collateral or any part
thereof, or upon the revenues, rents, issues, income and profits of the
Collateral or in the diminution thereof or would result in any material
interference with the use or operation of the
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Collateral by the Company, (2) all corporate franchise, excise and other taxes,
fees and charges assessed, levied or imposed in respect of its corporate
existence or its right to do business in any state, (3) all income, excess
profits, excise, sales, franchise, gross receipts and other taxes, duties or
imposts, whether of alike or different nature, assessed, levied or imposed by
any Governmental Authority on it or the Collateral, or any portion thereof, or
upon the revenues, rents, issues, income and profits of the Collateral whether
or not the failure to pay any such tax, duty or impost might result in the
creation of a Lien upon any asset of the Company or the Collateral or any part
thereof or upon the revenues, rents, issues, income and profits of the
Collateral or in the diminution thereof, and whether or not any such tax, duty
or impost is payable directly by the Company or is subject to withholding at
the source and (4) all lawful claims and demands of mechanics, laborers,
materialmen and others which, if unpaid, might result in the creation of a Lien
on the Collateral or upon the revenues, rents, issues, income and profits of
the Collateral and, in general, will do or cause to be done everything
necessary so that the Lien hereof shall be fully preserved, at the cost of the
Company, without expense to the Trustee or the Collateral Agent (all of which
taxes, assessments, levies, fees and other governmental or non-governmental
charges, claims and demands of like nature are hereinafter referred to as
"IMPOSITIONS"). The Company shall discharge any claim or Lien relating to
Impositions upon the Collateral.
(b) The Company will pay when due all utility charges which are
incurred by the Company for the benefit of the Collateral or which may become a
charge or Lien against the Collateral for gas, electricity, water or sewer
services furnished to the Collateral and all other assessments or charges of a
similar nature, whether public or private, affecting the Collateral or any
portion thereof, whether or not such taxes, assessments or charges are or may
become Liens thereon.
(C) CONTEST. Without limiting the provisions of the Amended and
Restated Note Agreements and the Credit Agreement, and always subject to the
terms and conditions thereof, the Company may, in good faith and with reasonable
diligence and by appropriate proceedings diligently prosecuted, contest or cause
to be contested the validity or amount of any such Impositions, PROVIDED that:
(1) such contest shall have the effect of preventing (i) any
sale, forfeiture OR loss of the Collateral or any part thereof or
interest therein to satisfy the same and (ii) any material
interference with the value, use or occupancy of the Collateral or any
part thereof; and
(2) the Company shall have established with respect to such
Impositions (and any attendant penalties or late fees) reserves deemed
by it to be adequate with respect thereto.
SECTION 2.8. LIMITATION ON LIENS. The Company will not create
or incur or suffer to be incurred or to exist, any mortgage, pledge, security
interest, encumbrance, charge or other Lien of any kind upon the Collateral,
whether now owned or hereafter acquired, or upon any income or proceeds
therefrom, except Permitted Encumbrances and except for those exceptions noted
on the policies of title insurance delivered to the Trustee and the Collateral
Agent on the Closing Date.
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SECTION 2.9. ADVANCES. If the Company shall fail to comply
with the covenants contained herein or contained in the Amended and Restated
Note Agreements, the Credit Agreement, the Intercreditor and Agency Agreement
or the other Note Documents and incorporated herein by reference, the Trustee
or the Collateral Agent, without waiving any Default or Event of Default or
releasing any obligation, may (but shall be under no obligation to) at any time
thereafter after five Business Days' prior written notice to the Company make
such payment or perform such act for the account and at the expense of the
Company, and may enter upon the Collateral or any part thereof for such purpose
and take all such action thereon as, in the opinion of the Trustee, may be
necessary or reasonably appropriate therefore. All sums so paid by the Trustee
or the Collateral Agent, and all costs and expenses (including, without
limitation, reasonable attorneys' fees and expenses) so incurred, together with
interest thereon at the Advance Overdue Rate from the date of payment or
incurrence, shall be secured hereby and shall be paid by the Company to the
Collateral Agent on demand. The Collateral Agent in making any payment
authorized under this SECTION 2.9 relating to taxes or assessments may do so
according to any bill, statement or estimate procured from the appropriate
public office without inquiry into the accuracy of such bill, statement or
estimate or into the validity of any tax assessment, sale, forfeiture, tax Lien
or title or claim thereof. The Collateral Agent, in performing any act
hereunder, shall be the sole judge of whether the Company is required to
perform the same under the terms of this Deed of Trust and no such advance
shall be deemed to relieve the Company from any default hereunder.
SECTION 2.10. RECORDATION. The Company will, at its own
expense, cause this Deed of Trust and all supplements hereto and any financing
statements and continuation statements required by the Uniform Commercial Code
or other law in respect thereof at all times to be kept recorded and filed at
its own expense in such manner and in such places as may be required by law in
order to fully preserve and protect the rights of the Trustee and the
Collateral Agent hereunder.
SECTION 2.11. AFTER-ACQUIRED PROPERTY. Any and all property
hereafter acquired which is of the kind or nature described in the Granting
Clauses hereof and is or is intended to become a part thereof, shall IPSO
FACTO, and without any further conveyance, assignment or act on the part of the
Company or the Trustee or the Collateral Agent become and be, subject to the
Lien and first perfected security interest OF this Deed of Trust as fully and
completely as though specifically described herein; but nevertheless the
Company shall from time to time, if requested by the Trustee or the Collateral
Agent, execute and deliver any and all such further assurances, conveyances and
assignments thereof as the Trustee or the Collateral Agent may reasonably
require for the purpose of expressly and specifically subjecting to the Lien
and first perfected security interest of this Deed of Trust any and all such
property, subject to Permitted Encumbrances. In the event the Company acquires
a material leasehold estate in any property which is of the kind or nature
described in the Granting Clauses hereof, such leasehold estate shall be made
subject to a lien and first perfected security interest in favor of the Trustee
by means of the Company's execution and delivery of a leasehold mortgage and
security agreement in form and substance reasonably satisfactory to the Trustee
and the Collateral Agent. The Company agrees that in the event the Company
acquires a leasehold estate as described in this SECTION 2.11, the Company will
use commercially reasonable efforts to promptly obtain from the subject lessor
an agreement for the benefit of the Trustee and the Collateral Agent, INTER
ALIA, providing that the lessor will give the Trustee and the Collateral Agent
written notice of any
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defaults under the subject lease together with the option to cure such defaults
and providing for such other requirements as the Collateral Agent may reasonably
request.
SECTION 2.12. INDEMNIFCATION; WAIVER OF OFFSET
SET
(a) If the Trustee or the Collateral Agent is made a party defendant to
any litigation concerning this Deed of Trust or the Collateral or any part
thereof or interest therein, then the Company shall indemnify, defend and hold
the Trustee or the Collateral Agent harmless from all liability by reason of
said litigation, including reasonable attorneys' fees and expenses incurred by
the Trustee or the Collateral Agent in any such litigation, whether or not any
such litigation is prosecuted to judgment. If the Trustee or the Collateral
Agent commences an action against the Company to enforce any of the terms hereof
or because of the breach by the Company of any of the terms hereof, or for the
recovery of any of the Secured Obligations, the Trustee or the Collateral Agent
shall have its reasonable attorneys' fees and expenses paid by the Company. If
the Trustee or the Collateral Agent is a party to any discussion or negotiations
relating to any amendment, waivers or consents to the Amended and Restated
Senior Secured Notes, the Credit Agreement Term Notes, the Amended and Restated
Note Agreements, the Credit Agreement, the Intercreditor and Agency Agreement,
this Deed of Trust or the other Note Documents, or relating to any loan
modification, recasting, settlement or other agreement relating to the Secured
Obligations, then the Company shall indemnify, defend and hold the Trustee or
the Collateral Agent harmless from all liability, costs and expenses incurred in
connection therewith, including reasonable attorneys' fees and expenses.
(b) All sums payable by the Company hereunder shall be paid without
notice, demand, counterclaim, setoff, deduction or defense and without
abatement, suspension, deferment, diminution or reduction, and the obligations
and liabilities of the Company hereunder shall in no way be released, discharged
or otherwise affected (except as expressly provided herein) by reason of (i) any
damage to or destruction of or any condemnation or similar taking of the
Collateral or any part thereof; (ii) any restriction or prevention of or
interference with any use of the Collateral or any part thereof; (iii) any title
defect or encumbrance on the Collateral or any part thereof by title paramount
or otherwise; (iv) any bankruptcy, insolvency, reorganization, composition,
adjustment, dissolution, liquidation or other like proceeding relating to the
Trustee or the Collateral Agent, or any action taken with RESPECT to this Deed
OF Trust by any trustee OR receiver of the Trustee or the Collateral Agent, or
by any court, in any such proceeding; (v) any claim which the Company has or
might have against the Trustee or the Collateral Agent; (vi) any default or
failure on the part of the Trustee or the Collateral Agent to perform or comply
with any of the terms hereof or of any other agreement with the Company; or
(vii) any other occurrence whatsoever, whether similar or dissimilar to the
foregoing; whether or not the Company shall have notice or knowledge of any of
the foregoing. Except as expressly provided herein, the Company waives to the
extent permitted by law all rights now or hereafter conferred by statute or
otherwise to any abatement, suspension, deferment, diminution or reduction of
any of the Secured Obligations payable by the Company.
(c) The Company shall, at its sole expense, indemnify, defend (with
attorneys, consultants and experts reasonably acceptable to the Collateral
Agent), and hold the Trustee and the Collateral Agent harmless from and against
any and all liens, damages, losses, liabilities, obligations, settlement
payments, penalties, assessments, citations, directives, claims, litigation,
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demands, defenses, judgments, suits, proceedings, costs, disbursements or
expenses of any kind or of any nature whatsoever which may at any time be
imposed upon, incurred by or asserted or awarded against the Trustee and
Collateral Agent or the Collateral, (including, without limitation, those
arising out of or attributed, directly or indirectly, to or resulting from any
and all negligent acts or omissions of Trustee or Collateral Agent, whether
caused by the sole negligence of Trustee or Collateral Agent or by the
concurrent negligence of Trustee or Collateral Agent), and arising prior to the
Collateral Agent's obtaining title to the Collateral through foreclosure or
other like proceedings, directly or indirectly from or out of (i) the presence,
release or threat of release of any Hazardous Substance on, in, under or
affecting all or any portion of the Collateral or any surrounding areas,
regardless of whether or not caused by or within control of the Company; (ii)
the violation of any Environmental Laws relating to or affecting the Collateral,
caused by the Company; (iii) the failure by the Company to comply fully with the
terms and conditions of THIS SECTION 2.12(C); (iv) the breach of any
representation or warranty contained in this Deed of Trust or the Note
Agreements relating to matters covered by this SECTION 2.12(C); or (v) the
enforcement of this SECTION 2.12(C), including, without limitation, the cost of
assessment, containment and/or removal of any and all Hazardous Substances from
all or any portion of the Collateral or any surrounding areas, the cost of any
actions taken in response to the presence, release or threat of release of any
Hazardous Substance on, in, under or affecting any portion of the Collateral or
any surrounding areas to prevent or minimize such release or threat of release
so that it does not migrate or otherwise cause or threaten danger to present or
future public health, safety, welfare or the environment, and costs incurred to
comply with the Environmental Laws in connection with all or any portion of the
Collateral or any surrounding areas; except, in each case, to the extent arising
out of the gross negligence or willful misconduct of the Trustee or Collateral
Agent. The indemnity set forth in this SECTION 2.12(C) shall also include any
diminution in the value of the security afforded by the Collateral or any future
reduction in the sales price of the Collateral by reason of any matter set forth
in this SECTION 2.12(C). The Company's obligations under this SECTION 2.12(C)
shall survive payment in full of the indebtedness secured hereby and shall be in
addition to all other rights of Trustee and the Collateral Agent under this Deed
of Trust, the Amended and Restated Note Agreements, the Credit Agreement, the
Amended and Restated Senior Secured Notes, the Credit Agreement Notes and the
Intercreditor and Agency Agreement.
SECTION 3 POSSESSION, USE AND RELEASE OF COLLATERAL.
SECTION 3.1. COMPANY'S RIGHT OF POSSESSION. Provided no Event
of Default hereunder has occurred and is continuing, the Company shall be
suffered and permitted to remain in full possession, enjoyment and control of
the Collateral subject always to the observance and performance of the terms of
this Deed of Trust, the Amended and Restated Note Agreements, and the Credit
Agreement.
SECTION 3.2. DISPOSITION OF CERTAIN TRADE PROPERTY The
Company, so long as no Event of Default hereunder has occurred and is
continuing and subject to the provisions of SECTION 3.3 hereof in connection
with each replacement, shall have full power, from time to time, in its
discretion, and without any action by or notice to the Trustee or the
Collateral Agent, to sell, exchange, or otherwise dispose of, any item of Trade
Property, at any time subject to the security interest hereof pursuant to the
terns of the Amended and Restated Note Agreements and the Credit Agreement or
which may have become worn out, unserviceable, obsolete or
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unnecessary for use in the conduct of its business; PROVIDED HOWEVER, THAT with
respect to any worn out, unserviceable, obsolete or unnecessary Trade Property
except where such item is, in the ordinary course of business, unnecessary to
the conduct of its business, the Company shall contemporaneously replace the
same with, or substitute for the same, other items of Trade Property having a
value and utility at least equal to that of the items of Trade Property so
replaced, which shall forthwith become, without further action, subject to the
security interest of this Deed of Trust.
SECTION 3.3, RELEASE OF TRADE PROPERTY
(a) The Trustee or the Collateral Agent, so long as no Event of Default
hereunder exists, shall execute a release of its security interest hereunder as
to the items of Trade Property which the Company has replaced or otherwise
disposed of under SECTION 3.2 hereof (1) upon the written notice of the Company
in the event such Trade Property has an estimated fair market value in the good
faith judgment of the Company of less than $1,500,000 which notice shall (i)
reference this SECTION 3.3, (ii) estimate the fair market value of the Trade
Property replaced or otherwise disposed of and (iii) request such release, or
(2) for all other Trade Property, upon:
(i) receipt of an Officer's Certificate (A) stating that no
Event of Default exists, (B) describing in reasonable detail the newly
acquired items of Trade Property (the "REPLACEMENT ITEMS OF TRADE
PROPERTY") replacing the old items of Trade Property, (C) stating
that, except where such item is, in the ordinary course of business,
unnecessary to the conduct of its business, the Replacement Items of
Trade Property are in as good operating condition as, and have a
value, utility and useful life at least equal to that of the items of
Trade Property so replaced, and (D) stating that the Company has good
title to the Replacement Items of Trade Property, free of all Liens
other than Permitted Encumbrances;
(ii) execution and delivery of a Deed of Trust and Security
Agreement Supplement and any necessary financing statements subjecting
the Replacement Items of Trade Property to the lien of this Deed of
Trust, but only such supplement or financing statement as shall be
necessary to subject such Replacement Items of Trade Property to the
lien and first perfected security interest (subject to the Permitted
Encumbrances) of this Deed of Trust;
(iii) receipt of evidence that such Deed of Trust and Security
Agreement Supplement and financing statements have been recorded,
registered and filed as may be deemed reasonably necessary by counsel
for the Trustee and the Collateral Agent in order to preserve and
protect the rights of the Collateral Agent as to all property
comprising the Collateral; and
(iv) if the fair market value of the Replacement Items of
Trade Property equal or exceed $8,000,000, receipt of an opinion of
counsel reasonably satisfactory to the Trustee or Collateral Agent to
the effect that the Company's right, title and interest in and to the
Replacement Items of Trade Property, are either subject to the lien of
this Deed of Trust, or that such Deed of Trust and Security Agreement
Supplement and any necessary financing statements have been recorded,
registered and filed in such manner and in such
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places as may be required by law to preserve and protect the Trustee
and the Collateral Agent as to all property comprising the Collateral
(including, without limitation, the Replacement Items of Trade
Property).
(b) No purchaser in good faith of an item of Trade Property shall be
bound to inquire into the authority of the Company to sell such item of Trade
Property, or the authority of the Trustee or the Collateral Agent to execute a
release of its security interest, under the terms hereof.
SECTION 3.4. RELEASE OF COLLATERAL -- LOSS, DAMAGE TO OR
DESTRUCTION OF THE COLLATERAL AND PREPAYMENT OF THE NOTES. Upon the occurrence
of any material loss, damage to or destruction of the Collateral, the Company
shall give the Trustee and the Collateral Agent, within 30 days after the
occurrence thereof, written notice of such loss, damage or destruction. Such
notice shall generally describe the nature and extent of the loss, damage to or
destruction of the Collateral and shall include a detailed estimate of the cost
of repair or replacement of such damaged or destroyed Collateral. In the case
of any loss, damage to or destruction of the Collateral which results in a
prepayment of the Notes in accordance with the provisions of SECTION 4.1
hereof, the Trustee or the Collateral Agent shall execute a release in respect
of the damaged or destroyed Collateral upon receipt of such prepayment in full.
All determinations of the cost of repair or replacement of the
Collateral hereof shall be made by the Company in good faith and shall be
evidenced by the delivery of an Officer's Certificate or a resolution of the
Board of Directors of the Company certifying the accuracy and reasonableness of
such determination. In making such determinations, the Company shall base such
calculations on engineer's, architect's or other objective criteria, including
insurance estimates of cost of repair, as shall be reasonably consulted in good
faith by the Company.
SECTION 3.5. EMINENT DOMAIN. The Company, immediately upon
obtaining knowledge of the institution of any proceeding for the condemnation
of the Collateral or any portion thereof, shall notify the Collateral Agent of
the pendency of such proceeding. The Collateral Agent may participate in any
such proceeding, and the Company from time to time will deliver or cause to be
delivered to the Collateral Agent all instruments requested by it to permit
such participation. Any award or compensation payable to the Company on account
of such condemnation proceeding, if any, shall be paid to the Collateral Agent,
and such award of compensation shall be retained by the Collateral Agent as
part of the Collateral and applied in accordance with SECTION 4.1(A) OR SECTION
4.1(B) hereof. The Collateral Agent shall be under no obligation to question
the amount of the award of compensation and, without limiting the Company's
right to adjust such award, the Collateral Agent may accept any such award of
compensation. In any such condemnation proceedings the Collateral Agent may be
represented by counsel. The reasonable costs of counsel shall be paid by the
Company.
SECTION 4. APPLICATION OF INSURANCE AND CERTAIN OTHER MONEYS RECEIVED BY THE
COLLATERAL AGENT.
SECTION 4.1. INSURANCE PROCEEDS AND CONDEMNATION AWARDS. The
amounts received by or payable to the Collateral Agent from time to time which
constitute insurance proceeds in respect of any damage to or destruction of the
Collateral or any part thereof or
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Condemnation Awards or compensation covering the Collateral (less the actual
costs, fees and expenses incurred in the collection thereof) shall be held by
the Collateral Agent as part of the Collateral and shall be applied by the
Collateral Agent, subject to the terms of the Intercreditor and Agency
Agreement, as set forth below (Company hereby unconditionally and irrevocably
waives all rights of a property owner under the provisions of California Code of
Civil Procedure ss. 1265.225(a), or any successor statute, providing for the
allocation of condemnation proceeds between a property owner and a lienholder):
(a) In case of any loss, damage to, destruction or condemnation of the
Collateral or any part thereof for which the total cost of repair or replacement
is less than $1,500,000, such proceeds shall be paid over to the Company and the
Company shall have the right and the option, so long as no Event of Default
hereunder has occurred and is continuing, to use the net insurance proceeds,
Condemnation Awards or other compensation from such loss, damage to, destruction
or condemnation of the Collateral for either (i) the repair or replacement of
such Collateral so lost, damaged, destroyed or condemned, so long as such repair
or replacement is commenced within 180 days of the receipt by the Company of
such insurance proceeds or condemnation award and the Collateral Agent has
received written evidence satisfactory to the Collateral Agent demonstrating
that the collateral lost, damaged or destroyed will be replaced or restored to
substantially the same market value and condition immediately prior to the loss,
damage to, destruction or condemnation of or other event giving rise to the
payment of such proceeds; or (ii) the reduction of the Secured Obligations
(whether or not then due) in accordance with and pursuant to the terms and
provisions of the Intercreditor and Agency Agreement including, without
limitation, the payment of the Make Whole Premium, as applicable; and
(b) In case of any loss, damage to or destruction of the Collateral or
any part thereof for which the total cost of repair or replacement is greater
than or equal to $1,500,000, the net insurance proceeds, Condemnation Awards or
other compensation from such loss, damage to, destruction or condemnation of the
Collateral shall be placed in a separate escrow account and 180 days thereafter
shall be applied by the Collateral Agent to the reduction of the Secured
Obligations (whether or not then due) in accordance with and pursuant to the
terns and provisions of the Intercreditor and Agency Agreement including,
without limitation, the payment of the Make Whole Premium, if applicable;
PROVIDED, HOWEVER, that the Collateral Agent agrees, subject to the immediately
following sentence, to release such insurance proceeds to the Company for
replacement or restoration of the portion of the Collateral so lost, damaged or
destroyed if, but only if, (i) no Event of Default hereunder has occurred and is
continuing at the time of release, (ii) written application for such release
signed by the President or any Vice President of the Company is received by the
Collateral Agent within 180 days of the placement of such proceeds in escrow and
(iii) the Collateral Agent has received evidence reasonably satisfactory to the
Collateral Agent demonstrating that the Collateral lost, damaged or destroyed
has been or will be replaced or restored to substantially the same market value
and condition immediately prior to the loss, damage to, destruction or
condemnation of or other event giving rise to the payment of such insurance
proceeds. All insurance proceeds and Condemnation Awards shall be subject to the
lien and security interest of the Collateral Agent hereunder. In the case of any
repair or replacement of the Collateral for which the cost exceeds $8,000,000,
the Collateral Agent shall receive a supplement hereto sufficient, as shown by
an opinion of counsel (which may be counsel for the Company) to grant a valid
first Lien and first perfected security interest (subject to Permitted
Encumbrances) in any additions to or substitutions for the
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Collateral to or for the benefit of the Collateral Agent, which opinion shall
also cover the filing and/or recording of such supplement (and a financing
statement or similar notice thereof if and to the extent permitted or required
by applicable law) so as to perfect the Lien and security interest in such
additions or substitutions, or in the alternative an opinion that no such
supplement is required for such purpose.
SECTION 4.2. TITLE INSURANCE. Any moneys received by the
Trustee or the Collateral Agent as payment for any loss under any policy of
title insurance which was delivered by the Company shall become part of the
Collateral.
SECTION 4.3. OTHER PROCEEDS. Any other moneys received by the
Collateral Agent in connection with the release of the Collateral shall be held
by the Collateral Agent as part of the Collateral and shall be applied by the
Collateral Agent upon the terms and in the manner provided in SECTION 5.3
hereof.
SECTION 4.4. APPLICATION IF EVENT of DEFAULT EXISTS. If an
Event of Default hereunder has occurred and is continuing, all amounts received
by the Collateral Agent under this Deed of Trust, including without limitation,
all amounts held pursuant to SECTION 4.5 hereof, shall be applied in the manner
PROVIDED FOR IN SECTION 5.3 hereof in respect of proceeds and avails of the
Collateral.
SECTION 4.5. INVESTMENT OF COLLATERAL. All monies held by the
Collateral Agent hereunder as Collateral shall be invested and reinvested by
the Collateral Agent at the direction of the Company in one or more Eligible
Investments. The Collateral Agent shall not in any way be held liable by reason
of any insufficiency of such invested Collateral resulting from any loss on any
Eligible Investment included therein. All interest earned on such Eligible
Investments shall be held by the Collateral Agent as Collateral hereunder and
shall be invested and reinvested pursuant to this SECTION 4.5.
SECTION 5. DEFAULTS AND REMEDIES THEREFOR.
SECTION 5.1. EVENTS OF DEFAULT. The Company acknowledges and
agrees, without limitation, that each and all of the terms and provisions of
Section 11 of the Amended and Restated Note Agreements and Article XI of the
Credit Agreement, have been and are incorporated into this Deed of Trust by
reference to the same extent as though fully set out herein and that the term
Event of Default wherever used in this Deed of Trust shall mean either: (a) an
Event of Default as defined in the Amended and Restated Note Agreements or the
Credit Agreement, as the case may be, or (b) the failure of the Company to
comply with any covenant, agreement or warranty contained in this Deed of Trust
within 30 days after the earlier of the date that (1) the Collateral Agent
shall have given written notice thereof to the Company, or (2) such failure
shall first become actually known to a Responsible Officer of the Company;
PROVIDED, HOWEVER, that if the Company shall be diligently proceeding to
correct such failure but shall be unable to correct such failure within 30
days, then such period shall continue for an additional 60 days if at the end
of the initial 30-day period it can be reasonably expected that such failure
can be corrected within such 60 additional days and the Company shall continue
to proceed diligently to correct such failure during such additional 60 day
period.
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SECTION 5.2. REMEDIES. When any Event of Default hereunder has
occurred and is continuing and pursuant to the terms and conditions of the
Amended and Restated Note Agreements or the Credit Agreement, the Collateral
Agent or Trustee may exercise any one or more or all, and in any order, of the
remedies hereinafter set forth, it being expressly understood that no remedy
herein or in the Amended and Restated Note Agreements or the Credit Agreement
conferred is intended to be exclusive of any other remedy or remedies; but each
and every remedy shall be cumulative and shall be in addition to every other
remedy given herein or now or hereafter existing at law or in equity or by
statute:
(a) Subject to compliance with the terms and provisions of the
Intercreditor and Agency Agreement, the Noteholders and the Lenders may, by
notice in writing to the Company, declare the entire unpaid balance of the
Amended and Restated Senior Secured Notes and the Credit Agreement Notes,
respectively, to be immediately due and payable; and thereupon all outstanding
principal, together with all accrued interest thereon and premium, if any, and
all other fees or other amounts payable with respect thereto shall be and
become immediately due and payable.
(b) Subject to the terms and conditions of the Intercreditor and
Agency Agreement, the Collateral Agent, personally or by agents or attorneys
may, to the extent permitted by law, enter into and take possession of all or
any part of the Collateral, and may forthwith use, operate and manage the
Collateral, collect the earnings and income therefrom, pay all charges
including taxes and assessments levied thereon and operating and maintenance
expenses and all disbursements and liabilities of the Company hereunder and
apply the net proceeds arising from any such operation of the Collateral as
provided in SECTION 5.3 hereof in respect of the proceeds of a sale of the
Collateral. The right to enter and take possession of the Collateral and use
any personal property therein, to manage, operate and conserve the same, and to
collect the rents, issues and profits thereof, shall be in addition to all
other rights or remedies of the Collateral Agent hereunder or afforded by law
(including, without limitation the rights of Collateral Agent set forth in
California Civil Code Section 2938), and may be exercised concurrently
therewith or independently thereof. The expenses (including any reasonable
receiver's fees, reasonable counsel fees, costs and agent's compensation)
incurred pursuant to the powers herein contained shall be secured hereby and
the Company promises to pay all such expenses upon demand together with
interest thereon at the Advance Overdue Rate. The Collateral Agent shall not be
liable to account to the Company for any action taken pursuant hereto other
than to account for any rents actually received by the Collateral Agent.
Without taking possession of the Collateral, the Collateral Agent may, in the
event the Collateral becomes vacant or is abandoned, take such reasonable steps
as it deems appropriate to protect and secure the Collateral (including hiring
watchmen therefor) and all costs incurred in so doing shall constitute
additional Secured Obligations payable upon demand with interest thereon at the
Advance Overdue Rate.
(c) Subject to the terms and conditions of the Intercreditor and Agency
Agreement, the Trustee may, if at the time such action may be lawful and always
subject to compliance with any mandatory legal requirements, either with or
without taking possession and either before or after taking possession, and
without instituting any legal proceedings whatsoever, and having first given
notice of such sale to the Company at least 30 days prior to the date of such
sale and having given any other notice which may be required by law, sell and
dispose of said Collateral or any part thereof at public auction or private
sale to the highest bidder, which may be a
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Noteholder, in one lot as an entirety or in separate lots (the Company for
itself and for all who may claim by, through or under it hereby expressly
waiving and releasing all rights to have the Collateral marshaled to the extent
permitted by law), and either for cash or on credit and on such terms as the
Trustee may determine and at the place required by law. Any such sale or sales
may be adjourned from time to time by announcement at the time and place
appointed for such sale or sales or for any such adjourned sale or sales,
without further published notice. Company waives all rights to direct the order
in which any of the Collateral will be sold in the event of any sale under this
Deed of Trust. In the case of a sale under this Deed of Trust, the said
property, real, personal and mixed, may be sold in one parcel or more than one
parcel. Should Collateral Agent desire that more than one such sale or other
disposition be conducted, Collateral Agent may, at its option, cause the same
to be conducted simultaneously, or successively on the same day, or at such
different days or times and in such order as Collateral Agent may deem to be in
its best interest. Any person, including Company, Trustee or Collateral Agent,
may purchase at the sale. Upon any sale, Trustee shall execute and deliver to
the purchaser or purchasers a deed or deeds conveying the property so sold, but
without any covenant or warranty whatsoever, express or implied, whereupon such
purchaser or purchasers shall be let into immediate possession. Collateral
Agent, from time to time before the trustee's sale pursuant to this paragraph,
may rescind any notice of breach or default and of election to cause to be sold
the Collateral by executing and delivering to Trustee a written notice of such
rescission, which notice, shall also constitute a cancellation of any prior
declaration of default and demand for sale. The exercise by Collateral Agent of
such right of rescission shall not constitute a waiver of any breach or default
then existing or subsequently occurring or impair the right of Collateral Agent
to execute and deliver to Trustee, as above provided, other declarations of
default and demand for sale, and notices of breach or default, the obligations
hereof, nor otherwise affect any provision, covenant or condition of the
Operative Agreements and/or this Deed of Trust or any of the rights,
obligations or remedies of the parties thereunder or hereunder.
(d) Subject to the terms and conditions of the Intercreditor and
Agency Agreement, the Collateral Agent may proceed to protect and enforce its
rights by a suit or suits in equity or at law, or for the specific performance
of any covenant or agreement contained herein or in the Amended and Restated
Note Agreements or the Credit Agreement, or in aid of the execution of any
power herein or therein granted, or for the foreclosure of this Deed of Trust,
or for the enforcement of any other appropriate legal or equitable remedy. Upon
the bringing of any suit to foreclose this Deed of Trust or to enforce any
other remedy available hereunder, the plaintiff shall be entitled as a matter
of right, without notice and without giving bond to the Company or anyone
claiming under, by or through it, and without regard to the solvency or
insolvency of the Company or the then value of the premises, to apply to an
appropriate court to have a receiver appointed of all the Collateral and of the
earnings, income, rents, issues, profits and proceeds thereof, with such power
as the court making such appointment shall confer, and the Company does hereby
irrevocably consent to such appointment. It is understood and agreed upon by
the Company and the Collateral Agent that this Deed of Trust may be foreclosed
upon simultaneously in one or more jurisdictions.
(e) Subject to the terms and conditions of the Intercreditor and
Agency Agreement, in case of any sale of the Collateral, or of any part
thereof, pursuant to any judgment or decree of any court or otherwise in
connection with the enforcement of any of the terms of this Deed of Trust, the
Collateral Agent, the Lenders or the Noteholders may bid and become the
purchaser,
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and the purchaser or purchasers, for the purpose of making settlement for or
payment of the purchase price, shall be entitled to TURN IN AND use the Notes
and ANY claims for interest and premium matured and unpaid thereon, in order
that there may be credited as paid on the purchase price the sum apportionable
and applicable to the Notes, including principal and interest and premium
thereof, out of the net proceeds of such sale after allowing for the proportion
of the total purchase price required to be paid in actual cash. If at any
foreclosure proceeding the Collateral shall be sold for a sum less than the
total amount of indebtedness for which judgment is therein given, the
Collateral Agent shall be entitled to the entry of a deficiency decree against
the Company and against the property of the Company for the amount of such
deficiency.
(f) Subject to the terms and conditions of the Intercreditor and
Agency Agreement, the Collateral Agent shall have any and all rights and
remedies (including, without limitation, extra judicial power of sale) provided
to a secured party by the Uniform Commercial Code with respect to any and all
parts of the Collateral which are and which are deemed to be governed by the
Uniform Commercial Code. Without limiting the generality of the foregoing, the
Collateral Agent shall, with respect to any part of the Collateral constituting
property of the type in respect of which realization on a Lien or security
interest granted therein is governed by the Uniform Commercial Code, have all
the rights, options and remedies of a secured party under the Uniform
Commercial Code, including, without limitation, the right to the possession of
any such property, or any part thereof, and the right peaceably to enter
without legal process any premises where any such property may be found. Any
requirement of said Uniform Commercial Code for reasonable notification shall
be met by mailing written notice to the Company at its address set forth in
SECTION 6.3 hereof at least 30 days prior to the sale or other event for which
such notice is required.
(g) Declare all sums secured by this Deed of Trust to be due and
payable without further notice and commence a trustee's sale of the Property,
and if the Collateral Agent shall so elect, the sale shall be conducted as
follows:
(1) The Collateral Agent shall deliver to Trustee a written
declaration of default and demand for sale and a written notice of
default and election to cause the Mortgaged Property to be sold, which
notice Trustee shall cause to be filed for record. Collateral Agent
shall also deposit with Trustee this Deed of Trust, the Credit
Agreement Documents, the Note Documents, and all documents evidencing
expenditures secured hereby.
(2) After a lapse of such time as may then be required by law
following the recordation of said notice of default, and notice of sale
having been given as then required by law, Trustee, without demand on
the Company, shall sell the Mortgaged Property at the time and place
fixed by it in the notice of sale, either as a whole or in separate
parcels, and in such order as it may determine, at public auction to
the highest bidder for cash in lawful money of the United States,
payable at time of sale. Trustee may postpone the sale of all or any
portion of the Mortgaged Property by public announcement at such time
and place of sale, and from time to time thereafter may postpone such
sale by public announcement at the time fixed by the preceding
postponement. Trustee shall deliver to such purchaser its deed
conveying the Mortgaged Property so sold, but without any covenant or
warranty, express or implied. The recitals
-29-
in such deed of any matters or facts shall be conclusive proof of the
truthfulness thereof.
(3) Any person, including the Company, the Trustee, the
Collateral Agent, or any of the Noteholders or the Lenders, may
purchase at any sale of the Property under this Deed of Trust, and if
the Collateral Agent is the highest bidder, may credit the portion of
the purchase price that would be distributed to the Collateral Agent
against the indebtedness in lieu of paying cash. The proceeds of such
sale shall be applied as provided in this Deed of Trust.
(h) The Collateral Agent shall have any and all rights and remedies
provided for in the Intercreditor and Agency Agreement and the Amended and
Restated Note Agreements and the Credit Agreement.
SECTION 5.3. APPLICATION OF PROCEEDS. The purchase money
proceeds and/or avails of any sale of the Collateral, or any part thereof and
the proceeds and the avails of any remedy hereunder shall be paid to and
applied as follows:
(a) FIRST, to the payment PRO RATA of costs and expenses of
foreclosure or suit, if any, and of such sale, and to the extent permitted by
applicable law, the reasonable compensation of the Collateral Agent's agents,
attorneys and counsel, and of all proper expenses, liability and advances
incurred or made hereunder by the Collateral Agent or such agents, attorneys
and counsel, and of all taxes, assessments or liens superior to the Lien of
these presents, except any taxes, assessments or other superior Lien subject to
which said sale may have been made; and
(b) SECOND, in accordance with the terms and conditions of the
Intercreditor and Agency Agreement.
SECTION 5.4. WAIVER OF EXTENSION, APPRAISEMENT AND STAY LAWS.
The Company covenants that, upon the occurrence and the continuance of an Event
of Default hereunder and the acceleration of the Notes pursuant to SECTION
5.2(A) hereof and to the extent that such rights may then be lawfully waived,
it will not at any time thereafter insist upon or plead, or in any manner
whatever claim or take any benefit or advantage of, any stay or extension law
now or at any time hereafter in force, or claim, take or insist upon any
benefit or advantage of or from any law now or hereafter in force providing for
the valuation or appraisement of the Collateral or any part thereof prior to
any sale or sales thereof to be made pursuant to any provision herein
contained, or to the decree, judgment or order of any court of competent
jurisdiction or, after confirmation of any such sale or sales claim or exercise
any right under any statute now or hereafter made or enacted by any state or
otherwise to redeem the property so sold or any part thereof, and hereby
expressly waives for itself and on behalf of each and every Person who may
claim under it, all benefit and advantage of any such law or laws which would
otherwise be available to any such Person in connection with the enforcement of
any of the Collateral Agent's remedies hereunder; and covenants that it will
not in connection with any such enforcement proceedings invoke or utilize any
such law or laws or otherwise hinder, delay or impede the execution of any
power herein granted and delegated to the Collateral Agent but will suffer and
permit the execution of every such power as though no such law or laws had been
made or enacted.
-30-
The Company hereby waives any and all rights of redemption from sale
under any order or decree of foreclosure pursuant to rights herein granted, on
behalf of the Company, and each and every Person acquiring any interest in, or
title to the Collateral described herein subsequent to the date of this Deed of
Trust, and on behalf of all other Persons to the extent permitted by applicable
law.
Any sale, whether under any power of sale hereby given or by virtue of
judicial proceedings, shall operate to divest all right, title, interest, claim
and demand whatsoever, either at law or in equity, of the Company in and to the
property sold and shall be a perpetual bar, both at law and in equity, against
the Company, its successors and assigns, and against any and all Persons
claiming the property sold or any part thereof under, by or through the
Company, its successors or assigns.
SECTION 5.5. EFFECT OF DISCONTINUANCE OF PROCEEDINGS. IN case
the Collateral Agent shall have proceeded to enforce any right under this Deed
of Trust by foreclosure, sale, entry or otherwise, and such proceedings shall
have been discontinued through written notice to the Company by the Collateral
Agent or shall have been determined adversely, then and in every such case the
Company and the Collateral Agent shall each be restored to its position and
rights hereunder, except with respect to any rights specifically denied in a
proceeding which was adversely determined, as they existed immediately prior to
the commencement of such proceedings with respect to the property subject to
the Lien and first perfected security interest of this Deed of Trust.
SECTION 5.6. DELAY OR OMISSION NOT A WAIVER. No delay, failure
or omission of the Collateral Agent to exercise any right or power arising from
any Event of Default on the part of the Company shall exhaust or impair any
such right or power or prevent its exercise during the continuance of such
Event of Default. No waiver by the Collateral Agent of any such Event of
Default, whether such waiver be full or partial, shall extend to or be taken to
affect any subsequent Event of Default, or to impair the rights resulting
therefrom, except as may be otherwise provided herein. No right, power or
remedy hereunder is intended to be exclusive of any other right, power or
remedy but each and every right, power or remedy shall be cumulative and in
addition to any and every other right, power or remedy given hereunder or
otherwise existing. Nor shall the giving, taking or enforcement OF any other or
additional security, collateral or guaranty for the payment of the indebtedness
secured under this Deed of Trust operate to prejudice, waive or affect the
security of this Deed of Trust or any rights, powers or remedies hereunder; nor
shall the Collateral Agent be required to first look to, enforce or exhaust
such other or additional security, collateral or guaranties.
SECTION 5.7. COSTS AND EXPENSES OF FORECLOSURE. In any suit to
foreclose the Lien or first perfected security interest hereon there shall be
allowed and included as additional Secured Obligations in the decree for sale
all expenditures and expenses which may be paid or incurred by or on behalf of
the Collateral Agent and Trustee for reasonable attorney's fees, reasonable
appraiser's fees, outlays for documentary and expert evidence, stenographic
charges, publication costs and costs (which may be estimated as the items to be
expended after the entry of the decree) of procuring all such abstracts of
title, title searches and examination, guarantee policies, and similar data and
assurances with respect to title as the Collateral Agent and Trustee may deem
to be reasonably necessary either to prosecute any foreclosure action or to
evidence to
-31-
the bidder at any sale pursuant thereto the true condition of the title to or
the value of the Collateral, all of which expenditures shall become additional
Secured Obligations which the Company agrees to pay and all of such shall be
immediately due and payable with interest thereon from the date of expenditure
until paid at the Advance Overdue Rate.
SECTION 5.8. NOTES TO BECOME DUE UPON SALE BY COLLATERAL
AGENT. Upon any sale under or by virtue of this Deed of Trust, whether pursuant
to foreclosure, power of sale or otherwise, the entire unpaid principal amount
of the Notes shall, unless the Collateral Agent shall expressly declare
otherwise or if not previously declared due and payable, immediately become due
and payable, together with interest accrued thereon and Make Whole Premium
and/or fees, if any, and all other indebtedness which this Deed of Trust by its
terms secures, anything contrary in this Deed of Trust, the Notes or any other
instrument securing the Notes to the contrary notwithstanding.
SECTION 5.9. REMEDIES SUBJECT TO APPLICABLE LAW. ALL rights,
remedies, and powers provided by this SECTION 5 entitled "Defaults and Remedies
Therefor" may be exercised only to the extent that the exercise thereof does
not violate any applicable provisions of law, and all of the provisions of this
Section are intended to be subject to all applicable mandatory provisions of
law which may be controlling and to be limited to the extent necessary so that
they will not render this Deed of Trust invalid, unenforceable, or not entitled
to be recorded, registered, or filed under the provisions of any applicable
law.
SECTION 6 MISCELLANEOUS.
SECTION 6.1. SUCCESSORS AND ASSIGNS. Whenever any of the
parties hereto is referred to, such reference shall be deemed to include the
successors and assigns of such party; and all the covenants, premises and
agreements in this Deed of Trust contained by or on behalf of the Company, or
by or on behalf of the Trustee or the Collateral Agent, shall bind and inure to
the benefit of the respective successors and assigns of such parties whether so
expressed or not.
SECTION 6.2. SEVERABILITY. The unenforceability or
invalidity of any provision or provisions of this Deed of Trust shall not render
any other provision or provisions herein contained unenforceable or invalid.
SECTION 6.3. ADDRESSES FOR NOTICES AND DEMANDS. Any notice or
report required by any provision of this Deed of Trust shall be deemed to have
been sufficiently given or made if copies thereof are delivered in writing,
telexed, telegraphed or telecopied (with a copy of any such communication
promptly mailed by registered or certified mail or prepaid overnight air
courier), addressed as follows:
If to the Company: The Chalone Wine Group, Ltd,
621 Airpark Road
Napa, CA 94558
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If to the Collateral Agent; "Rabobank International", New York Branch,
245 Park Avenue
New York, NY 10167
If to the Trustee North American Title Company
3273 Claremont Way, Ste. 101
Napa, CA 94558
or as to either party at such other address as such party may designate by
notice duly given in accordance with this Section to the other party.
SECTION 6.4. HEADINGS AND TABLE OF CONTENTS. The headings of
the sections of this Deed of Trust and the table of contents are inserted for
purposes of convenience only and shall not be construed to affect the meaning
or construction of any of the provisions hereof.
SECTION 6.5. RELEASE. This Deed of Trust shall be a continuing
agreement in every respect and shall remain in full force and effect until all
of the Notes, premium, if any, principal and interest thereon and all other
Secured Obligations, shall have been fully paid and satisfied. Simultaneous with
the occurrence of the preceding sentence, or otherwise pursuant to the terms and
provisions of the Intercreditor and Agency Agreement, the Collateral Agent
shall, upon the request and at the expense of the Company, forthwith release all
its liens and security interests hereunder by, including but not limited to, the
execution of a satisfaction and any other documents or actions required for the
release of the Deed of Trust of record.
SECTION 6.6. COUNTERPARTS. This Deed of Trust may be executed,
acknowledged and delivered in any number of counterparts, each of such
counterparts constituting an original but all together only one Deed of Trust.
SECTION 6.7. AGENCY. Each holder of the Notes, by its
execution and delivery of the Intercreditor and Agency Agreement, appoints and
authorizes the Trustee and Collateral Agent to hold the lien of this Deed of
Trust on the Collateral for the equal and ratable benefit and security of all
holders of the Notes, without preference, priority or distinction of any thereof
or any other by reason of difference in time of issuance, sale or delivery of
the Notes to such holders. The Collateral Agent shall take such actions in
respect of the Collateral (including actions after the occurrence of an Event of
Default) as are delegated to the Collateral Agent by the terms of the
Intercreditor and Agency Agreement.
SECTION 6.8. SUBSTITUTE TRUSTEE. Trustee shall be under no
duty to take any action hereunder except as expressly required or by law, or to
perform any act which would involve Trustee in any expense or liability or to
institute or defend any suit in respect hereof, unless properly indemnified to
Trustee's reasonable satisfaction. Trustee, by acceptance of this Deed of
Trust, covenants to perform and fulfill the trusts herein created, being
liable, however, only for gross negligence or willful misconduct, and hereby
waives any statutory fee and agrees to accept reasonable compensation, in lieu
thereof, for any services rendered by Trustee in accordance with the terms
hereof. Trustee may resign at any time upon giving thirty (30) days' notice to
Company and to Collateral Agent. Collateral Agent may in its sole and absolute
discretion and with or without cause remove Trustee at any time or from time to
time and select a
-33-
successor trustee. In the event of the death, removal, resignation, refusal to
act, or inability to act of Trustee, or in its sole and absolute discretion for
any reason whatsoever Collateral Agent may, without notice and without
specifying any reason therefor and without applying to any court, select and
appoint a successor trustee, by an instrument recorded wherever this Deed of
Trust is recorded and all powers rights, duties and authority of Trustee, as
aforesaid, shall thereupon become vested in such successor and without
conveyance of the Collateral, the successor trustee shall succeed to all the
title, powers, and duties conferred upon Trustee herein and by applicable laws
as if the successor had been named Trustee at the time this Deed of Trust was
recorded. Such substitute trustee shall not be required to give bond for the
faithful performance of the duties of Trustee hereunder unless required to do
so by Collateral Agent. Company shall pay all costs, fees and expenses incurred
by Trustee and Trustee's agents and counsel in connection with the performance
by Trustee of Trustee's duties hereunder and all such costs, fees and expenses
shall be secured by this Deed of Trust.
SECTION 6.9. GOVERNING LAW. This Deed of Trust shall be
construed in accordance with and governed by the laws and decisions of the
State of California (without regard to any choice of law provisions).
SECTION 6.10. TIME. Time shall be of the essence of this Deed
of Trust.
SECTION 6.11. FUTURE ADVANCES. At all times, this Deed of
Trust secures as part of the Secured Obligations the payment of any and all
loan commissions, service charges, liquidated damages, attorney's fees,
expenses and advances due to or incurred by the Collateral Agent and the
Trustee in connection with the Secured Obligations, all in accordance with the
Notes, this Deed of Trust, the Amended and Restated Note Agreements, the Credit
Agreement the Intercreditor and Agency Agreement and any of the Security
Documents, together with such future or additional advances as may be made by
the Collateral Agent or the holder hereof, at its exclusive option to the
Company or its successors or assigns in title, for any purpose provided
hereunder, PROVIDED that all such advances are made within twenty years of the
date of this Deed of Trust.
SECTION 6.12. WAIVER OF JURY TRIAL. The Company and the
Collateral Agent hereby knowingly, voluntarily and intentionally waive the right
to trial by jury in respect of any litigation based hereon, arising out of,
under or in connection with this Deed of Trust or any other Security Document
contemplated to be executed in connection herewith, or any course of conduct,
course of dealings, statements (whether verbal or written) or acts of either
party, or any exercise of any party of their respective rights under this Deed
of Trust or any such Security Document. The Company hereby acknowledges that
this waiver of jury trial is a material inducement to the Noteholders in
extending credit to the Company, that the Noteholders would not have extended
credit without this waiver of jury trial and that the Company has had an
opportunity to consult with an attorney in connection with this waiver of jury
trial and understands the legal effect of this waiver.
SECTION 6.13. SPECIAL CALIFORNIA PROVISIONS. The terms,
conditions and provisions of this Section 6.13, if any, shall apply solely to
the portion of the security herein described which is located in California and
shall govern, control and take precedence with respect to such portion of the
security:
-34-
(a) The provisions of this Deed of Trust shall remain in full
force and effect notwithstanding (i) any release of Company from any liability
with respect to the Secured Obligations; or (ii) any release or subordination
of any real or personal property now or hereafter held by Collateral Agent as
security for the performance of the Secured Obligations;
(b) Company hereby waives all rights and defenses that Company
may have because any of Company's debt is secured by real property. This means,
among other things: (i) Collateral Agent may collect from Company without first
foreclosing on any real or personal property collateral pledged by Company; and
(ii) if Collateral Agent forecloses on any real property collateral pledged by
Company (A) the amount of debt may be reduced only by the price for which the
collateral is sold at the foreclosure sale, even if the collateral is worth
more than the sale price, and (B) Collateral Agent may COLLECT FROM COMPANY
even if Collateral Agent, by foreclosing on the real property collateral, has
destroyed any right Company may have to collect from any other party. This is
an unconditional and irrevocable waiver of any rights and defenses Company may
have because Company's debt is secured by real property. These rights and
defenses include, but are not limited to, any rights or defenses based upon
Section 580a, 580b, 580d, or 726 of the California Code of Civil Procedure.
(c) In the case of a power of sale foreclosure under this Deed
of Trust or any other deed of trust entered into by the parties as security for
the Secured Obligations, the fair market value of the real property collateral
shall be conclusively deemed to be the amount of the successful bid at the
foreclosure sale. Company waives any rights or benefits it may now or hereafter
have to a fair value hearing under Section 580a of the California Code of Civil
Procedure. Collateral Agent shall have absolutely no obligation to make a bid
at any foreclosure sale, but rather may make no bid or bid any amount which
Collateral Agent, in its sole discretion, deems appropriate.
(d) Company warrants and represents to Collateral Agent that
(i) it now has or will continue to have full and complete access to any and all
information concerning the transactions contemplated by the Operative Agreements
referred to therein, the value of the assets owned or to be acquired by any
Subsidiary Guarantor under the Operative Agreements, their financial status and
their respective ability to pay and perform their respective obligations under
the Operative Agreements; and (ii) Company has reviewed and approved copies of
the Operative Agreements and is fully informed of the remedies Collateral Agent
may pursue, with or without notice to Company, in the event of default under the
Operative Agreements. Company shall keep fully informed as to all aspects of the
financial condition of any Subsidiary Guarantor under the Operative Agreements
and the performance of their respective obligations under the Operative
Agreements.
(e) Company agrees that Collateral Agent may exercise any
right or remedy hereunder or under any of the Operative Agreements without the
necessity of resorting to or exhausting any security or collateral conveyed or
assigned by Company or any of the Subsidiary Guarantors under the Operative
Agreements or any guarantor of any of the Secured Obligations. Company hereby
waives any right it may now or hereafter have to require Collateral Agent to
proceed against any Subsidiary Guarantor under the Operative Agreements, to
proceed against any guarantor of any of the Secured Obligations, to foreclose
any lien on any real or personal property collateral conveyed or assigned to
Collateral Agent by Company or any Subsidiary
-35-
Guarantor under the Operative Agreements, to exercise any right or remedy under
the Operative Agreements, to draw upon any letter of credit issued in
connection with any of the Secured Obligations, or to pursue any other remedy
or to enforce any other right under the Operative Agreements.
(f) Company and Collateral Agent intend that the relationship
created hereunder be solely that of "debtor" and "creditor". Nothing herein is
intended to create a joint venture, partnership, tenancy- in-common, or joint
tenancy relationship between Company and Collateral Agent nor to grant
Collateral Agent any interest in the Collateral other than that of beneficiary,
secured party or lender. '
(g) This Deed of Trust may not be modified, amended,
discharged or waived in whole or in part except by an agreement in writing
signed by Company and Collateral Agent. The covenants of this Deed of Trust
shall RUN WITH THE LAND AND SHALL BIND COMPANY and the heirs, distributees,
personal representatives, successors and assigns of Company and all present and
subsequent encumbrancers, lessees and sublessees of any of the Collateral and
shall inure to the benefit of Collateral Agent and its respective successors,
assigns and endorsees.
(h) Whenever possible, each provision of this Deed of Trust
shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Deed of Trust shall be prohibited
by or invalid under applicable law, such provision shall be ineffective to the
extent of such prohibition or invalidity, without invalidating the remaining
provisions of this Deed of Trust. Nothing in this Deed of Trust or in any other
Operative Agreements shall require Company to pay, or Collateral Agent to
accept, interest in an amount which would subject Collateral Agent to penalty
under applicable law. In the event that the payment of any interest due
hereunder or under any of the other Operative Agreements or a payment which is
deemed interest, exceeds the maximum amount payable as interest under the
applicable usury laws, such excess amount shall be applied to the reduction of
the Indebtedness, and upon payment in full of the Indebtedness, shall be
applied to the performance of the Obligations, and upon performance in full of
the Obligations, shall be deemed to be a payment made by mistake and shall be
refunded to Company.
(i) Any consent or approval by Collateral Agent in any single
instance shall not be deemed or construed to be Collateral Agent's consent or
approval in any like matter arising at a subsequent date, and the failure of
Collateral Agent to promptly exercise any right, power, remedy, consent or
approval provided herein or at law or in equity shall not constitute or be
construed as a waiver of the same nor shall Collateral Agent be stopped from
exercising such right, power, remedy, consent or approval at a later date. Any
consent or approval requested of and granted by Collateral Agent pursuant hereto
shall be narrowly construed to be applicable only to Company and the matter
identified in such consent or approval and no third party shall claim any
benefit by reason thereof, other than the party to whom such consent or approval
was given or reasonably intended to benefit, and any such consent or approval
shall not be deemed to constitute Collateral Agent a venturer or partner with
Company nor shall privity of contract be presumed to have been established with
any such third party.
It is the desire and intention of the parties hereto that this
Deed of Trust and the lien hereof do not merge in fee simple title to the
Collateral. It is hereby understood and agreed
-36-
that should Collateral Agent acquire any additional or other interests in or to
the Collateral or the ownership thereof, then, unless a contrary intent is
manifested by Collateral Agent as evidenced by an appropriate document duly
recorded, this Deed of Trust and the lien hereof shall not merge in such other
or additional interests in or to the Collateral, toward the end that this Deed
of Trust may be foreclosed as if owned by a stranger to said other or
additional interests.
(j) By accepting delivery of any item required to be observed,
performed or fulfilled or to be given to Collateral Agent pursuant to this Deed
of Trust and the other Operative Agreements, including, but not limited to, any
officer's certificate, balance sheet, statement of profit and loss or other
financial statement, survey, appraisal or insurance policy, Collateral Agent
shall not be deemed to have warranted, consented to, or affirmed the
sufficiency, legality, effectiveness or legal effect of the same, or of any
term, provision or condition thereof, and such acceptance of delivery thereof
shall not be or constitute any warranty, consent or affirmation with respect
thereto by Collateral Agent.
(k) The parties hereto agree that each of them, upon the
request of the other party, shall execute and deliver such further documents,
instruments or agreements and shall take such further action that may be
necessary or appropriate to effectuate the purposes of this Deed of Trust or
that may be necessary or appropriate to comply with the requirements of the
Uniform Commercial Code.
COMPANY PLEASE NOTE: UPON THE OCCURRENCE OF A DEFAULT,
CALIFORNIA PROCEDURE PERMITS THE TRUSTEE TO SELL THE COLLATERAL AT A SALE HELD
WITHOUT SUPERVISION BY ANY COURT AFTER EXPIRATION OF A PERIOD PRESCRIBED BY
LAW. UNLESS YOU PROVIDE AN ADDRESS FOR THE GIVING OF NOTICE, YOU MAY NOT BE
ENTITLED TO NOTICE OF THE COMMENCEMENT OF SALE PROCEEDINGS. BY EXECUTION OF
THIS DEED OF TRUST, YOU CONSENT TO SUCH PROCEDURE. COLLATERAL AGENT URGES YOU
TO GIVE PROMPT NOTICE OF ANY CHANGE IN YOUR ADDRESS SO THAT YOU MAY RECEIVE
PROMPTLY ANY NOTICE GIVEN PURSUANT TO THIS DEED OF TRUST.
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IN WITNESS WHEREOF, the Company has caused this Deed of Trust to be
executed in its behalf by its President as of the day and year first above
written.
THE CHALONE WINE GROUP, LTD.
BY: ________________________
THOMAS B. SELFRIDGE,
PRESIDENT AND CEO
Address: 621 Airpark Road
Napa, California 94558
Taxpayer Identification No.:
84-1537575
Deed of Trust Monterey County
CERTIFICATE OF ACKNOWLEDGMENT
State of California
County of San Francisco
On April 12, 2002, before me, Kimberly A. Clark, personally appeared
Thomas B. Selfridge,
[ ] personally known to me, OR [XX] proved to me on the basis of
satisfactory evidence to be the
KIMBERLY A. CLARK person(s) whose name(s) is/are
COMM. #1238162 subscribed to the within instrument and
NOTARY PUBLIC-CALIFORNIA acknowledged to me that he/she/they
City & County of San Francisco executed the same in his/her/their
COMM. EXP. OCT, 16, 2003 authorized capacity(ies), and that by
his/her/their signature(s) on the
instrument the person(s), or the entity
upon behalf of which the person(s)
acted, executed the instrument.
WITNESS my hand and official seal
Signature _____________________________
MONTEREY, CA CHALONE WINE
AMENDED
LEGAL DESCRIPTION
PARCEL I
________
PARCEL "A" IN THE COUNTY OF MONTEREY, STATE OF CALIFORNIA, ACCORDING TO THE MAP
FILED FOR RECORD ON SEPTEMBER 16, 1987 IN VOLUME 15 OF SURVEY, AT PAGE 48, IN
THE OFFICE OF THE COUNTY RECORDER OF SAID COUNTY.
EXCEPTING THEREFROM A 14 FOOT STRIP OF LAND LEADING TO THE N. 1/2 OF THE N.
1/2 OF SEC. 17, T17, S., R7E MDM, FROM THE STONEWALL CANYON ROAD LOCATED IN
THE SE 1/4 OF THE SE 1/4 OF SECTION 8, TOWNSHIP 17, SOUTH, RANGE 7 EAST MDM,
THENCE SOUTHERLY ACROSS THE SAID SE 1/4 OF
THE SE 1/4 OF SECTION 8 AND ADJACENT TO THE WESTERNMOST BOUNDARY OF THE
SAID SE 1/4 OF THE SE 1/4 OF SECTION 8 FOR APPROXIMATELY ONE QUARTER MILE,
GRANTED TO JON A. BROSSEAU AND JANET A. BROSSEAU, HUSBAND AND WIFE, RECORDED
OCTOBER 6, 1978 ON REEL 1280, OFFICIAL RECORDS, PAGE 875.
APN: 417-181-053
PARCEL II
_________
THE SOUTHEAST QUARTER OF SECTION 7 IN TOWNSHIP 17 SOUTH, RANGE 7 EAST, MOUNT
DIABLO MERIDIAN, ACCORDING TO THE OFFICIAL PLAT THEREOF.
EXCEPTING THEREFROM THAT REAL PROPERTY DESCRIBED IN THAT DEED TO MACWOOD
COMPANY OF CALIFORNIA, A GENERAL PARTNERSHIP, RECORDED NOVEMBER 8, 1973 IN REEL
879, PAGE 623, OFFICIAL RECORDS, MONTEREY COUNTY, CALIFORNIA.
ALSO EXCEPTING THEREFROM THAT REAL PROPERTY DESCRIBED IN THAT DEED TO PETER
WATSON-GRAFF, ET UX, RECORDED APRIL 8, 1975 IN REEL 972, PAGE 169, OFFICIAL
RECORDS, MONTEREY COUNTY, CALIFORNIA.
APN: 417-201-001
PARCEL III
__________
THE NORTHWEST QUARTER OF SECTION 8, TOWNSHIP 17 SOUTH, RANGE 7 EAST, MOUNT
DIABLO BASE AND MERIDIAN IN THE COUNTY OF MONTEREY, STATE OF CALIFORNIA,
ACCORDING TO THE OFFICIAL PLAT THEREOF.
APN: 417-181-029
-1-
MONTEREY,CA
CHALONE WINE
PARCEL IV
_________
THE WEST HALF OF THE EAST HALF OF SECTION 8, TOWNSHIP 17 SOUTH, RANGE 7 EAST,
MOUNT DIABLO BASE AND MERIDIAN, IN THE COUNTY OF MONTEREY, STATE OF CALIFORNIA,
ACCORDING TO THE OFFICIAL PLAT THEREOF.
APN: 417-181-030
417-181-036
PARCEL V
________
THE EAST HALF OF THE SOUTHWEST QUARTER AND THE SOUTH HALF OF THE SOUTHWEST
QUARTER OF THE SOUTHWEST QUARTER AND THE NORTH HALF OF THE NORTHWEST QUARTER OF
THE SOUTHWEST QUARTER OF SECTION 8, TOWNSHIP 17 SOUTH, RANGE 7 EAST, MOUNT
DIABLO BASE AND MERIDIAN, IN THE COUNTY OF MONTEREY, STATE OF CALIFORNIA,
ACCORDING TO THE OFFICIAL PLAT THEREOF.
APN: 417-181-052
PARCEL VI
__________
PARCEL "1", AS SHOWN ON THAT CERTAIN PARCEL MAP FILED SEPTEMBER 29, 1974 IN
VOLUME 7 OF PARCEL MAPS, AT PAGE 54, OFFICIAL RECORDS OF MONTEREY
COUNTY, LOCATED IN THE SOUTHEAST QUARTER OF SECTION 7, TOWNSHIP 17 SOUTH, RANGE
7 EAST, M.D.M.
APN: 417-201-002
PARCEL VII
__________
AN EASEMENT FOR ACCESS TO THE DESCRIBED PREMISES, AND APPURTENANT THERETO,
CONSISTENT WITH THE PRESENT USE, OVER A PRIVATE RIGHT-OF-WAY 30 FEET IN WIDTH
AND 272 FEET IN LENGTH, MORE OR LESS, LYING ALONG THE NORTHEASTERLY BOUNDARY OF
SAID PARCEL IV ABOVE, AND ALSO AS SHOWN ON THE AFORESAID PARCEL MAP.
-2-
FORM OF ENVIRONMENTAL INDEMNITY
This ENVIRONMENTAL INDEMNITY (this "INDEMNITY") is entered into as of
April 19, 2002, by THE CHALONE WINE GROUP, LTD. (the "COMPANY"), EDNA VALLEY
VINEYARD ("EDNA"), CANOE RIDGE VINEYARD, L.L.C. ("CANOE LLC"), SHW EQUITY CO.
("SHW"), STATON HILLS WINERY COMPANY LIMITED ("STATON") and CANOE RIDGE WINERY,
INC. ("CANOE WINERY") (each an "INDEMNITOR" and, collectively, the
"INDEMNITORS") to and for the benefit of each of the Purchasers named in
Schedule A to the Note Purchase Agreement.
The Purchasers and the Company are parties to that certain Amended and Restated
Note Purchase Agreement dated as of April 19, 2002 (as amended, restated,
modified, supplemented, renewed or extended from time to time, the "NOTE
PURCHASE AGREEMENT"). Edna, Canoe LLC and SHW, are each parties to separate
Amended and Restated Guaranty Agreements dated as of April 19, 2002 ("AMENDED
AND RESTATED GUARANTEES") and Canoe Winery and Staton are each parties to
separate Guaranty Agreements dated as of April 19, 2002 ("ORIGINAL GUARANTEES"
and together with the Amended and Restated Guarantees, the "GUARANTEES"), in
favor of the Purchasers pursuant to which they have guaranteed the payment and
performance of the Company's obligations under and in connection with the Note
Purchase Agreement as provided in such Guarantees.
The obligations of the Company and the Guarantors under the Note Purchase
Agreement, the Guarantees and the other Loan Documents are secured by, among
other things, certain deeds of trust and mortgages covering the premises
described on EXHIBIT A hereto and the improvements now or hereafter existing
thereon (such premises and improvements, the "PROPERTY").
It is a condition precedent to the borrowings and issuances of Notes under the
Note Purchase Agreement that the Indemnitors indemnify the Purchasers as set
forth herein. This Indemnity is secured by the personal property Collateral
covered by the Collateral Documents, but not by the Property.
NOW, THEREFORE, in consideration of the foregoing and other valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
each Indemnitor agrees as follows:
DEFINITIONS.
"ENVIRONMENTAL LAWS" means all federal, state and local environmental, health or
safety laws, regulations, ordinances, standards, policies, requirements,
rulings, judgments, and rules of common law (including, without limitation, the
Comprehensive Environmental Response, Compensation and Liability Act of 1980, as
amended, 42 U.S.C. ss.9601 ET SEQ., the Hazardous Materials Transportation Act,
49 U.S.C.ss.1802, ET SEQ., The
EXHIBIT B
(to the Note Purchase Agreement)
Resource Conservation and Recovery Act, 42 U.S.C.ss.6901 ET SEQ., the Toxic
Substance Control Act of 1976, as amended, 15 U.S.C.ss.2601 ET SEQ., the Clean
Water Act, 33 U.S.C.ss.466 et seq., as amended, and the Clean Air Act, 42
U.S.C.ss.7401 ET SEQ.).
"HAZARDOUS SUBSTANCES" means any toxic or hazardous wastes, pollutants or
substances, including, without limitation, asbestos, PCBs, petroleum products
and by-products, substances defined or listed as "hazardous substances" or
"toxic substances" or similarly identified in or pursuant to any Environmental
Laws and any hazardous or toxic substance or pollutant regulated under any other
applicable federal, state or local laws.
Capitalized terms used herein (including in the preamble and recitals of this
Indemnity) and not otherwise defined herein shall have the meanings ascribed to
such terms in the Note Purchase Agreement.
INDEMNIFICATION. The Indemnitors, jointly and severally, hereby agree to
indemnify and hold the Purchasers harmless from and against, and shall reimburse
the Purchasers for, any and all loss, claim, liability, damage, injunctive
relief, injuries to person, property, collateral or natural resources, cost,
expense (including, without limitation, reasonable fees and allocated costs of
internal and external counsel, expert witnesses and other professionals or
experts advising the Purchasers), action or cause of action, arising in
connection with the release or presence of any Hazardous Substance at or on any
or all of the Property, whether foreseeable or unforeseeable, regardless of the
source of such release or when such release occurred or such presence is
discovered. The foregoing indemnity includes, without limitation, (a) all costs
in law or in equity of removal, remediation of any kind, and disposal of such
Hazardous Substances, (b) all cost of determining whether any or all of the
Property is in compliance, and causing any or all of the Property to be in
compliance, with all applicable Environmental Laws, (c) all costs associated
with claims for damages to persons, property, or natural resources, and (d) each
Purchaser's reasonable attorneys' fees (including the allocated costs of
internal legal counsel) and consultants' fees and court costs.
SECURITY. This Indemnity is secured by the personal property Collateral covered
by the Collateral Documents, but not by the Property. The obligations of the
Indemnitors under this Indemnity shall survive the foreclosure of any Deed of
Trust and satisfaction of the other Obligations, and shall be independent of any
other Obligations. The rights of the Purchasers under this Indemnity shall be in
addition to any other rights and remedies of the Purchasers under any Guaranty,
the Note Purchase Agreement or any other Loan Document or at law or equity.
Notwithstanding any other provision of this Indemnity or any other instrument or
agreement to the contrary, the Purchasers shall at all times have the maximum
rights and remedies available at any time under any applicable law or equitable
principal of any state (including, without limitation, under Chapter 70.105D of
the Revised Code of Washington, or any other similar laws or equitable
principals of any state).
SURVIVAL. If any Purchaser takes title to any or all of the Property through
foreclosure or deed in lieu of foreclosure of any or all of the Deeds of Trust,
this Indemnity shall not apply to any loss or costs incurred by any Purchaser as
a direct result of affirmative actions of any Purchaser as
B-2
owner and operator of any or all such Property after Purchaser has acquired
title to any or all such Property, which actions are the sole and direct cause
of damage resulting from the introduction and initial release of a Hazardous
Substance at any or all such Property; provided, however, this Indemnity shall
otherwise remain in full force and effect, including, without limitation, (a)
with respect to Hazardous Substances which are discovered at any or all of the
Property by any Purchaser or any other Person after the date any Purchaser
acquires title to any or all such Property, but which were not actually
introduced at any or all such Property by any Purchaser, and (b) with respect to
the continuing migration or release of any Hazardous Substance previously
introduced at any or all of the Property. This Indemnity is intended to be
operable under 42 U.S.C. ss.9607(e)(1) and any successor section thereof.
INTEREST. Any amount claimed hereunder by the Purchasers and not paid by the
Indemnitors within thirty (30) days after written demand from any Purchaser with
an explanation of the amounts claimed, shall bear interest at a rate per annum
equal to the highest interest rate set forth in the Note Purchase Agreement.
SUCCESSORS AND ASSIGNS. This Indemnity shall inure to the benefit of each of the
Purchasers and each Purchaser's successors and assigns, and shall be binding
upon each Indemnitor's successors and assigns, provided that no Indemnitor may
assign its obligations under this Indemnity without the prior written consent of
the Purchasers.
NO WAIVER; CONSENTS. Each waiver hereunder by the Purchasers must be in writing
and signed by the Purchasers, and no waiver shall be construed as a continuing
waiver. No waiver shall be implied from any delay or failure by the Purchasers
to take action on account of any default of any Indemnitor. Consent by the
Purchasers to any act or omission by any Indemnitor shall not be construed as a
consent to any other or subsequent act or omission or as a waiver of the
requirement for the Purchasers' consent to be obtained in any future or other
instance.
GOVERNING LAW. This Indemnity shall be governed and construed in accordance with
the laws of the State of New York.
JOINT AND SEVERAL OBLIGATIONS. If this Indemnity is executed by more than one
person or entity, the liability of the undersigned hereunder shall be joint and
several.
COSTS, EXPENSES AND ATTORNEYS' FEES. The Indemnitors agree to reimburse the
Purchasers for all reasonable costs, out-of-pocket expenses and attorneys' fees
(including the allocated costs of internal legal counsel) expended or incurred
by each Purchaser in preparation of or enforcing (or attempted enforcement of)
this Indemnity, in actions for declaratory relief in any way related to this
Indemnity, or in collecting any sum which becomes due from an Indemnitor to the
Purchasers under this Indemnity.
NOTICES. Any notices, requests or responses to be made or to be given pursuant
to the terms of this Indemnity shall be made in accordance with the Note
Purchase Agreement.
B-3
SEVERABILITY. Whenever possible, each provision of this Indemnity shall be
interpreted in such manner as to be effective and valid under all applicable
laws and regulations. If, however, any provision of this Indemnity shall be
prohibited by or invalid under any such law or regulation in any jurisdiction,
it shall, as to such jurisdiction, be deemed modified to conform to the minimum
requirements of such law or regulation, or, if for any reason it is not deemed
so modified, it shall be ineffective and invalid only to the extent of such
prohibition or invalidity without affecting the remaining provisions of this
Indemnity or the validity or effectiveness of such provision in any other
jurisdiction.
COUNTERPARTS. This Indemnity may be executed in two or more counterparts, and by
different parties on separate counterparts, each of which shall constitute an
original, but all of which, when taken together, shall constitute but one
agreement.
[Remainder of this page intentionally left blank.]
B-4
IN WITNESS WHEREOF, this Indemnity is executed as of the day and year
first above written.
THE CHALONE WINE GROUP, LTD.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
EDNA VALLEY VINEYARD
By:_______________________________________
Name:_____________________________________
Title:____________________________________
CANOE RIDGE VINEYARD, L.L.C.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
SHW EQUITY CO.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
CANOE RIDGE WINERY, INC.
By:_______________________________________
Name:_____________________________________
Title:____________________________________
STATON HILLS WINERY COMPANY LIMITED
By:_______________________________________
Name:_____________________________________
Title:____________________________________
FARM CREDIT SERVICES OF AMERICA, PCA
By:_______________________________________
Name:_____________________________________
Title:____________________________________
AgSTAR FINANCIAL SERVICES, PCA
D/B/A FARM CREDIT SERVICES
COMMERCIAL FINANCE GROUP
By:_______________________________________
Name:_____________________________________
Title:____________________________________
FORM OF PATENT AND TRADEMARK SECURITY AGREEMENT
See attached.
EXHIBIT C
(to Note Purchase Agreement)
PATENT AND TRADEMARK SECURITY AGREEMENT
THIS PATENT AND TRADEMARK SECURITY AGREEMENT (this "Agreement"), dated
as of April 19, 2002, is made between The Chalone Wine Group, Ltd., a California
corporation (the "Borrower"), Canoe Ridge Vineyard, L.L.C., a Washington limited
liability company, SHW Equity Co., a Washington corporation, and Staton Hills
Winery Company Limited, a Washington corporation, Canoe Ridge Winery, Inc., a
Washington corporation (each a "Grantor" and together with the Borrower, the
"Grantors"), and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
International", New York Branch ("Rabobank"), as collateral agent for the Agent,
the Lenders and the Noteholders referred to below (in such capacity, the
"Collateral Agent").
The Borrower, certain lenders and Rabobank, as issuer of letters of
credit (in such capacity, the "Issuing Lender"), as swingline lender (in such
capacity, the "Swingline Lender") and as administrative agent (in such capacity,
the "Agent"), are parties to a Credit Agreement dated as of April 19, 2002 (as
amended, restated, modified, supplemented, renewed or extended from time to
time, the "Credit Agreement") pursuant to which the Lenders have made available
to the Borrower a revolving credit facility and term loan facility, as provided
therein.
The Borrower and certain noteholders are parties to an Amended and
Restated Note Purchase Agreement dated as of April 19, 2002 (as amended,
restated, modified, supplemented, renewed or extended from time to time, the
"Note Agreement") pursuant to which the Borrower and such noteholders have
amended and restated the $30,000,000 aggregate principal amount of the
Borrower's Senior Guaranteed Notes, Series A, B and C, Due September 15, 2010
originally issued and sold to such noteholders on September 15, 2000
(collectively, the "Private Placement Notes"), as provided therein.
The Grantors have also entered into a Security Agreement dated as of
April 19, 2002 (as amended, restated, modified, supplemented, renewed or
extended from time to time, the "Security Agreement") pursuant to which each
Grantor has granted a security interest in substantially all of its personal
property in favor of the Collateral Agent, for itself and for the benefit of the
Agent, the Lenders and the Noteholders.
It is a condition precedent to the borrowings and the issuance of
letters of credit under the Credit Agreement and the amendment and restatement
of the Private Placement Notes as provided in the Note Agreement that each
Grantor enter into this Agreement and grant to the Collateral Agent, for itself
and for the ratable benefit of the Agent, the Lenders and the Noteholders, the
security interests hereinafter provided to secure the obligations of the
Grantors as described below.
The Collateral Agent, the Agent, the Lenders, the Noteholders, the
Grantors and certain of their affiliates have entered into an Intercreditor and
Collateral Agency Agreement dated as of April 19, 2002 (as amended, restated,
supplemented or otherwise modified from time to time, the "Intercreditor
Agreement") pursuant to which, among other things, the Lenders and Noteholders
have agreed (i) to the appointment of Rabobank as Collateral Agent and (ii) to
the relative priority of their security interests in the Collateral and the
manner and order in which
certain rights and remedies of the Lenders and Noteholders may be exercised, all
as provided therein.
Accordingly, the parties hereto agree as follows:
SECTION 1 DEFINITIONS; INTERPRETATION.
(a) TERMS DEFINED IN CREDIT AGREEMENT. All capitalized terms used in
this Agreement (including in the preamble and recitals of this Agreement) and
not otherwise defined herein shall have the meanings assigned to them in the
Credit Agreement.
(b) CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings:
"COLLATERAL" has the meaning set forth in Section 2.
"CREDIT FACILITY SECURED OBLIGATIONS" means the indebtedness,
liabilities and other obligations of the Grantors to the Collateral Agent, the
Agent and the Lenders under or in connection with the Credit Agreement, the
Revolving Notes, the Term Notes, the Guaranties, the Letters of Credit and the
other Loan Documents, including all unpaid principal of the Loans, all unpaid
drawings under Letters of Credit, all interest accrued thereon, all fees due
under the Credit Agreement and the other Loan Documents and all other amounts
payable by any Grantor to the Collateral Agent, the Agent and the Lenders
thereunder or in connection therewith, whether now existing or hereafter
arising, and whether due or to become due, absolute or contingent, liquidated or
unliquidated, determined or undetermined.
"LENDERS" means the lenders from time to time party to the Credit
Agreement as "Lenders". References to the Lenders shall include references to
Rabobank in its capacity as the Issuing Lender and the Swingline Lender; for
purposes of clarification only, to the extent that Rabobank may have any rights
or obligations in addition to those of the Lenders due to its status as the
Issuing Lender or the Swingline Lender, its status as such will be specifically
referenced.
"NOTEHOLDERS" means the noteholders from time to time holding one or
more of the Private Placement Notes and in whose name such Private Placement
Note(s) are registered in the register maintained by the Borrower pursuant to
the Note Agreement.
"PRIVATE PLACEMENT SECURED OBLIGATIONS" means the indebtedness,
liabilities and other obligations of the Grantors to the Collateral Agent and
the Noteholders under or in connection with the Note Agreement, the Private
Placement Notes, the Subsidiary Guarantee Agreement (as defined in the Note
Agreement) and the other Loan Documents (as defined in the Note Agreement),
including all unpaid principal of the Private Placement Notes, all interest
accrued thereon, all fees due under the Note Agreement and the other Loan
Documents (as so defined) and all other amounts payable by any Grantor to the
Collateral Agent and the Noteholders thereunder or in connection therewith,
whether now existing or hereafter arising, and whether due or to become due,
absolute or contingent, liquidated or unliquidated, determined or undetermined.
"PTO" means the United States Patent and Trademark Office.
2.
"SECURED OBLIGATIONS" means the Credit Facility Secured Obligations and
the Private Placement Secured Obligations.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York.
(c) TERMS DEFINED IN UCC. Where applicable and except as otherwise
defined herein, terms used in this Agreement shall have the meanings assigned to
them in the UCC.
(d) INTERPRETATION. The rules of interpretation set forth in Section
1.03 of the Credit Agreement shall be applicable to this Agreement and are
incorporated herein by this reference.
SECTION 2 SECURITY INTEREST.
(a) GRANT OF SECURITY INTEREST. As security for the payment and
performance of the Secured Obligations, each Grantor hereby assigns, transfers
and conveys to the Collateral Agent, and grants a security interest in and
mortgage to the Collateral Agent, for itself and on behalf of and for the
ratable benefit of the Agent, the Noteholders and the Lenders, all of the
Grantor's right, title and interest in, to and under the following property, in
each case whether now or hereafter existing or arising or in which such Grantor
now has or hereafter owns, acquires or develops an interest and wherever located
(collectively, the "Collateral"):
(i) all patents and patent applications, domestic or foreign, all
licenses relating to any of the foregoing and all income and royalties with
respect to any licenses (including, without limitation, such patents and patent
applications as described in SCHEDULE A), all rights to sue for past, present or
future infringement thereof, all rights arising therefrom and pertaining thereto
and all reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof;
(ii) all state (including common law),federal and foreign trademarks,
service marks and trade names, and applications for registration of such
trademarks, service marks and trade names, all licenses relating to any of the
foregoing and all income and royalties with respect to any licenses (including,
without limitation, such marks, names and applications as described in SCHEDULE
B), whether registered or unregistered and wherever registered, all rights to
sue for past, present or future infringement or unconsented use thereof, all
rights arising therefrom and pertaining thereto and all reissues, extensions and
renewals thereof;
(iii) the entire goodwill of or associated with the businesses now or
hereafter conducted by each Grantor connected with and symbolized by any of the
aforementioned properties and assets;
(iv) all commercial tort claims associated with or arising out of any
of the aforementioned properties and assets;
(v) all accounts, all intangible intellectual or other similar
property and other general intangibles associated with or arising out of any of
the aforementioned properties and
3.
assets and not otherwise described above, including all license payments and
payments under insurance (whether or not the Collateral Agent is the loss payee
thereof) or any indemnity, warranty or guaranty payable by reason of loss or
damage to or otherwise with respect to the foregoing Collateral; and
(vi) all products, proceeds and supporting obligations of or with
respect to any and all of the foregoing Collateral.
(b) CONTINUING SECURITY INTEREST. Each Grantor agrees that this
Agreement shall create a continuing security interest in the Collateral which
shall remain in effect until terminated in accordance with Section 20.
SECTION 3 SUPPLEMENT TO SECURITY AGREEMENT. The terms and provisions of
this Agreement are intended as a supplement to the terms and provisions of the
Security Agreement. Each Grantor acknowledges that the rights and remedies of
the Collateral Agent with respect to the security interest in the Collateral
granted hereby are more fully set forth in the Security Agreement and the other
Loan Documents and all such rights and remedies are cumulative.
SECTION 4 REPRESENTATIONS AND WARRANTIES. Each Grantor represents and
warrants to the Agent, the Noteholders, each Lender and the Collateral Agent
that:
(a) PATENTS. A true and correct list of all of the existing
Collateral consisting of U.S. patents and patent applications and/or
registrations owned by the Grantor, in whole or in part, is set forth in
SCHEDULE A.
(b) TRADEMARKS. A true and correct list of all of the existing
Collateral consisting of U.S. trademarks, trademark registrations and/or
applications owned by such Grantor, in whole or in part, is set forth in
SCHEDULE B.
SECTION 5 FURTHER ACTS. On a continuing basis, each Grantor shall make,
execute, acknowledge and deliver, and file and record in the proper filing and
recording places, all such instruments and documents, and take all such action
as may be necessary or advisable or may be requested by the Collateral Agent to
carry out the intent and purposes of this Agreement, or for assuring, confirming
or protecting the grant or perfection of the security interest granted or
purported to be granted hereby, to ensure such Grantor's compliance with this
Agreement or to enable the Collateral Agent to exercise and enforce its rights
and remedies hereunder with respect to the Collateral, including any documents
for filing with the PTO and/or any applicable state office. The Collateral Agent
may record this Agreement, an abstract thereof, or any other document describing
the Collateral Agent's interest in the Collateral with the PTO, at the expense
of the Grantors.
SECTION 6 FUTURE RIGHTS. Except as otherwise expressly agreed to in
writing by the Collateral Agent, if and when any Grantor shall obtain rights to
any new patentable inventions or any new trademarks, or become entitled to the
benefit of any of the foregoing, or obtain rights or benefits with respect to
any reissue, division, continuation, renewal, extension or continuation-in-part
of any patents or trademarks, or any improvement of any patent, the provisions
of Section 2 shall automatically apply thereto and such Grantor shall give to
the
4.
Collateral Agent prompt notice thereof. Each Grantor shall do all things deemed
necessary or advisable by the Collateral Agent to ensure the validity,
perfection, priority and enforceability of the security interests of the
Collateral Agent in such future acquired Collateral. Each Grantor hereby
authorizes the Collateral Agent to modify, amend, or supplement the Schedules
hereto and to reexecute this Agreement from time to time on such Grantor's
behalf and as its attorneyin- fact to include any such future Collateral and to
cause such reexecuted Agreement or such modified, amended or supplemented
Schedules to be filed with the PTO.
SECTION 7 COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. The Collateral
Agent shall have the right to, in the name of each Grantor, or in the name of
the Collateral Agent or otherwise, without notice to or assent by any Grantor,
and each Grantor hereby constitutes and appoints the Collateral Agent (and any
of the Collateral Agent's officers or employees or agents designated by the
Collateral Agent) as its true and lawful attorney-in-fact, with full power and
authority, and hereby authorizes the Collateral Agent: (i) to sign and file in
the name of such Grantor any financing statement (with or without such Grantor's
signature) or other instrument and any modification, supplement or amendment to
this Agreement (including any described in Section 6), and to sign the name of
such Grantor on all or any of such documents or instruments and perform all
other acts that the Collateral Agent deems necessary or advisable in order to
perfect or continue perfected, maintain the priority or enforceability of or
provide notice of the Collateral Agent's security interest in, the Collateral;
and (ii) to execute any and all other documents and instruments, and to perform
any and all acts and things for and on behalf of such Grantor, which the
Collateral Agent may deem necessary or advisable to maintain, preserve and
protect the Collateral and to accomplish the purposes of this Agreement,
including (A) to defend, settle, adjust or institute any action, suit or
proceeding with respect to the Collateral, (B) to assert or retain any rights
under any license agreement for any of the Collateral, including any rights of
such Grantor arising under Section 365(n) of the Bankruptcy Code, and, (C) after
the occurrence and during the continuance of any Event of Default, to execute
any and all applications, documents, papers and instruments for the Collateral
Agent to use the Collateral, to grant or issue any exclusive or non-exclusive
license with respect to any Collateral, and to assign, convey or otherwise
transfer title in or dispose of the Collateral; provided, however, that in no
event shall the Collateral Agent have the unilateral power, prior to the
occurrence of an Event of Default, to assign any of the Collateral to any
Person, including itself, without the Grantor's written consent. The foregoing
power of attorney is coupled with an interest and irrevocable so long as the
Lenders have any Commitments or the Secured Obligations have not been paid and
performed in full. Each Grantor hereby ratifies, to the extent permitted by law,
all that the Collateral Agent shall lawfully and in good faith do or cause to be
done by virtue of and in compliance with this Section 7.
SECTION 8 COLLATERAL AGENT PERFORMANCE OF GRANTOR OBLIGATIONS. The
Collateral Agent may perform or pay any obligation which any Grantor has agreed
to perform or pay under or in connection with this Agreement, and the Grantor
shall reimburse the Collateral Agent on demand for any amounts paid by the
Collateral Agent pursuant to this Section 8.
SECTION 9 COLLATERAL AGENT'S DUTIES. Notwithstanding any provision
contained in this Agreement, the Collateral Agent shall have no duty to exercise
any of the rights, privileges or powers afforded to it and shall not be
responsible to any Grantor or any other Person for any failure to do so or delay
in doing so. Except for and the accounting for moneys
5.
actually received by the Collateral Agent hereunder, the Collateral Agent shall
have no duty or liability to exercise or preserve any rights, privileges or
powers pertaining to the Collateral.
SECTION 10 REMEDIES. Upon the occurrence and during the continuance of
any Event of Default, the Collateral Agent shall have, in addition to all other
rights and remedies granted to it in this Agreement, the Credit Agreement or any
other Loan Document, all rights and remedies of a secured party under the UCC
and other applicable laws. Without limiting the generality of the foregoing,
each Grantor agrees that the Collateral Agent shall at all times have such
royalty free licenses, to the extent permitted by law, for any Collateral that
is reasonably necessary to permit the exercise of any of the Agent's or the
Collateral Agent's rights or remedies upon or after the occurrence of an Event
of Default. In addition to and without limiting any of the foregoing, upon the
occurrence and during the continuance of an Event of Default, the Collateral
Agent shall have the right but shall in no way be obligated to bring suit, or to
take such other action as the Collateral Agent deems necessary or advisable, in
the name of any Grantor or the Collateral Agent, to enforce or protect any
Collateral, and any license thereunder, in which event the Grantor shall, at the
request of the Collateral Agent, do any and all lawful acts and execute any and
all documents required by the Collateral Agent in aid of such enforcement.
SECTION 11 NOTICES. All notices and other communications provided for
hereunder shall be given as provided in Section 13.02 of the Credit Agreement.
SECTION 12 NO WAIVER; CUMULATIVE REMEDIES. No failure on the part of
the Collateral Agent to exercise, and no delay in exercising, any right, remedy,
power or privilege hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, remedy, power or privilege
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights and remedies under this Agreement
are cumulative and not exclusive of any rights, remedies, powers and privileges
that may otherwise be available to the Agent.
SECTION 13 BINDING EFFECT. This Agreement shall be binding upon, and
shall inure to the benefit of and be enforceable by, the Collateral Agent, the
Agent, the Lenders, the Noteholders and the Grantors and their respective
successors and assigns and shall bind any Person who becomes bound as a debtor
to this Agreement.
SECTION 14 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCEPT AS
REQUIRED BY MANDATORY PROVISIONS OF LAW AND TO THE EXTENT THE VALIDITY OR
PERFECTION OF THE SECURITY INTERESTS HEREUNDER, OR THE REMEDIES HEREUNDER, IN
RESPECT OF ANY COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN
NEW YORK.
SECTION 15 ENTIRE AGREEMENT; AMENDMENT. This Agreement contains the
entire agreement of the parties with respect to the subject matter hereof and
shall not be amended except by the written agreement of the parties as provided
in the Credit Agreement.
6.
SECTION 16 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 17 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute but one and the same agreement.
SECTION 18 INCORPORATION OF PROVISIONS OF THE CREDIT AGREEMENT. To the
extent the Credit Agreement contains provisions of general applicability to the
Loan Documents, including any such provisions contained in Article XIII thereof,
such provisions are incorporated herein by this reference.
SECTION 19 NO INCONSISTENT REQUIREMENTS. Each Grantor acknowledges that
this Agreement and the other Loan Documents may contain covenants and other
terms and provisions variously stated regarding the same or similar matters, and
agrees that all such covenants, terms and provisions are cumulative and all
shall be performed and satisfied in accordance with their respective terms.
SECTION 20 TERMINATION. Upon the termination of the Commitments of the
Lenders, the surrender of the Letters of Credit and payment and performance in
full of all Secured Obligations, the security interests contemplated by this
Agreement shall terminate and the Collateral Agent shall promptly execute and
deliver to each Grantor such documents and instruments reasonably requested by
such Grantor as shall be necessary to evidence termination of all security
interests given by such Grantor to the Collateral Agent hereunder, including
cancellation of this Agreement by written notice from the Collateral Agent to
the PTO.
[SIGNATURE PAGES FOLLOW.]
7.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
THE GRANTORS
THE CHALONE WINE GROUP, LTD.
By:_______________________________________
Name:
Title:
CANOE RIDGE VINEYARD, L.L.C.
By:_______________________________________
Name:
Title:
SHW EQUITY CO.
By:_______________________________________
Name:
Title:
STATON HILLS WINERY COMPANY
LIMITED
By:_______________________________________
Name:
Title:
CANOE RIDGE WINERY, INC.
By:_______________________________________
Name:
Title:
8.
THE COLLATERAL AGENT
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK INTERNATIONAL", NEW
YORK BRANCH, as Collateral Agent
By:_______________________________________
Name:
Title:
By:_______________________________________
Name:
Title:
9.
SCHEDULE A
to the Patent and Trademark Security Agreement
THE CHALONE WINE GROUP, LTD.
ISSUED U.S. PATENTS OF THE GRANTOR
PATENT NO. ISSUE DATE INVENTOR TITLE
A-1.
PENDING U.S. PATENT APPLICATIONS OF THE GRANTOR
SERIAL NO. FILING DATE INVENTOR TITLE
A-2.
SCHEDULE B
to the Patent and Trademark Security Agreement
THE CHALONE WINE GROUP, LTD.
U.S. TRADEMARKS OF THE GRANTOR
REGISTRATION REGISTRATION REGISTERED
NO. DATE FILING DATE OWNER MARK
B-1.
PENDING U.S. TRADEMARK APPLICATIONS OF THE GRANTOR
APPLICATION NO. FILING DATE APPLICANT MARK
B-2.
FORM OF SECURITY AGREEMENT
See attached.
EXHIBIT D
(to Note Purchase Agreement)
THIS SECURITY AGREEMENT (this "Agreement"), dated as of April 19, 2002,
is made among The Chalone Wine Group, Ltd., a California corporation (the
"Borrower"), Canoe Ridge Vineyard, L.L.C., a Washington limited liability
company ("Canoe Ridge"), SHW Equity Co., a Washington corporation ("SHW"),
Staton Hills Winery Company Limited, a Washington corporation ("Staton Hills"),
Canoe Ridge Winery, Inc. a Washington corporation ("CRW") (the Borrower, Canoe
Ridge, CRW, SHW and Staton Hills, individually a "Debtor" and collectively, the
"Debtors") and Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
International", New York Branch ("Rabobank"), as Collateral Agent.
The Borrower, certain lenders and Rabobank, as issuer of letters of
credit (in such capacity, the "Issuing Lender"), as swingline lender (in such
capacity, the "Swingline Lender") and as administrative agent (in such capacity,
the "Agent"), are parties to a Credit Agreement dated as of April 19, 2002 (as
amended, restated, modified, supplemented, renewed or extended from time to
time, the "Credit Agreement") pursuant to which the Lenders have made available
to the Borrower a revolving credit facility and term loan facility, as provided
therein.
The Borrower is also party to those separate and several Note Purchase
Agreements, each dated as of September 15, 2000 (collectively, the "Original
Note Agreements"), entered into by the Borrower with each of the Purchasers
listed on Schedule A thereto, under and pursuant to which the Noteholders
purchased $5,000,000 8.75% Senior Guaranteed Notes, Series A, due September 15,
2010, $10,000,000 Senior Guaranteed Notes, Series B, due September 15, 2010 and
$15,000,000 Senior Guaranteed Notes, Series C, due September 15, 2010
(collectively, the "Original Senior Notes") of the Borrower. The Borrower has
requested that the Noteholders amend and restate the Original Note Agreements,
amend and restate the Original Senior Notes, and the Noteholders are willing to
enter into and execute those certain Amended and Restated Note Purchase
Agreements each dated April 19, 2002 (as the same may hereafter be amended,
modified and/or restated from time to time, collectively, the "Amended and
Restated Note Agreement") and are willing to amend and restate the Original
Senior Notes pursuant to the terms thereof (as so amended, the "Amended and
Restated Senior Secured Notes").
It is a condition precedent to the borrowings and the issuance of
letters of credit under the Credit Agreement and the amendment and restatement
of the Original Senior Notes as provided in the Amended and Restated Note
Agreement and the Amended and Restated Senior Notes that each Debtor enter into
this Agreement and grant to the Collateral Agent, for itself and for the ratable
benefit of the Agent, the Lenders and the Noteholders, the security interests
hereinafter provided to secure the obligations of the Debtors as described
below.
The Collateral Agent, the Agent, the Lenders, the Noteholders and the
Debtors have entered into an Intercreditor and Collateral Agency Agreement dated
as of April 19, 2002 (as amended, restated, supplemented or otherwise modified
from time to time, the "Intercreditor Agreement") pursuant to which, among other
things, the Lenders and Noteholders have agreed (i) to the appointment of
Rabobank as Collateral Agent and (ii) to the relative priority of their security
interests in the Collateral and the manner and order in which certain rights and
remedies of the Lenders and Noteholders may be exercised, all as provided
therein.
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Accordingly, the parties hereto agree as follows:
SECTION 1 DEFINITIONS; INTERPRETATION.
(a) TERMS DEFINED IN CREDIT AGREEMENT. All capitalized terms used in
this Agreement (including in the preamble and recitals hereof) and not otherwise
defined herein shall have the meanings assigned to them in the Credit Agreement.
(b) CERTAIN DEFINED TERMS. As used in this Agreement (including in the
preamble and recitals hereof), the following terms shall have the following
meanings:
"ACCOUNTS" means any and all of any Debtor's accounts, as such term is
defined in Section 9-102 of the UCC.
"APPRAISED WINERY EQUIPMENT" means the equipment (including, without
limitation, all crushing, pressing, processing, bottling and lab equipment,
pumps, stainless steel cooperage and wood barrels) which is identified in the
appraisal reports delivered by or on behalf of the Borrower to the Agent and the
Noteholders prior to the date hereof in respect of the Acacia, Carmenet,
Chalone, Canoe Ridge and Sageland vineyard properties and improvements.
"BOOKS" means all books, records and other written, electronic or other
documentation in whatever form maintained now or hereafter by or for any Debtor
in connection with the ownership of its assets or the conduct of its business or
evidencing or containing information relating to the Collateral, including: (i)
ledgers; (ii) records indicating, summarizing, or evidencing any Debtor's assets
(including Inventory and Rights to Payment), business operations or financial
condition; (iii) computer programs and software; (iv) computer discs, tapes,
files, manuals, spreadsheets; (v) computer printouts and output of whatever
kind; (vi) any other computer prepared or electronically stored, collected or
reported information and equipment of any kind; and (vii) any and all other
rights now or hereafter arising out of any contract or agreement between any
Debtor and any service bureau, computer or data processing company or other
Person charged with preparing or maintaining any of such Debtor's books or
records or with credit reporting, including with regard to such Debtor's
Accounts.
"BULK WINE" means any and all of any Debtor's bulk wine, whether held
for sale in the bulk wine market or otherwise, and whether or not classified as
"inventory" under Section 9-102 of the UCC.
"CHATTEL PAPER" means any and all of any Debtor's chattel paper, as
such term is defined in Section 9-102 of the UCC, including all Electronic
Chattel Paper.
"COLLATERAL" has the meaning set forth in Section 2.
"COMMERCIAL TORT CLAIMS" means any and all of any Debtor's commercial
tort claims, as such term is defined in Section 9-102 of the UCC, including any
described in Schedule 1.
"CONTROL AGREEMENT" means any control agreement or other agreement with
any securities intermediary, bank or other Person establishing the Collateral
Agent's control with
2
respect to any Deposit Accounts, Letter-of-Credit Rights or Investment Property,
for purposes of UCC Sections 9-104, 9-106 and 9-107.
"CREDIT FACILITY SECURED OBLIGATIONS" means the indebtedness,
liabilities and other obligations of the Debtors and Edna Valley to the
Collateral Agent, the Agent, the Lenders and the Indemnified Persons under or in
connection with the Credit Agreement, the Revolving Notes, the Term Notes, the
Guaranties, the Letters of Credit and the other Loan Documents, including all
unpaid principal of the Loans, all unpaid drawings under Letters of Credit, all
interest accrued thereon, all fees due under the Credit Agreement and the other
Loan Documents and all other amounts payable by any Debtor or Edna Valley to the
Collateral Agent, the Agent and the Lenders thereunder or in connection
therewith, whether now existing or hereafter arising, and whether due or to
become due, absolute or contingent, liquidated or unliquidated, determined or
undetermined.
"DEPOSIT ACCOUNT" means any deposit account, as such term is defined in
Section 9-102 of the UCC, maintained by or for the benefit of any Debtor,
whether or not restricted or designated for a particular purpose.
"DOCUMENTS" means any of any Debtor's documents, as such term is
defined in Section 9-102 of the UCC.
"EDNA VALLEY" means Edna Valley Vineyard, a joint venture.
"ELECTRONIC CHATTEL PAPER" means any and all of any Debtor's electronic
chattel paper, as such term is defined in Section 9-102 of the UCC.
"EQUIPMENT" means any and all of any Debtor's equipment, including any
and all fixtures, as such terms are defined in Section 9-102 of the UCC.
"EXCLUDED COLLATERAL" means the personal property listed on Schedule 2,
to the extent such property relates to the Excluded Parcels, if any; PROVIDED,
HOWEVER, that, notwithstanding anything to the contrary herein, the Appraised
Winery Equipment shall not at any time constitute Excluded Collateral; AND
PROVIDED FURTHER that, for the avoidance of doubt, it is agreed and acknowledged
that Bulk Wine and Inventory shall not at any time constitute Excluded
Collateral.
"EXCLUDED PARCEL" means any real property of any Debtor that is not
encumbered by a Deed of Trust.
"FARM PRODUCTS" means any and all of any Debtor's farm products, as
such term is defined in Section 9-102 of the UCC.
"GENERAL INTANGIBLES" means any and all of any Debtor's general
intangibles, as such term is defined in Section 9-102 of the UCC.
"INSTRUMENTS" means any and all of such Debtors' instruments, as such
term is defined in Section 9-102 of the UCC.
3
"INTELLECTUAL PROPERTY COLLATERAL" means the following properties and
assets owned or held by any Debtor or in which any Debtor otherwise has any
interest, now existing or hereafter acquired or arising:
(i) all patents and patent applications, domestic or foreign, all
licenses relating to any of the foregoing and all income and royalties with
respect to any licenses (including such patents, patent applications and patent
licenses as described in Schedule 1), all rights to sue for past, present or
future infringement thereof, all rights arising therefrom and pertaining thereto
and all reissues, divisions, continuations, renewals, extensions and
continuations-in-part thereof;
(ii) all copyrights and applications for copyright, domestic or
foreign, together with the underlying works of authorship (including titles),
whether or not the underlying works of authorship have been published and
whether said copyrights are statutory or arise under the common law, and all
other rights and works of authorship (including the copyrights and copyright
applications described in Schedule 1), all computer programs, computer
databases, computer program flow diagrams, source codes, object codes and all
tangible property embodying or incorporating any copyrights, all licenses
relating to any of the foregoing and all income and royalties with respect to
any licenses, and all other rights, claims and demands in any way relating to
any such copyrights or works, including royalties and rights to sue for past,
present or future infringement, and all rights of renewal and extension of
copyright;
(iii) all state (including common law), federal and foreign trademarks,
service marks and trade names, and applications for registration of such
trademarks, service marks and trade names, all licenses relating to any of the
foregoing and all income and royalties with respect to any licenses (including
such marks, names, applications and licenses as described in Schedule 1),
whether registered or unregistered and wherever registered, all rights to sue
for past, present or future infringement or unconsented use thereof, all rights
arising therefrom and pertaining thereto and all reissues, extensions and
renewals thereof;
(iv) all trade secrets, trade dress, trade styles, logos, other source
of business identifiers, mask-works, mask-work registrations, mask-work
applications, software, confidential information, customer lists, license
rights, advertising materials, operating manuals, methods, processes, know-how,
algorithms, formulae, databases, quality control procedures, product, service
and technical specifications, operating, production and quality control manuals,
sales literature, drawings, specifications, blue prints, descriptions,
inventions, name plates and catalogs;
(v) the entire goodwill of or associated with the businesses now or
hereafter conducted by any Debtor connected with and symbolized by any of the
aforementioned properties and assets; and
(vi) all accounts, all intangible intellectual or other similar
property and other general intangibles associated with or arising out of any of
the aforementioned properties and assets and not otherwise described above.
4
"INVENTORY" means any of any Debtor's inventory, as such term is
defined in Section 9-102 of the UCC.
"INVESTMENT PROPERTY" means any of any Debtor's investment property, as
such term is defined in Section 9-102 of the UCC.
"LENDERS" means the lenders from time to time party to the Credit
Agreement as "Lenders". References to the Lenders shall include references to
Rabobank in its capacity as the Issuing Lender and the Swingline Lender; for
purposes of clarification only, to the extent that Rabobank may have any rights
or obligations in addition to those of the Lenders due to its status as the
Issuing Lender or the Swingline Lender, its status as such will be specifically
referenced. Unless the context otherwise clearly requires, the Lenders shall
include any such Person in its capacity as Swap Provider. Unless the context
otherwise clearly requires, references to any such Person as a Lender shall also
include any of such Person's Affiliates that may at any time of determination be
Swap Providers.
"LETTER-OF-CREDIT RIGHTS" means any and all of any Debtor's
letter-of-credit rights, as such term is defined in Section 9-102 of the UCC.
"NOTEHOLDERS" means the noteholders from time to time holding one or
more of the Amended and Restated Senior Secured Notes and in whose name such
Amended and Restated Senior Secured Note(s) are registered in the register
maintained by the Borrower pursuant to the Amended and Restated Note Agreement.
"Private Placement Secured Obligations" means the indebtedness,
liabilities and other obligations of the Debtors and Edna Valley to the
Collateral Agent and the Noteholders under or in connection with the Amended and
Restated Note Agreement, the Amended and Restated Senior Secured Notes, the
Subsidiary Guarantee Agreement (as defined in the Amended and Restated Note
Agreement) and the other Loan Documents (as defined in the Amended and Restated
Note Agreement), including all unpaid principal of the Amended and Restated
Senior Secured Notes, all interest accrued thereon, all fees due under the
Amended and Restated Note Agreement and the other Loan Documents (as so defined)
and all other amounts payable by any Debtor or Edna Valley to the Collateral
Agent and the Noteholders thereunder or in connection therewith, whether now
existing or hereafter arising, and whether due or to become due, absolute or
contingent, liquidated or unliquidated, determined or undetermined.
"PROCEEDS" means all proceeds, as such term is defined in Section 9-102
of the UCC.
"RIGHTS TO PAYMENT" means any and all of any Debtor's Accounts and any
and all of any Debtor's rights and claims to the payment or receipt of money or
other forms of consideration of any kind in, to and under or with respect to its
Chattel Paper, Documents, General Intangibles, Instruments, Investment Property,
Letter-of-Credit Rights, Proceeds and Supporting Obligations.
"SECURED OBLIGATIONS" means the Credit Facility Secured Obligations and
the Private Placement Secured Obligations.
5
"SUPPORTING OBLIGATIONS" means all supporting obligations, as such term
is defined in Section 9-102 of the UCC.
"UCC" means the Uniform Commercial Code as the same may, from time to
time, be in effect in the State of New York.
(c) TERMS DEFINED IN UCC. Where applicable and except as otherwise
defined herein, terms used in this Agreement shall have the meanings assigned to
them in the UCC.
(d) INTERPRETATION. The rules of interpretation set forth in Section
1.03 of the Credit Agreement shall be applicable to this Agreement and are
incorporated herein by this reference.
SECTION 2 SECURITY INTEREST.
(a) GRANT OF SECURITY INTEREST. As security for the payment and
performance of the Secured Obligations, each Debtor hereby grants to the
Collateral Agent, for itself and on behalf of and for the ratable benefit of the
Agent, the Lenders and the Noteholders, a security interest in all of such
Debtor's right, title and interest in, to and under all of its personal
property, wherever located and whether now existing or owned or hereafter
acquired or arising, including the following property (collectively, the
"Collateral"): (i) all Accounts; (ii) all Chattel Paper; (iii) all Commercial
Tort Claims; (iv) all Deposit Accounts; (v) all Documents; (vi) all Equipment;
(vii) all Farm Products, (viii) all General Intangibles; (ix) all Instruments;
(x) all Inventory; (xi) all Investment Property; (xii) all Letter-of-Credit
Rights; and (xii) all money, all products and Proceeds of any and all of the
foregoing, and all Supporting Obligations of any and all of the foregoing.
Notwithstanding the foregoing, except for fixtures (as provided in Section 9-313
of the UCC), such grant of a security interest shall not extend to, and the term
"Collateral" shall not include, any asset which would be real property under the
law of the jurisdiction in which it is located or any Excluded Collateral.
(b) DEBTOR REMAINS LIABLE. Anything herein to the contrary
notwithstanding, (i) each Debtor shall remain liable under any contracts,
agreements and other documents included in the Collateral, to the extent set
forth therein, to perform all of its duties and obligations thereunder to the
same extent as if this Agreement had not been executed, (ii) the exercise by the
Collateral Agent of any of the rights hereunder shall not release such Debtor
from any of its duties or obligations under such contracts, agreements and other
documents included in the Collateral, and (iii) the Collateral Agent shall not
have any obligation or liability under any contracts, agreements and other
documents included in the Collateral by reason of this Agreement, nor shall the
Collateral Agent be obligated to perform any of the obligations or duties of
such Debtor thereunder or to take any action to collect or enforce any such
contract, agreement or other document included in the Collateral hereunder.
(c) CONTINUING SECURITY INTEREST. Each Debtor agrees that this
Agreement shall create a continuing security interest in the Collateral which
shall remain in effect until terminated in accordance with Section 22.
SECTION 3 PERFECTION AND PRIORITY.
6
(a) FINANCING STATEMENTS. Each Debtor shall execute and deliver to the
Collateral Agent concurrently with the execution of this Agreement, and such
Debtor hereby authorizes the Collateral Agent to file (with or without such
Debtor's signature), at any time and from time to time thereafter, all financing
statements, continuation financing statements, termination statements, security
agreements relating to the Intellectual Property Collateral, if any,
assignments, fixture filings, affidavits, reports, notices and other documents
and instruments, in form satisfactory to the Collateral Agent, and take all
other action, as the Collateral Agent may request, to perfect and continue
perfected, maintain the priority of or provide notice of the Collateral Agent's
security interest in the Collateral and to accomplish the purposes of this
Agreement. Without limiting the generality of the foregoing, each Debtor
ratifies and authorizes the filing by the Collateral Agent of any financing
statements filed prior to the date hereof.
(b) BAILEES. Any Person (other than the Collateral Agent) at any time
and from time to time holding all or any portion of the Collateral shall be
deemed to, and shall, hold the Collateral as the agent of, and as pledge holder
for, the Collateral Agent. At any time and from time to time, the Collateral
Agent may give notice to any such Person holding all or any portion of the
Collateral that such Person is holding the Collateral as the agent and bailee
of, and as pledge holder for, the Collateral Agent, and obtain such Person's
written acknowledgment thereof. Without limiting the generality of the
foregoing, such Debtor will join with the Collateral Agent in notifying any
Person who has possession of any Collateral of the Collateral Agent's security
interest therein and obtaining an acknowledgment from such Person that it is
holding the Collateral for the benefit of the Collateral Agent.
(c) CONTROL. Each Debtor will cooperate with the Collateral Agent in
obtaining control (as defined in the UCC) of Collateral consisting of any
Deposit Accounts, Electronic Chattel Paper, Investment Property or
Letter-of-Credit Rights.
SECTION 4 REPRESENTATIONS AND WARRANTIES. In addition to the
representations and warranties of the Debtors set forth in the Credit Agreement,
which are incorporated herein by this reference, each Debtor represents and
warrants to the Agent, each Lender, each Noteholder and the Collateral Agent
that:
(a) LOCATION OF CHIEF EXECUTIVE OFFICE AND COLLATERAL. Its chief
executive office and principal place of business (as of the date of this
Agreement) is located at the address set forth in Schedule 1; and all other
locations (as of the date of this Agreement) where such Debtor conducts business
or Collateral is kept are set forth in Schedule 1.
(b) LOCATIONS OF BOOKS. All locations where Books pertaining to the
Rights to Payment are kept, including all equipment necessary for accessing such
Books and the names and addresses of all service bureaus, computer or data
processing companies and other Persons keeping any Books or collecting Rights to
Payment for such Debtor, are set forth in Schedule 1.
(c) JURISDICTION OF ORGANIZATION AND NAMES. Each Debtor's jurisdiction
of organization is set forth in Schedule 1; and each Debtor's exact legal name
is as set forth in the first paragraph of this Agreement. All trade names and
trade styles under which any Debtor presently conducts its business operations
are set forth in Schedule 1, and, except as set forth in Schedule 1, each Debtor
has not, at any time in the past: (i) been known as or used any other
7
corporate, trade or fictitious name; (ii) changed its name; (iii) been the
surviving or resulting corporation in a merger or consolidation; or (iv)
acquired through asset purchase or otherwise any business of any Person.
(d) COLLATERAL. Each Debtor has rights in or the power to transfer the
Collateral, and such Debtor is, and, except as permitted by Section 5(i), will
continue to be, the sole and complete owner of the Collateral (or, in the case
of after-acquired Collateral, at the time such Debtor acquires rights in such
Collateral, will be the sole and complete owner thereof), free from any Lien
other than Permitted Liens.
(e) ENFORCEABILITY; PRIORITY OF SECURITY INTEREST. (i) This Agreement
creates a security interest which is enforceable against the Collateral in which
any Debtor now has rights and will create a security interest which is
enforceable against the Collateral in which any Debtor hereafter acquires rights
at the time such Debtor acquires any such rights, subject to the Permitted Liens
and the Intercreditor Agreement; and (ii) the Collateral Agent has a perfected
and first priority security interest in the Collateral in which any Debtor now
has rights, and will have a perfected and first priority security interest in
the Collateral in which such Debtor hereafter acquires rights at the time such
Debtor acquires any such rights, in each case securing the payment and
performance of the Secured Obligations and subject to Permitted Liens and the
Intercreditor Agreement.
(f) OTHER FINANCING STATEMENTS. Other than (i) financing statements
disclosed to the Agent, the Noteholders and the Lenders in writing, and (ii)
financing statements in favor of the Collateral Agent on behalf of itself, the
Agent, the Lenders and the Noteholders, no effective financing statement naming
any Debtor as debtor, assignor, grantor, mortgagor, pledgor or the like and
covering all or any part of the Collateral is on file in any filing or recording
office in any jurisdiction.
(g) RIGHTS TO PAYMENT.
(i) The Rights to Payment represent valid, binding and enforceable
obligations of the account debtors or other Persons obligated thereon,
representing undisputed, bona fide transactions completed in accordance with the
terms and provisions contained in any documents related thereto, and are and
will be genuine, free from Liens, and not subject to any adverse claims,
counterclaims, setoffs, defaults, disputes, defenses, discounts, retainages,
holdbacks or conditions precedent of any kind or character, except to the extent
reflected by any Debtor's reserves for uncollectible Rights to Payment or to the
extent, if any, that such account debtors or other Persons may be entitled to
normal and ordinary course trade discounts, returns, adjustments and allowances
in accordance with Section 5(m), or as otherwise disclosed to the Collateral
Agent, the Agent, the Lenders and the Noteholders in writing;
(ii) to the best of each Debtor's knowledge and belief, all account
debtors and other obligors on the Rights to Payment are solvent and generally
paying their debts as they come due;
8
(iii) all Rights to Payment comply with all applicable laws concerning
form, content and manner of preparation and execution, including where
applicable any federal or state consumer credit laws;
(iv) no Debtor has assigned any of its rights under the Rights to
Payment except as provided in this Agreement or as set forth in the other Loan
Documents;
(v) with respect to the Rights to Payment constituting Eligible
Receivables, except as disclosed in writing to the Agent and the Lenders, no
Debtor has any knowledge that any of the criteria for eligibility are not or are
no longer satisfied;
(vi) all statements made, all unpaid balances and all other information
in the Books and other documentation relating to the Rights to Payment are true
and correct and in all respects what they purport to be; and
(vii) no Debtor has any knowledge of any fact or circumstance which
would impair the validity or collectibility of any of the Rights to Payment.
(h) INVENTORY. No Inventory or Farm Products is stored with any bailee
or warehouseman or similar Person or on any premises leased to any Debtor, nor
has any Inventory or Farm Products been consigned to any Debtor or consigned by
any Debtor to any Person or is held by any Debtor for any Person under any "bill
and hold" or other arrangement, except as set forth in Schedule 1; and with
respect to the Inventory constituting Eligible Inventory, except as disclosed in
writing to the Agent and the Lenders, no Debtor has any knowledge that any of
the criteria for eligibility are not or are no longer satisfied.
(i) INTELLECTUAL PROPERTY.
(i) Except as set forth in Schedule 1, no Debtor (directly or through
any Subsidiary) owns, possesses or uses under any licensing arrangement any
patents, copyrights, trademarks, service marks or trade names, nor is there
currently pending before any Governmental Authority any application for
registration of any patent, copyright, trademark, service mark or trade name;
(ii) all patents, copyrights, trademarks, service marks and trade names
are subsisting and have not been adjudged invalid or unenforceable in whole or
in part;
(iii) all maintenance fees required to be paid on account of any
patents have been timely paid for maintaining such patents in force, and, to the
best of each Debtor's knowledge, each of the patents is valid and enforceable
and each Debtor has notified the Agent, the Lenders and the Noteholders in
writing of all prior art (including public uses and sales) of which it is aware;
(iv) to the best of each Debtor's knowledge after due inquiry, no
material infringement or unauthorized use presently is being made of any
Intellectual Property Collateral by any Person;
9
(v) each Debtor is the sole and exclusive owner of its Intellectual
Property Collateral and the past, present and contemplated future use of such
Intellectual Property Collateral by such Debtor has not, does not and will not
infringe or violate any right, privilege or license agreement of or with any
other Person; and
(vi) each Debtor owns, has material rights under, is a party to, or an
assignee of a party to all material licenses, patents, patent applications,
copyrights, service marks, trademarks, trademark applications, trade names and
all other Intellectual Property Collateral necessary to continue to conduct its
business as heretofore conducted.
(j) EQUIPMENT.
(i) None of the Equipment constituting Collateral or other Collateral
is affixed to real property, except Collateral with respect to which each Debtor
has supplied the Collateral Agent, the Agent, the Lenders and the Noteholders
with all information and documentation necessary to make all fixture filings
required to perfect and protect the priority of the Collateral Agent's security
interest in all such Collateral which may be fixtures as against all Persons
having an interest in the premises to which such property may be affixed;
(ii) none of the Equipment constituting Collateral is leased from or to
any Person, except as set forth on Schedule 1 or as otherwise disclosed to the
Collateral Agent, the Agent, the Lenders and the Noteholders in writing;
(iii) the Appraised Winery Equipment has an aggregate appraised value
of not less than $6,590,000, as set forth in the appraisal reports previously
delivered to the Agent and the Noteholders prior to the date hereof; and
(iv) the Appraised
Winery Equipment is owned by one or more of the Debtors free and clear of all
Liens, rights and interests of any other Person.
(k) DEPOSIT ACCOUNTS. The names and addresses of all financial
institutions at which any Debtor maintains its Deposit Accounts, and the account
numbers and account names of such Deposit Accounts, are set forth in Schedule 1.
(l) INVESTMENT PROPERTY; INSTRUMENTS; AND CHATTEL PAPER. All securities
accounts of any Debtor and other Investment Property of any Debtor are set forth
in Schedule 1, and all Instruments and Chattel Paper held by any Debtor are also
set forth in Schedule 1.
(m) CONTROL AGREEMENTS. No Control Agreements exist with respect to any
Collateral other than any Control Agreements in favor of the Collateral Agent.
(n) LETTER-OF-CREDIT RIGHTS. No Debtor has any Letter-of-Credit Rights
except as set forth in Schedule 1.
(o) COMMERCIAL TORT CLAIMS. No Debtor has any Commercial Tort Claims
except as set forth in Schedule 1.
10
(p) LEASES. No Debtor is nor will not become a lessee under any real
property lease or other agreement governing the location of Collateral at the
premises of another Person pursuant to which the lessor or such other Person may
obtain any rights in any of the Collateral, and no such lease or other such
agreement now prohibits, restrains, impairs or will prohibit, restrain or impair
any Debtor's right to remove any Collateral from the premises at which such
Collateral is situated, except for the usual and customary restrictions
contained in leases of real property.
(q) CONSIDERATION. Each Debtor has received at least reasonably
equivalent value and more than sufficient consideration to support the
indebtedness, obligations, liens and security interests created hereunder and
under the other Loan Documents to which such Debtor is a party. Each Debtor
acknowledges that it will derive substantial direct and indirect benefits from
the making of the Loans to the Borrower and the issuances of letters of credit
pursuant to the Credit Agreement and, without limiting the generality of the
foregoing, agrees to the inclusion of such Debtor's assets in the Borrowing Base
as provided in the Credit Agreement.
SECTION 5 COVENANTS. In addition to the covenants of each Debtor set
forth in the Credit Agreement and the other Loan Documents and in the Amended
and Restated Note Agreement and the other Loan Documents (as defined in the
Amended and Restated Note Agreement), so long as any of the Secured Obligations
remain unsatisfied or any Lender shall have any Commitment, each Debtor agrees
that:
(a) DEFENSE OF COLLATERAL. It will appear in and defend any action,
suit or proceeding which may affect to a material extent its title to, or right
or interest in, or the Collateral Agent's right or interest in, the Collateral.
(b) PRESERVATION OF COLLATERAL. It will do and perform all reasonable
acts that may be necessary and appropriate to maintain, preserve and protect the
Collateral.
(c) COMPLIANCE WITH LAWS, ETC. It will comply with all laws,
regulations and ordinances, and all policies of insurance, relating in a
material way to the possession, operation, maintenance and control of the
Collateral.
(d) LOCATION OF BOOKS AND CHIEF EXECUTIVE OFFICE. It will: (i) keep all
Books pertaining to the Rights to Payment at the locations set forth in Schedule
1; and (ii) give at least 30 days' prior written notice to the Collateral Agent,
the Agent and the Noteholders of (a) any changes in any such location where
Books pertaining to the Rights to Payment are kept, including any change of name
or address of any service bureau, computer or data processing company or other
Person preparing or maintaining any Books or collecting Rights to Payment for
the Debtor or (b) any change in the location of its chief executive office or
principal place of business.
(e) LOCATION OF COLLATERAL. It will: (i) keep the Collateral at the
locations set forth in Schedule 1 and not remove the Collateral from such
locations (other than disposals of Collateral permitted by subsection (i) below)
except upon at least 30 days' prior written notice of any removal to the
Collateral Agent, the Agent and the Noteholders; and (ii) give the Collateral
11
Agent, the Agent and the Noteholders at least 30 days' prior written notice of
any change in the locations set forth in Schedule 1.
(f) CHANGE IN NAME, IDENTITY OR STRUCTURE. It will give at least 30
days' prior written notice to the Collateral Agent, the Agent and the
Noteholders of (i) any change in its name, (ii) any change in its jurisdiction
of organization, (iii) any change in its registration as an organization (or any
new such registration); and (iv) any changes in its identity or structure in any
manner which might make any financing statement filed hereunder incorrect or
misleading; provided that it shall not change its jurisdiction of organization
to a jurisdiction outside of the United States.
(g) MAINTENANCE OF RECORDS. It will keep separate, accurate and
complete Books with respect to the Collateral, disclosing the Collateral Agent's
security interest hereunder.
(h) INVOICING OF SALES. It will invoice all of its sales upon forms
customary in the industry and to maintain proof of delivery and customer
acceptance of goods.
(i) DISPOSITION OF COLLATERAL. It will not surrender or lose possession
of (other than to the Collateral Agent), sell, lease, rent, or otherwise dispose
of or transfer any of the Collateral or any right or interest therein, except to
the extent permitted by the Credit Agreement and the Amended and Restated Note
Agreement; provided that no such disposition or transfer of Investment Property
or Instruments shall be permitted while any Event of Default exists.
(j) LIENS. It will keep the Collateral free of all Liens except
Permitted Liens.
(k) EXPENSES. It will pay all expenses of protecting, storing,
warehousing, insuring, handling and shipping the Collateral.
(l) LEASED PREMISES. At the Collateral Agent's, the Agent's or the
Noteholders' request, it will obtain from each Person from whom it leases any
premises at which any Collateral is at any time present such collateral access,
subordination, waiver, consent and estoppel agreements as the Collateral Agent,
the Agent or the Noteholders may require, in form and substance satisfactory to
the Collateral Agent, the Agent and the Noteholders.
(m) RIGHTS TO PAYMENT. It will:
(i) give only normal discounts, allowances and credits as to Accounts
and other Rights to Payment, in the ordinary course of business, according to
normal trade practices utilized by it in the past, and enforce all Accounts and
other Rights to Payment strictly in accordance with their terms, and take all
such action to such end as may from time to time be reasonably requested by the
Collateral Agent, the Agent or the Noteholders, except that it may grant any
extension of the time for payment or enter into any agreement to make a rebate
or otherwise to reduce the amount owing on or with respect to, or compromise or
settle for less than the full amount thereof, any Account or other Right to
Payment, in the ordinary course of business, according to normal trade practices
utilized by it in the past, and where the amount involved does not exceed
$1,500,000 or where the Account or Right to Payment does not exceed $1,500,000
or would not be materially impaired;
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(ii) if any discount, allowance, credit, extension of time for payment,
agreement to make a rebate or otherwise to reduce the amount owing on, or
compromise or settle, an Account or other Right to Payment exists or occurs, or
if, to the knowledge of it, any dispute, setoff, claim, counterclaim or defense
exists or has been asserted or threatened with respect to an Account or other
Right to Payment, disclose such fact fully to the Collateral Agent, the Agent
and the Noteholders in the Books relating to such Account or other Right to
Payment and in connection with any invoice or report furnished by it to the
Collateral Agent, the Agent and the Noteholders relating to such Account or
other Right to Payment;
(iii) if any Accounts arise from contracts with the United States or
any department, agency or instrumentality thereof, immediately notify the
Collateral Agent, the Agent and the Noteholders thereof and, upon the request of
the Collateral Agent, the Agent or the Noteholders, execute any documents and
instruments and take any other steps requested by the Collateral Agent, the
Agent or the Noteholders in order that all monies due and to become due
thereunder shall be assigned to the Collateral Agent and notice thereof given to
the Federal authorities under the Federal Assignment of Claims Act;
(iv) in accordance with its sound business judgment perform and comply
in all material respects with its obligations in respect of the Accounts and
other Rights to Payment;
(v) upon the request of the Collateral Agent, the Agent or the
Noteholders while an Event of Default exists, (a) at any time, notify all or any
designated portion of the account debtors and other obligors on the Rights to
Payment of the security interest hereunder, and (b) notify the account debtors
and other obligors on the Rights to Payment or any designated portion thereof
that payment shall be made directly to the Collateral Agent or to such other
Person or location as the Collateral Agent shall specify; and
(vi) upon the occurrence of any Event of Default, establish such
lockbox or similar arrangements for the payment of the Accounts and other Rights
to Payment as the Collateral Agent, the Agent or the Noteholders shall
reasonably require.
(n) INSTRUMENTS, Investment Property, Etc. Upon the request of the
Collateral Agent, the Agent or the Noteholders it will (i) immediately deliver
to the Collateral Agent, or an agent designated by it, appropriately endorsed or
accompanied by appropriate instruments of transfer or assignment, all
Instruments, Documents, Chattel Paper and certificated securities with respect
to any Investment Property, all letters of credit, and all other Rights to
Payment at any time evidenced by promissory notes, trade acceptances or other
instruments, (ii) cause any securities intermediaries to show on their books
that the Collateral Agent is the entitlement holder with respect to any
Investment Property, and/or obtain Control Agreements in favor of the Collateral
Agent from such securities intermediaries, in form and substance satisfactory to
the Collateral Agent, the Agent and the Noteholders with respect to any
Investment Property, as requested by Collateral Agent, and (iii) provide such
notice, obtain such acknowledgments and take all such other action, with respect
to any Chattel Paper, Documents and Letter-of Credit Rights, as the Collateral
Agent, the Agent or the Noteholders shall reasonably specify.
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(o) DEPOSIT ACCOUNTS AND SECURITIES ACCOUNTS. It will give the
Collateral Agent, the Agent and the Noteholders immediate written notice of the
establishment of any new Deposit Account and any new securities account with
respect to any Investment Property.
(p) INVENTORY. It will:
(i) upon the request of the Collateral Agent (which, except upon the
occurrence and during the continuation of an Event of Default, shall not be
given more than once in any 12-month period), take a physical listing of the
Inventory and promptly deliver a copy of such physical listing to the Collateral
Agent; and
(ii) not store any Inventory or Farm Products with a bailee,
warehouseman or similar Person or on premises leased to the Debtor, nor dispose
of any Inventory or Farm Products on a bill-and-hold, guaranteed sale, sale and
return, sale on approval, consignment or similar basis, nor acquire any
Inventory or Farm Products from any Person on any such basis.
(q) EQUIPMENT. It will, upon the Collateral Agent's request (which,
except upon the occurrence and during the continuation of an Event of Default
shall not be given more than once in any 12-month period), deliver to the
Collateral Agent a report of each item of Equipment, in form and substance
satisfactory to the Collateral Agent.
(r) INTELLECTUAL PROPERTY COLLATERAL. It will:
(i) not enter into any agreement (including any license or royalty
agreement) pertaining to any Intellectual Property Collateral, except for
non-exclusive licenses in the ordinary course of business, without in each case
the prior written consent of the Collateral Agent;
(ii) not allow or suffer any Intellectual Property Collateral to become
abandoned, nor any registration thereof to be terminated, forfeited, expired or
dedicated to the public;
(iii) promptly give the Collateral Agent, the Agent and the Noteholders
notice of any rights it may obtain to any new patentable inventions,
copyrightable works or other new Intellectual Property Collateral, prior to the
filing of any application for registration thereof; and
(iv) diligently prosecute all applications for patents, copyrights and
trademarks, and file and prosecute any and all continuations,
continuations-in-part, applications for reissue, applications for certificate of
correction and like matters as shall be reasonable and appropriate in accordance
with prudent business practice, and promptly and timely pay any and all
maintenance, license, registration and other fees, taxes and expenses incurred
in connection with any Intellectual Property Collateral.
(s) NOTICES, REPORTS AND INFORMATION. It will (i) notify the Collateral
Agent, the Agent and the Noteholders of any other modifications of or additions
to the information contained in SCHEDULE 1; (ii) notify the Collateral Agent,
the Agent and the Noteholders of any material claim made or asserted against the
Collateral by any Person and of any change in the composition of the Collateral
(other than in the ordinary course of business) or other event which
14
could materially adversely affect the value of the Collateral or the Collateral
Agent's Lien thereon; (iii) furnish to the Collateral Agent, the Agent and the
Noteholders such statements and schedules further identifying and describing the
Collateral and such other reports and other information in connection with the
Collateral as the Collateral Agent, the Agent or the Noteholders may reasonably
request, all in reasonable detail; and (iv) upon request of the Collateral
Agent, the Agent or the Noteholders make such demands and requests for
information and reports as the Debtor is entitled to make in respect of the
Collateral.
(t) CHATTEL PAPER. It will not create any Chattel Paper without placing
a legend on the Chattel Paper acceptable to the Collateral Agent, the Agent and
the Noteholders indicating that the Collateral Agent has a security interest in
the Chattel Paper. It will give the Collateral Agent, the Agent and the
Noteholders immediate notice if it at any time holds or acquires an interest in
any Chattel Paper, including any Electronic Chattel Paper.
(u) COMMERCIAL TORT CLAIMS. It will give the Collateral Agent, the
Agent and the Noteholders immediate notice if it shall at any time hold or
acquire any Commercial Tort Claim.
(v) LETTER-OF-CREDIT RIGHTS. It will give the Collateral Agent, the
Agent and the Noteholders immediate notice if it shall at any time hold or
acquire any Letter-of-Credit Rights.
SECTION 6 RIGHTS TO PAYMENT.
(a) COLLECTION OF RIGHTS TO PAYMENT. Until the Collateral Agent
exercises its rights hereunder to collect Rights to Payment, each Debtor shall
endeavor in the first instance diligently to collect all amounts due or to
become due on or with respect to the Rights to Payment. At the request of the
Collateral Agent, the Agent or the Noteholders, upon and after the occurrence of
any Event of Default, and while such Event of Default is continuing, all
remittances received by any Debtor shall be held in trust for the Collateral
Agent and, in accordance with the Collateral Agent's instructions, remitted to
the Collateral Agent or deposited to an account with the Collateral Agent in the
form received (with any necessary endorsements or instruments of assignment or
transfer).
(b) INVESTMENT PROPERTY AND INSTRUMENTS. At the request of the
Collateral Agent, the Agent or the Noteholders, upon and after the occurrence of
any Event of Default and while such Event of Default is continuing, the
Collateral Agent shall be entitled to receive all distributions and payments of
any nature with respect to any Investment Property or Instruments, and all such
distributions or payments received by any Debtor shall be held in trust for the
Collateral Agent and, in accordance with the Collateral Agent's instructions,
remitted to the Collateral Agent or deposited to an account with the Collateral
Agent in the form received (with any necessary endorsements or instruments of
assignment or transfer). Following the occurrence of an Event of Default any
such distributions and payments with respect to any Investment Property held in
any securities account shall be held and retained in such securities account, in
each case as part of the Collateral hereunder. Additionally, the Collateral
Agent shall have the right, upon the occurrence of an Event of Default and while
such Event of Default is continuing, following prior written notice to the
Debtors, to vote and to give consents, ratifications and waivers with respect to
any Investment Property and Instruments, and to exercise all rights of
conversion, exchange, subscription or any other rights, privileges or options
pertaining thereto,
15
as if the Collateral Agent were the absolute owner thereof; provided that the
Collateral Agent shall have no duty to exercise any of the foregoing rights
afforded to it and shall not be responsible to any Debtor or any other Person
for any failure to do so or delay in doing so.
SECTION 7 AUTHORIZATION; COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT.
The Collateral Agent shall have the right to, in the name of any Debtor, or in
the name of the Collateral Agent or otherwise, without notice to or assent by
the Debtors, and each Debtor hereby constitutes and appoints the Collateral
Agent (and any of the Collateral Agent's officers or employees or Collateral
Agents designated by the Collateral Agent) as such Debtor's true and lawful
attorney-in-fact, with full power and authority to:
(i) sign and file any of the financing statements which must be
executed or filed to perfect or continue perfected, maintain the priority of or
provide notice of the Collateral Agent's security interest in the Collateral;
(ii) take possession of and endorse any notes, acceptances, checks,
drafts, money orders or other forms of payment or security and collect any
Proceeds of any Collateral;
(iii) sign and endorse any invoice or bill of lading relating to any of
the Collateral, warehouse or storage receipts, drafts against customers or other
obligors, assignments, notices of assignment, verifications and notices to
customers or other obligors;
(iv) send requests for verification of Rights to Payment to the
customers or other obligors of any Debtor;
(v) contact, or direct the Debtors to contact, all account debtors and
other obligors on the Rights to Payment and instruct such account debtors and
other obligors to make all payments directly to the Collateral Agent;
(vi) assert, adjust, sue for, compromise or release any claims under
any policies of insurance;
(vii) exercise dominion and control over, and refuse to permit further
withdrawals from, Deposit Accounts maintained with the Collateral Agent, any
Lender or any other bank, financial institution or other Person;
(viii) notify each Person maintaining lockbox or similar arrangements
for the payment of the Rights to Payment to remit all amounts representing
collections on the Rights to Payment directly to the Collateral Agent;
(ix) ask, demand, collect, receive and give acquittances and receipts
for any and all Rights to Payment, enforce payment or any other rights in
respect of the Rights to Payment and other Collateral, grant consents, agree to
any amendments, modifications or waivers of the agreements and documents
governing the Rights to Payment and other Collateral, and otherwise file any
claims, take any action or institute, defend, settle or adjust any actions,
suits or proceedings with respect to the Collateral, as the Collateral Agent may
deem necessary or desirable to maintain, preserve and protect the Collateral, to
collect the Collateral or to enforce the rights of the Collateral Agent with
respect to the Collateral;
16
(x) execute any and all applications, documents, papers and instruments
necessary for the Collateral Agent to use the Intellectual Property Collateral
and grant or issue any exclusive or non-exclusive license or sublicense with
respect to any Intellectual Property Collateral;
(xi) execute any and all endorsements, assignments or other documents
and instruments necessary to sell, lease, assign, convey or otherwise transfer
title in or dispose of the Collateral;
(xii) execute and deliver to any securities intermediary or other
Person any entitlement order or other notice, document or instrument which the
Collateral Agent may reasonably deem necessary or advisable to maintain,
protect, realize upon and preserve the Deposit Accounts and Investment Property
and the Collateral Agent's security interest therein; and
(xiii) execute any and all such other documents and instruments, and do
any and all acts and things for and on behalf of the Debtors, which the
Collateral Agent may reasonably deem necessary or advisable to maintain,
protect, realize upon and preserve the Collateral and the Collateral Agent's
security interest therein and to accomplish the purposes of this Agreement.
The Collateral Agent agrees that, except upon and during the continuance of an
Event of Default, it shall not exercise the power of attorney, or any rights
granted to the Collateral Agent, pursuant to clauses (ii) through (xiii). The
foregoing power of attorney is coupled with an interest and irrevocable so long
as the Lenders have any Commitments or the Secured Obligations have not been
paid and performed in full. Each Debtor hereby ratifies, to the extent permitted
by law, all that the Collateral Agent shall lawfully and in good faith do or
cause to be done by virtue of and in compliance with this Section 7.
SECTION 8 COLLATERAL AGENT PERFORMANCE OF DEBTOR OBLIGATIONS. The
Collateral Agent, the Agent or the Noteholders may perform or pay any obligation
which the Debtors have agreed to perform or pay under this Agreement upon notice
to the Debtors, if the Debtors have failed to timely perform or pay any such
obligation, and each Debtor shall reimburse the Collateral Agent, the Agent or
the Noteholders, as the case may be, on demand for any amounts paid by the
Collateral Agent, the Agent or the Noteholders, as the case may be, pursuant to
this Section 8.
SECTION 9 [Reserved.]
SECTION 10 REMEDIES.
(a) Remedies. Upon the occurrence of any Event of Default and while
such Event of Default is continuing, the Collateral Agent shall have, in
addition to all other rights and remedies granted to it in this Agreement, all
rights and remedies of a secured party under the UCC and other applicable laws.
Without limiting the generality of the foregoing, each Debtor agrees that:
(i) The Collateral Agent may peaceably and without notice enter any
premises of any Debtor, take possession of any Collateral, remove or dispose of
all or part of the
17
Collateral on any premises of any Debtor or elsewhere, or, in the case of
Equipment, render it nonfunctional, and otherwise collect, receive, appropriate
and realize upon all or any part of the Collateral, and demand, give receipt
for, settle, renew, extend, exchange, compromise, adjust, or sue for all or any
part of the Collateral, as the Collateral Agent may determine.
(ii) The Collateral Agent may require any Debtor to assemble all or any
part of the Collateral and make it available to the Collateral Agent, at any
place and time designated by the Collateral Agent.
(iii) The Collateral Agent may use or transfer any of any Debtor's
rights and interests in any Intellectual Property Collateral, by license, by
sublicense (to the extent permitted by an applicable license) or otherwise, on
such conditions and in such manner as the Collateral Agent may determine.
(iv) The Collateral Agent may secure the appointment of a receiver of
the Collateral or any part thereof (to the extent and in the manner provided by
applicable law).
(v) The Collateral Agent may withdraw (or cause to be withdrawn) any
and all funds from any Deposit Accounts or securities accounts.
(vi) The Collateral Agent may sell, resell, lease, use, assign,
transfer or otherwise dispose of any or all of the Collateral in its then
condition or following any commercially reasonable preparation or processing
(utilizing in connection therewith any of any Debtor's assets, without charge or
liability to the Collateral Agent therefor) at public or private sale, by one or
more contracts, in one or more parcels, at the same or different times, for cash
or credit or for future delivery without assumption of any credit risk, all as
the Collateral Agent deems advisable; PROVIDED, HOWEVER, that such Debtor shall
be credited with the net proceeds of sale only when such proceeds are finally
collected by the Collateral Agent. The Collateral Agent and each of the Lenders
shall have the right upon any such public sale, and, to the extent permitted by
law, upon any such private sale, to purchase the whole or any part of the
Collateral so sold, free of any right or equity of redemption, which right or
equity of redemption each Debtor hereby releases, to the extent permitted by
law. The Collateral Agent shall give the Debtors such notice of any public or
private sale as may be required by the UCC or other applicable law. Each Debtor
recognizes that the Collateral Agent may be unable to make a public sale of any
or all of the Investment Property, by reason of prohibitions contained in
applicable securities laws or otherwise, and expressly agrees that a private
sale to a restricted group of purchasers for investment and not with a view to
any distribution thereof shall be considered a commercially reasonable sale.
(vii) Neither the Collateral Agent, the Agent, any Noteholder nor any
Lender shall have any obligation to clean up or otherwise prepare the Collateral
for sale. The Collateral Agent has no obligation to attempt to satisfy the
Secured Obligations by collecting them from any other Person liable for them and
the Collateral Agent may release, modify or waive any Collateral provided by any
other Person to secure any of the Secured Obligations, all without affecting the
Collateral Agent's, the Agent's, any Noteholder's or any Lender's rights against
any Debtor. Each Debtor waives any right it may have to require the Collateral
Agent, the Agent, any Noteholder or any Lender to pursue any third Person for
any of the Secured Obligations.
18
The Collateral Agent may comply with any applicable state or federal law
requirements in connection with a disposition of the Collateral and compliance
will not be considered adversely to affect the commercial reasonableness of any
sale of the Collateral. The Collateral Agent may sell the Collateral without
giving any warranties as to the Collateral. The Collateral Agent may
specifically disclaim any warranties of title or the like. This procedure will
not be considered adversely to affect the commercial reasonableness of any sale
of the Collateral. If the Collateral Agent sells any of the Collateral upon
credit, the Debtors will be credited only with payments actually made by the
purchaser, received by the Collateral Agent and applied to the indebtedness of
the purchaser. In the event the purchaser fails to pay for the Collateral, the
Collateral Agent may resell the Collateral and the Debtors shall be credited
with the proceeds of the sale.
(b) LICENSE. For the purpose of enabling the Collateral Agent to
exercise its rights and remedies under this Section 10 or otherwise in
connection with this Agreement, each Debtor hereby grants to the Collateral
Agent an irrevocable, non-exclusive and assignable license (exercisable without
payment or royalty or other compensation to the Debtors) to use, license or
sublicense any Intellectual Property Collateral.
(c) PROCEEDS ACCOUNT. To the extent that any of the Secured Obligations
may be contingent, unmatured or unliquidated (including with respect to undrawn
amounts under the Letters of Credit) at such time as there may exist an Event of
Default, the Collateral Agent may, at its election, (i) retain the proceeds of
any sale, collection, disposition or other realization upon the Collateral (or
any portion thereof) in a special purpose non-interest-bearing restricted
deposit account (the "Proceeds Account") created and maintained by the
Collateral Agent for such purpose (which shall constitute a Deposit Account
included within the Collateral hereunder) until such time as the Collateral
Agent may elect to apply such proceeds to the Secured Obligations, and each
Debtor agrees that such retention of such proceeds by the Collateral Agent shall
not be deemed strict foreclosure with respect thereto; (ii) in any manner
elected by the Collateral Agent, estimate the liquidated amount of any such
contingent, unmatured or unliquidated claims and apply the proceeds of the
Collateral against such amount; or (iii) otherwise proceed in any manner
permitted by applicable law. Each Debtor agrees that the Proceeds Account shall
be a blocked account and that upon the irrevocable deposit of funds into the
Proceeds Account, the Debtors shall not have any right of withdrawal with
respect to such funds. Accordingly, each Debtor irrevocably waives until the
termination of this Agreement in accordance with Section 22 the right to make
any withdrawal from the Proceeds Account and the right to instruct the
Collateral Agent to honor drafts against the Proceeds Account.
(d) APPLICATION OF PROCEEDS. Subject to subsection (c), the cash
proceeds actually received from the sale or other disposition or collection of
Collateral, and any other amounts received in respect of the Collateral, shall
be applied as provided in the Intercreditor Agreement. Any surplus thereof which
exists after payment and performance in full of the Secured Obligations shall be
promptly paid over to the Debtors or otherwise disposed of in accordance with
the Intercreditor Agreement, the UCC or other applicable law. The Debtors shall
remain liable to the Collateral Agent, the Agent, the Noteholders and the
Lenders for any deficiency which exists after any sale or other disposition or
collection of Collateral.
SECTION 11 CERTAIN WAIVERS. Each Debtor waives, to the fullest extent
permitted by law, (i) any right of redemption with respect to the Collateral,
whether before or
19
after sale hereunder, and all rights, if any, of marshalling of the Collateral
or other collateral or security for the Secured Obligations; (ii) any right to
require the Collateral Agent, the Agent, the Noteholders or the Lenders (a) to
proceed against any Person, (b) to exhaust any other collateral or security for
any of the Secured Obligations, (c) to pursue any remedy in the Collateral
Agent's, the Agent's, any Noteholder's or any of the Lenders' power, or (d) to
make or give any presentments, demands for performance, notices of
nonperformance, protests, notices of protests or notices of dishonor in
connection with any of the Collateral; and (iii) all claims, damages, and
demands against the Collateral Agent, the Agent, the Noteholders or the Lenders
arising out of the repossession, retention, sale or application of the proceeds
of any sale of the Collateral.
SECTION 12 NOTICES. All notices or other communications hereunder shall
be given in the manner and to the addresses specified in the Intercreditor
Agreement. All such notices and other communications shall be deemed to be
delivered when a record (within the meaning of the UCC) has been (i) delivered
by hand; (ii) sent by mail, upon the earlier of the date of receipt or five
Business Days after deposit in the mail, first class (or air mail, with respect
to communications sent to or from the United States); (iii) sent by facsimile
transmission, or (iv) sent by email.
SECTION 13 NO WAIVER; Cumulative Remedies. No failure on the part of
the Collateral Agent, the Agent, any Noteholder or any Lender to exercise, and
no delay in exercising, any right, remedy, power or privilege hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, remedy, power or privilege preclude any other or further exercise
thereof or the exercise of any other right, remedy, power or privilege. The
rights and remedies under this Agreement are cumulative and not exclusive of any
rights, remedies, powers and privileges that may otherwise be available to the
Collateral Agent, the Agent, any Noteholder or any Lender.
SECTION 14 COSTS AND EXPENSES; INDEMNIFICATION; OTHER CHARGES.
(a) COSTS AND EXPENSES. Each Debtor agrees to pay on demand:
(i) the reasonable out-of-pocket costs and expenses of the Collateral
Agent and any of its Affiliates, and the reasonable fees and disbursements of
counsel to the Collateral Agent (including allocated costs of internal counsel),
in connection with the negotiation, preparation, execution, delivery and
administration of this Agreement, and any amendments, modifications or waivers
of the terms thereof, and the custody of the Collateral;
(ii) all title, appraisal (including the allocated costs of internal
appraisal services), survey, audit, consulting, search, recording, filing and
similar fees, costs and expenses incurred or sustained by the Collateral Agent
or any of its Affiliates in connection with this Agreement or the Collateral;
and
(iii) all costs and expenses of the Collateral Agent and its Affiliates
and the fees and disbursements of counsel (including the allocated costs of
internal counsel), in connection with the enforcement or attempted enforcement
of, and preservation of any rights or interests under, this Agreement, any
out-of-court workout or other refinancing or restructuring or in any bankruptcy
case, and the protection, sale or collection of, or other realization upon, any
of
20
the Collateral, including all expenses of taking, collecting, holding, sorting,
handling, preparing for sale, selling, or the like, and other such expenses of
sales and collections of Collateral, and any and all losses, costs and expenses
sustained by the Collateral Agent as a result of any failure by any Debtor to
perform or observe its obligations contained herein.
(b) INDEMNIFICATION. Each Debtor hereby agrees to indemnify the
Collateral Agent, any Affiliate thereof, and their respective directors,
officers, employees, agents, counsel and other advisors (each an "Indemnified
Person") against, and hold each of them harmless from, any and all liabilities,
obligations, losses, claims, damages, penalties, actions, judgments, suits,
costs, expenses or disbursements of any kind or nature whatsoever, including the
reasonable fees and disbursements of counsel to an Indemnified Person (including
allocated costs of internal counsel), which may be imposed on, incurred by, or
asserted against any Indemnified Person, in any way relating to or arising out
of this Agreement or the transactions contemplated hereby or any action taken or
omitted to be taken by it hereunder (the "Indemnified Liabilities"); provided
that the Debtors shall not be liable to any Indemnified Person for any portion
of such Indemnified Liabilities to the extent they are found by a final decision
of a court of competent jurisdiction to have resulted from such Indemnified
Person's gross negligence or willful misconduct. If and to the extent that the
foregoing indemnification is for any reason held unenforceable, each Debtor
agrees to make the maximum contribution to the payment and satisfaction of each
of the Indemnified Liabilities which is permissible under applicable law.
(c) OTHER CHARGES. Each Debtor agrees to indemnify the Collateral
Agent, the Agent, each Noteholder and each Lender against and hold each of them
harmless from any and all present and future stamp, transfer, documentary and
other such taxes, levies, fees, assessments and other charges made by any
jurisdiction by reason of the execution, delivery, performance and enforcement
of this Agreement.
(d) INTEREST. Any amounts payable to the Collateral Agent, the Agent,
any Noteholder or any Lender under this Section 14 or otherwise under this
Agreement if not paid within 10 calendar days after demand shall thereafter bear
interest until paid in full, at the rate of interest set forth in Section 4.02
of the Credit Agreement.
SECTION 15 BINDING EFFECT. This Agreement shall be binding upon, inure
to the benefit of and be enforceable by the Debtors, the Collateral Agent, the
Agent, each Noteholder and each Lender and their respective successors and
assigns and shall bind any Person who becomes bound as a debtor to this
Agreement.
SECTION 16 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK, EXCEPT AS
REQUIRED BY MANDATORY PROVISIONS OF LAW AND TO THE EXTENT THE VALIDITY OR
PERFECTION OF THE SECURITY INTERESTS HEREUNDER, OR THE REMEDIES HEREUNDER, IN
RESPECT OF ANY COLLATERAL ARE GOVERNED BY THE LAW OF A JURISDICTION OTHER THAN
NEW YORK.
SECTION 17 ENTIRE AGREEMENT; AMENDMENT. This Agreement and the
Intercreditor Agreement contains the entire agreement of the parties with
respect to the subject
21
matter hereof and shall not be amended except by the written agreement of the
parties hereto or as provided in the Intercreditor Agreement.
SECTION 18 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement, or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 19 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute but one and the same agreement.
SECTION 20 INCORPORATION OF PROVISIONS OF THE CREDIT AGREEMENT. To the
extent the Credit Agreement contains provisions of general applicability to the
Loan Documents, including any such provisions contained in Article XIII thereof,
such provisions are incorporated herein by this reference.
SECTION 21 NO INCONSISTENT REQUIREMENTS. Each Debtor acknowledges that
this Agreement, the Credit Agreement, the other Loan Documents, the Amended and
Restated Note Agreement and the other Loan Documents (as defined in the Amended
and Restated Note Agreement) may contain covenants and other terms and
provisions variously stated regarding the same or similar matters, and agrees
that all such covenants, terms and provisions are cumulative and all shall be
performed and satisfied in accordance with their respective terms.
SECTION 22 FUTURE DEBTORS. At such time following the date hereof as
any Person (an "Acceding Subsidiary") is required to accede hereto pursuant to
the terms of Section 10.03(k) of the Credit Agreement, such Acceding Subsidiary
shall execute and deliver to the Collateral Agent an accession agreement
substantially in the form of Annex 1 (the "Accession Agreement'), signifying its
agreement to be bound by the provisions of this Agreement as a Debtor to the
same extent as if such Acceding Subsidiary had originally executed this
Agreement as of the date hereof.
SECTION 23 TERMINATION. Upon the termination of the Commitments of the
Lenders, the surrender of the Letters of Credit and payment and performance in
full of all Secured Obligations, the security interests created by this
Agreement shall terminate and the Collateral Agent shall promptly execute and
deliver to the Debtors such documents and instruments reasonably requested by
the Debtors as shall be necessary to evidence termination of all security
interests given by the Debtors to the Collateral Agent hereunder.
[SIGNATURES FOLLOW.]
22
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement, as of the date first above written.
THE DEBTORS
The Chalone Wine Group, Ltd., a California
corporation
By:_______________________________________
Name:
Title:
Canoe Ridge Vineyard, L.L.C., a Washington
limited liability company
By:_______________________________________
Name:
Title:
SHW Equity Co., a Washington corporation
By:_______________________________________
Name:
Title:
Canoe Ridge Winery, Inc.
By:_______________________________________
Name:
Title:
23
THE COLLATERAL AGENT
Cooperatieve Centrale Raiffeisen-Boerenleenbank
B.A., "Rabobank International", New York
Branch
By:_______________________________________
Name:
Title:
By:_______________________________________
Name:
Title:
24
ANNEX 1
to the Security Agreement
FORM OF ACCESSION AGREEMENT
To: Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
International", New York Branch ("Rabobank")
Re: The Chalone Wine Group, Ltd.
Ladies and Gentlemen:
This Accession Agreement is made and delivered pursuant to Section 22
of that certain Security Agreement dated as of April 19, 2002 (as amended,
modified, renewed or extended from time to time, the "Security Agreement"), made
between each Debtor named in the signature pages thereof (each a "Debtor" and
collectively, the "Debtors"), and Rabobank as Collateral Agent (the "Collateral
Agent"). All capitalized terms used in this Accession Agreement and not
otherwise defined herein shall have the meanings assigned to them in either the
Security Agreement.
The Chalone Wine Group, Ltd. (the "Borrower") is party to that certain
Credit Agreement dated as of April 19, 2002 (the "Credit Agreement) by and among
the Borrower, the Lenders from time to time party thereto and the Agent.
The Borrower is also party to that certain Amended and Restated Note
Purchase Agreement dated as of April19, 2002 (the "Note Agreement") by and among
the Borrower and the Noteholders.
The undersigned, ___________________________ [INSERT NAME OF ACCEDING
SUBSIDIARY], a _____________________ [CORPORATION, PARTNERSHIP, LIMITED
LIABILITY COMPANY, ETC.], hereby acknowledges for the benefit of the Collateral
Agent, the Agent, the Lenders and the Noteholders that it shall be a "Debtor"
for all purposes of the Security Agreement effective from the date hereof. The
undersigned confirms that the representations and warranties set forth in
Section 4 of the Security Agreement are true and correct as to the undersigned
as of the date hereof.
Without limiting the foregoing, the undersigned hereby agrees to
perform all of the obligations of a Debtor under, and to be bound in all
respects by the terms of, the Security Agreement, including Section 5 thereof,
to the same extent and with the same force and effect as if the undersigned were
an original signatory thereto. The undersigned hereby grants to the Collateral
Agent, for itself and on behalf of and for the ratable benefit of the Agent, the
Lenders and the Noteholders, a security interest in all of the undersigned's
right, title and interest in, to and under all of its personal property (other
than any Excluded Collateral), wherever located and
A-1
whether now existing or owned or hereafter acquired or arising, including all
Collateral, as security for the payment and performance of the Secured
Obligations.
Schedule 1 to the Security Agreement is hereby amended by adding
Schedule 1 attached hereto to the Security Agreement.
This Accession Agreement shall constitute a Loan Document under the
Credit Agreement and a Loan Document under the Note Agreement.
THIS ACCESSION AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN
ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
IN WITNESS WHEREOF, the undersigned has executed this Accession
Agreement, as of the date first above written.
[SUBSIDIARY]
By__________________________________
Name _______________________________
Title_______________________________
A-2
SCHEDULE 1
to the Security Agreement
1. Locations of Chief Executive Office and other Locations, including of
Collateral
a. Chief Executive Office and Principal Place of Business:
621 Airpark Road
Napa, California 94558
b. Other locations where Debtors conducts business or Collateral is
kept:
(i) 2585 Biddle Ranch Road,
San Louis Obispo, CA 93401
(ii) 1102 W. Cherry St.
Walla Walla, WA 94362
(iii) 71 Gangl Rd.
Wapato, WA 98951
(iv) Stonewall Canyon Road & Hwy 116
Soledad, CA 93960
(v) 1700 Moon Mountain Drive
Sonoma, CA 95476
(vi) 14301 Arnold Drive
Glen Ellen, CA 95442
(vii) 2750 Las Amigas Road
Napa, CA 94558
(viii) 389 Fourth Street East
Sonoma, CA 95476
(ix) 4910 Edna Road
San Luis Obispo, CA 93401
(x) 5055 Solano Avenue
Napa, CA 94558
(xi) #1 Vintage Lane
Glen Ellen, CA 95442
S-1.
2. Locations of Books Pertaining to Rights to Payment
621 Airpark Road
Napa, CA 94558
3. Jurisdiction of Organization.
Chalone Wine Group, Ltd California
Canoe Ridge Vineyard, L.L.C. Washington
Canoe Ridge Winery, Inc. Washington
SHW Equity Co. Washington
Staton Hills Winery Company Limited Washington
4. Trade Names and Trade Styles; Other Corporate, Trade or Fictitious
Names; Etc.
Sageland Vineyards
5. Inventory Stored with Warehousemen or on Leased Premises, Etc.
Henry Wine Group
531 Getty Court
Suite A
Benicia, CA 94510
Tiger Mountain Warehouse
19817 89th Avenue South
Kent, WA 98301
Biagi Warehouse
787 Airpark Road
Napa, CA 94558
6. Patents, Copyrights, Trademarks, Etc.
Trademarks: ACACIA, CARMENET, CHALONE VINEYARD, GAVILAN,
SAGELANDS, STATON HILLS, MISTY RIDGE and PHOENIX
S-2.
7. Leased Equipment
General office equipment leases; barrel leases with De Lage Landen.
8. Deposit Accounts
Wells Fargo Bank
9. Investment Property
None.
10. Instruments and Chattel Paper
None
11. Commercial Tort Claims
None
12. Letter-of-Credit Rights
None
S-3.
SCHEDULE 2
to the Security Agreement
Excluded Collateral
All right, title and interest of the Debtor, if any, in and to all
building material, building equipment and fixtures of every kind and nature
whatsoever on said land or in any building, structure or improvement now or
hereafter standing on an Excluded Parcel which are classified as fixtures under
applicable law and which are used in connection with the operation, maintenance
or protection of said buildings, structures and improvements as such (including,
without limitation, all boilers, air conditioning, ventilating, plumbing,
heating, lighting and electrical systems and apparatus, all communications
equipment and intercom systems and apparatus, all sprinkler equipment and
apparatus, all elevators and escalators, all irrigation systems, all wastewater
treatment and disposal facilities, all vines and farm products growing thereon,
and all trellises and the reversion or reversions, remainder or remainders, in
and to said land, and together with the entire interest of the Debtor in and to
all and singular the tenements, hereditaments, easements, rights of way, rights,
privileges and appurtenances to said land, belonging or in anywise appertaining
thereto, including, without limitation, the entire right, title and interest of
the Debtor in, to and under any streets, ways, alleys, gores or strips of land
adjoining said land, and all claims or demands whatsoever of the Debtor either
in law or in equity, in possession or expectancy, of, in and to said land,
together with all accessions, parts and appurtenances appertaining or attached
thereto and all substitutions, renewals or replacements of and additions,
improvements, accessions and accumulations to any and all thereof, and together
with all rights, powers, privileges, options and other benefits of the Debtor,
as lessor, under any leases including the right to collect any and all rents,
profits or other income and the present and continuing right to make claim for,
collect, receive and receipt for any and all of such rents, profits or other
income (all of which properties are hereinafter referred to as the "Excluded
Real Property Collateral").
All materials, furniture, furnishings, machinery, fixtures and
equipment now or hereafter erected on or affixed to the Excluded Real Property
Collateral and including, but not limited to, all heating, plumbing, lighting,
water heating, cooking, laundry, refrigerating, incinerating, communications,
ventilating and air conditioning equipment, building signs, disposals,
dishwashers, telephone systems, sprinkler systems, fire extinguishing apparatus
and equipment, water tanks, engines, machines, boilers, dynamos, stokers,
elevators, motors, cabinets, shades, blinds, partitions, window screens, screen
doors, storm windows, awnings, drapes, rugs and other floor coverings,
furniture, furnishings, radios and television sets and wiring and antennae
therefor, and all fixtures, accessions and appurtenances thereto, and all
renewals or replacements of or substitutions for any of the foregoing, together
with all other equipment, furnishings, fixtures, machinery and furniture owned
by the Debtor now or hereafter attached or affixed to or used in and about the
building or buildings now erected or hereafter to be erected on the Excluded
Real Property Collateral, or otherwise located on the Excluded Real Property
Collateral, and all fixtures, accessions and appurtenances thereto, and all
renewals or replacements of or substitutions for any of the foregoing.
All judgments, awards of damages, settlements and other compensation
heretofore or hereafter made resulting from condemnation proceedings or the
taking of the Excluded Real
S-4.
Property Collateral or any part thereof or any improvements now or at any time
hereafter located thereon or any easement or other appurtenance thereto under
the power of eminent domain, or any similar power or right (including any award
from the United States Government at any time after the allowance of the claim
therefor, the ascertainment of the amount thereof and the issuance of the
warrant for the payment thereof), whether permanent or temporary, or for any
damage (whether caused by such taking or otherwise) to said Excluded Real
Property Collateral or any part thereof or the improvements thereon or any part
thereof, or to any rights appurtenant thereto, including severance and
consequential damage, and any award for change of grade of streets.
All proceeds of the conversion, voluntary or involuntary, of any of the
foregoing into cash or other liquidated claims, including, without limitation,
all proceeds and payments of insurance related to the foregoing.
S-5.
FORM OF INTERCREDITOR AGREEMENT
See attached.
EXHIBIT E
(to Note Purchase Agreement)
AMENDED AND RESTATED INTERCREDITOR AND COLLATERAL
AGENCY AGREEMENT
THIS AMENDED AND RESTATED INTERCREDITOR AND COLLATERAL AGENCY AGREEMENT
dated as of April 19, 2002 (this "AGREEMENT") is among (1) the Noteholders named
in Schedule I hereto (collectively, the "NOTEHOLDERS") (2) the Facility Lenders
named in Schedule II hereto (collectively, the "FACILITY LENDERS", the
Noteholders and the Facility Lenders are collectively referred to as the
"SECURED PARTIES"), (3) Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"RABOBANK INTERNATIONAL", New York Branch, as administrative agent for the
Facility Lenders (the "AGENT") and (4) Cooperatieve Centrale Raiffeisen-
Boerenleenbank B.A., "RABOBANK INTERNATIONAL", New York Branch, as collateral
agent for the Agent and the Secured Parties (the "COLLATERAL AGENT") and
acknowledged and agreed to by (x) each of Edna Valley Vineyard, a California
general partnership ("EDNA VALLEY"), SHW Equity Co., a Washington corporation
("SHW EQUITY"), Canoe Ridge Vineyard, L.L.C., a Washington limited liability
company ("CANOE RIDGE"), Canoe Ridge Winery, Inc., a Washington corporation
("CRW") and Staton Hills Winery Company Limited, a Washington corporation
("STATON HILLS") (Edna Valley, SHW Equity, Canoe Ridge, CRW and Staton Hills
each a "SUBSIDIARY GUARANTOR" and collectively the "SUBSIDIARY GUARANTORS"),
each of which Subsidiary Guarantors is a subsidiary of The Chalone Wine Group,
Ltd., a California corporation (the "COMPANY"), and (y) the Company. Capitalized
terms used herein and not otherwise defined herein shall have the meanings
assigned thereto in Section 1 below.
R E C I T A L S:
A. Under and pursuant to the Credit Agreement dated as of April 19,
2002, among the Company, the Facility Lenders and the Agent, the Facility
Lenders have made available to the Company Term Loans (as defined therein) in
the aggregate principal amount of $17,500,000 and Revolving Loans (as defined
therein) up to an aggregate principal amount of $55,000,000, together with a
letter of credit subfacility and swingline loan subfacility (collectively, the
"FACILITY DEBT") (such Credit Agreement, as the same may from time to time be
amended, restated, supplemented or otherwise modified, the "CREDIT AGREEMENT").
B. Each of the Subsidiary Guarantors has executed and delivered a
Guaranty (collectively, the "FACILITY GUARANTY") pursuant to which each of the
Subsidiary Guarantors has irrevocably, absolutely and unconditionally guaranteed
to the Facility Lenders the payment of the principal of, premium, if any, and
interest on the Facility Debt and the payment and performance of all other
obligations of the Company under the Credit Agreement and the other Loan
Documents (as defined in the Credit Agreement), subject to certain limitations
contained therein in the case of the guaranty of Edna Valley.
C. Under and pursuant to the Amended and Restated Note Purchase
Agreement dated as of April 19, 2002, among the Company and each of the
Noteholders, the Company and the Noteholders have amended and restated the
$30,000,000 aggregate principal amount of the Company's Senior Guaranteed Notes,
Series A, B and C, Due September 15, 2010 originally issued and sold to the
Noteholders on September 15, 2000 (collectively, the "NOTES") (such
1
Amended and Restated Note Purchase Agreement, as the same may from time to time
be further amended, restated, supplemented or otherwise modified, the "NOTE
AGREEMENT").
D. Each of the Subsidiary Guarantors has executed and delivered
an Amended and Restated Subsidiary Guarantee Agreement (collectively, the
"NOTEHOLDER GUARANTY") each dated as of April 19, 2002 pursuant to which the
Subsidiary Guarantors amended and restated the Subsidiary Guarantee Agreement to
which it was heretofore a party under and pursuant to which it has irrevocably,
absolutely and unconditionally guaranteed to the Noteholders the payment of the
principal of, premium, if any, and interest on the Notes and the payment and
performance of all other obligations of the Company under the Note Agreement,
subject to certain limitations contained therein in the case of the guaranty of
Edna Valley.
E. The Facility Guaranty and the Noteholder Guaranty are each
referred to as a "SUBSIDIARY GUARANTY" and are collectively referred to as the
"SUBSIDIARY GUARANTIES".
F. The obligations of the Company and the Subsidiary Guarantors
(hereinafter each referred to as a "GRANTOR" and collectively as the "GRANTORS")
under the Note Agreement and the Noteholder Guaranty are secured by the
Collateral Documents described below.
G. The obligations of the Grantors under the Credit Agreement and
the other Loan Documents (as defined in the Credit Agreement) also are secured
by the Collateral Documents described below.
H. Notwithstanding the time or order of attachment or perfection
or any provisions to the contrary in any of the Collateral Documents or the fact
that all Secured Obligations are secured by the same Collateral Documents, the
Secured Parties desire that the interests of the Secured Parties in the
Collateral subject to the Collateral Documents shall have the following
priorities: (i) the Term Debt shall be secured on a senior basis by the Term
Debt Priority Collateral and on a subordinate basis by the Revolving Debt
Priority Collateral, (ii) the Revolving Debt shall be secured on a senior basis
by the Revolving Debt Priority Collateral and on a subordinate basis by the Term
Debt Priority Collateral, and (iii) the Term Debt and the Revolving Debt will be
secured pari passu by a first Lien on the Patent and Trademark Collateral, all
as provided herein.
I. The Secured Parties desire to appoint Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., "RABOBANK INTERNATIONAL", New York Branch, as
collateral agent to act on behalf of the Secured Parties regarding the
Collateral, all as more fully provided herein.
J. The Secured Parties, the Agent and the Collateral Agent desire
to enter into this Agreement to provide, among other things, for (i) the
appointment, duties and responsibilities of the Collateral Agent, (ii) the
respective priorities, rights and interests of the parties in and to the
Collateral, (iii) the orderly administration of the Collateral, (iv) the
coordination of any enforcement by the parties of their respective rights under
the Note Agreement, the Credit Agreement and the Collateral Documents and (v)
the allocation of payments, if any, made under the Collateral Documents and the
Subsidiary Guaranties, all upon the terms and subject to the conditions set
forth in this Agreement.
2
K. Pursuant to the requirements of the Note Agreement and the
Credit Agreement, the Company has requested and the parties hereto have agreed
to enter into this Agreement.
NOW, THEREFORE, in consideration of the premises and other good and
valuable consideration, the sufficiency and receipt of which are hereby
acknowledged, the parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS.
The following terms shall have the meanings assigned to them below in
this SECTION 1 or in the provisions of this Agreement referred to below:
"AFFILIATE" means any Person which, directly or indirectly, controls,
is controlled by or is under common control with another Person. For purposes of
the foregoing, "CONTROL," "controlled by" and "under common control with" with
respect to any Person shall mean the possession, directly or indirectly, of the
power (i) to vote 10% or more of the securities having ordinary voting power of
the election of directors of such Person, or (ii) to direct or cause the
direction of the management and policies of such Person, whether through the
ownership of voting securities or by contract or otherwise.
"BANKRUPTCY PROCEEDING" shall mean, with respect to any Person, a
general assignment of such Person for the benefit of its creditors, or the
institution by or against such Person of any proceeding seeking relief as
debtor, or seeking to adjudicate such Person as bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment or composition of such Person or
its debts, under any law relating to bankruptcy, insolvency, reorganization or
relief of debtors, or seeking appointment of a receiver, trustee, custodian or
other similar official for such Person or for any substantial part of its
property.
"CASH EQUIVALENT INVESTMENTS" shall mean, (a) direct obligations of the
United States Government or any agencies thereof and obligations guaranteed by
the United States Government, in each case having remaining terms to maturity of
not more than thirty days; and (b) certificates of deposit, time deposits and
acceptances, including Eurodollar deposits, having remaining terms to maturity
of not more than sixty days issued by a United States bank which has a combined
capital and surplus of at least $750,000,000 and whose long-term certificates of
deposit are rated "A" or better by Standard & Poor's Ratings Service or "A2" or
better by Moody's Investors Service, Inc.
"COLLATERAL" shall mean the Term Debt Priority Collateral, the
Revolving Debt Priority Collateral and the Patent and Trademark Collateral.
"COLLATERAL DOCUMENTS" shall mean the "Collateral Documents" as defined
in the Credit Agreement, which secure the obligations of the Company and the
Subsidiary Guarantors under the Credit Agreement, the Facility Guaranty and the
other Loan Documents (as defined in the Credit Agreement) and the "Collateral
Documents" as defined in the Note Agreement, which secure the obligations of the
Company and the Subsidiary Guarantors under the Note Agreement, the Notes and
the Noteholder Guaranty.
3
"COMPANY" shall have the meaning assigned thereto in the Recitals
hereof.
"CREDIT AGREEMENT" shall have the meaning assigned thereto in the
Recitals hereof.
"DEFAULT" shall mean an Event of Default or an event or condition which
with notice or lapse of time or both would constitute an Event of Default.
"DEED OF TRUST" shall mean each deed of trust or mortgage entered into
by the Company, any other Grantor or any other Person, as trustor or mortgagor,
for the benefit of the Collateral Agent or any other Person, as beneficiary or
mortgagee on behalf of the Secured Parties to secure the Secured Obligations.
"EVENT OF DEFAULT" shall mean any "Event of Default" as defined in the
Note Agreement or the Credit Agreement.
"FACILITY DEBT" shall have the meaning assigned thereto in the Recitals
hereof.
"GRANTORS" shall have the meaning assigned thereto in the Recitals
hereof.
"LIEN" means any mortgage, deed of trust, pledge, security interest,
assignment, deposit arrangement, charge, encumbrance or other lien (statutory or
otherwise).
"MAKE-WHOLE AMOUNT" shall have the meaning assigned thereto in the Note
Agreement.
"NOTE AGREEMENT" shall have the meaning assigned thereto in the
Recitals hereof.
"NOTEHOLDER GUARANTY" shall have the meaning assigned thereto in the
Recitals hereof.
"NOTEHOLDERS" shall have the meaning assigned thereto in the Recitals
hereof.
"NOTES" shall have the meaning assigned thereto in the Recitals hereof.
"PATENT AND TRADEMARK COLLATERAL" shall mean the Collateral described
on Exhibit C hereto.
"PERSON" shall mean an individual, partnership, limited liability
company, corporation, trust, unincorporated organization or any other entity
whatsoever, or any government or agency or political subdivision thereof.
"PRO RATA SHARE" shall mean, in respect of any Secured Party as of any
date of determination, the proportion which the amount of the Secured
Obligations then owing to such Secured Party bears to the aggregate amount of
Secured Obligations then owing to all Secured Parties.
"REQUIRED REVOLVING DEBT SECURED PARTIES" shall have the meaning
assigned thereto in the definition of Required Secured Parties.
4
"REQUIRED SECURED PARTIES" shall mean, (a) with respect to the
Revolving Debt Priority Collateral and the Collateral Documents related thereto,
Revolving Debt Secured Parties holding more than 60% of the sum of (i) the
unused Revolving Commitments (as defined in the Credit Agreement) for so long as
the Revolving Commitments are in effect plus (ii) the unpaid principal amount of
the Revolving Debt (the "Required Revolving Debt Secured Parties"), (b) with
respect to the Term Debt Priority Collateral and the Collateral Documents
related thereto, Term Debt Secured Parties holding more than 70% of the
outstanding principal amount of the Term Debt (the "Required Term Debt Secured
Parties"), and (c) in all other instances, the "Required Secured Parties" set
forth in both clause (a) and (b) hereof in each case, measured on the date of
determination of the "Required Secured Parties".
"REQUIRED TERM DEBT SECURED PARTIES" shall have the meaning assigned
thereto in the definition of Required Secured Parties.
"REVOLVING DEBT" shall mean the Secured Obligations consisting of (i)
all unpaid principal of the Revolving Loans (as defined in the Credit Agreement)
(including therein the unpaid amount of any drawings under any letters of credit
issued under the Credit Agreement and, without duplication, the undrawn portion
of the face amount of any such letters of credit) and the Swingline Loans (as
defined in the Credit Agreement), (ii) all accrued and unpaid interest thereon
and (iii) all fees, commissions, indemnities and other amounts (without
duplication of any Term Debt) owing to the Revolving Debt Secured Parties.
"REVOLVING DEBT PRIORITY COLLATERAL" shall mean the Collateral
described on EXHIBIT A hereto.
"REVOLVING DEBT SECURED PARTIES" shall mean those Secured Parties which
hold Revolving Debt.
"SECURITY AGREEMENT" shall have the meanings assigned thereto in the
Note Agreement and the Credit Agreement.
"SECURED PARTY" shall have the meaning assigned thereto in the Recitals
hereof.
"SPECIFIED AMOUNT" shall mean as to any Secured Party the aggregate
amount of the Secured Obligations owed to such Secured Party.
"SECURED OBLIGATIONS" shall mean all indebtedness, liabilities and
other obligations of the Company and the Subsidiary Guarantors to the Collateral
Agent, the Agent and the Secured Parties under the Note Agreement, the Notes,
the Credit Agreement, the Subsidiary Guaranties and the other Loan Documents (as
defined in the Credit Agreement), including all principal in respect of the
Notes and the Facility Debt, all interest accrued thereon, all fees due under
the Note Agreement, the Notes, the Credit Agreement and the other Loan Documents
(as defined in the Credit Agreement) and all other amounts payable by the
Company or any Subsidiary Guarantor to the Collateral Agent, the Agent or any
Secured Party thereunder or in connection therewith, whether now or hereafter
existing or arising, and whether due or to become due, absolute or contingent,
liquidated or unliquidated, determined or undetermined.
5
"SENIOR PREFERENTIAL PAYMENT" shall mean any payments, or proceeds of
the Collateral, from the Grantors or any other source with respect to the
Secured Obligations (including from the exercise of any set-off), cumulatively,
but without duplication, which are:
(a) received by a Secured Party within 90 days prior to (1) the
commencement of a Bankruptcy Proceeding with respect to any Grantor or (2) the
acceleration of the Notes or the obligations under the Credit Agreement, and
which payment reduces the amount of the Secured Obligations owed to such Secured
Party below the amount owed to such Secured Party as of the 90th day prior to
such commencement or acceleration,
(b) received by a Secured Party (1) within 90 days prior to the
occurrence of any Event of Default which has not been waived or cured within 30
days after the occurrence thereof and which payment reduces the amount of the
Secured Obligations owed to such Secured Party below the amount owed to such
Secured Party as of the 90th day prior to the occurrence of such Event of
Default or (2) within 30 days after the occurrence of such Event of Default, or
received by a Secured Party after the occurrence of a Special Event of
(c) Default except as provided in SS.6.11(B).
"Special Event of Default" shall mean (a) the commencement of a
Bankruptcy Proceeding with respect to any Grantor, (b) any other Event of
Default which has not been waived or cured within 30 days after the occurrence
thereof, or (c) the acceleration of the Notes or the obligations under the
Credit Agreement.
"SPECIAL TRUST ACCOUNT" shall mean that certain restricted account
maintained by the Collateral Agent for the purpose of receiving and holding
Senior Preferential Payments.
"SUBSIDIARY GUARANTORS" shall have the meaning assigned thereto in the
Recitals hereof.
"SUBSIDIARY GUARANTY" shall have the meaning assigned thereto in the
Recitals hereof.
"TERM DEBT" shall mean the Secured Obligations consisting of (a) all
outstanding principal of the Notes and the Term Loans (as defined in the Credit
Agreement), (b) all accrued and unpaid interest and premium (including without
limitation Make-Whole Amount) thereon and (c) all fees, commissions, indemnities
and other amounts (without duplication of any Revolving Debt) owing to the Term
Debt Secured Parties.
"TERM DEBT PRIORITY COLLATERAL" shall mean the Collateral described on
EXHIBIT C hereto.
"TERM DEBT SECURED PARTIES" shall mean those Secured Parties which hold
Term Debt.
SECTION 2. PRIORITY OF LIENS.
Section 2.1. Priority of Liens of Term Debt Secured Parties in respect
of Term Debt Priority Collateral. (a) All Liens now or hereafter existing in
favor of the Collateral Agent, any Secured Party or any other Person on any Term
Debt Priority Collateral to secure the Revolving Debt shall be subject,
subordinate and junior in all respects and at all times to the Liens or
6
interests now or hereafter existing in favor of the Collateral Agent, any
Secured Party or any other Person thereon to secure the Term Debt and (b) all
Liens now or hereafter existing in favor of the Collateral Agent, any Secured
Party or any other Person on any Term Debt Priority Collateral to secure the
Term Debt shall be senior at all times to the Liens or interests now or
hereafter existing in favor of the Collateral Agent, any Secured Party or any
other Person thereon to secure the Revolving Debt, in each case, regardless of
the fact that all Secured Obligations are secured by the same Collateral
Documents, the time or order of attachment or perfection, any provisions to the
contrary in any of the Collateral Documents or any other circumstances
whatsoever.
Section 2.2. Priority of Liens of Revolving Debt Secured Parties in
respect of Revolving Debt Priority Collateral. (a) All Liens now or hereafter
existing in favor of the Collateral Agent, any Secured Party or any other Person
on any Revolving Debt Priority Collateral to secure the Term Debt shall be
subject, subordinate and junior in all respects and at all times to the Liens or
interests now or hereafter existing in favor of the Collateral Agent, any
Secured Party or any other Person thereon to secure the Revolving Debt and (b)
all Liens now or hereafter existing in favor of the Collateral Agent, any
Secured Party or any other Person on any Revolving Debt Priority Collateral to
secure the Revolving Debt shall be senior at all times to the Liens or interests
now or hereafter existing in favor of the Collateral Agent, any Secured Party or
any other Person thereon to secure the Term Debt, in each case, regardless of
the fact that all Secured Obligations are secured by the same Collateral
Documents, the time or order of attachment or perfection, any provisions to the
contrary in any of the Collateral Documents or any other circumstances
whatsoever.
Section 2.3. Liens of Secured Parties in respect of Patent and
Trademark Collateral are Pari Passu. All Liens now or hereafter existing in
favor of the Collateral Agent, any Secured Party or any other Person on any
Patent and Trademark Collateral to secure the Term Debt or the Revolving Debt
shall be PARI PASSU in all respects and at all times, regardless of the fact
that all Secured Obligations are secured by the same Collateral Documents, the
time or order of attachment or perfection, any provisions to the contrary in any
of the Collateral Documents or any other circumstances whatsoever.
Section 2.4. Nonavoidability of Liens. The subordinations and
priorities specified hereinabove are expressly conditioned upon the
nonavoidability and perfection of the Lien to which another Lien is subordinated
or made PARI PASSU and, if the Lien to which another Lien is subordinated or
made PARI PASSU is not perfected or is avoidable, for any reason, then the
subordinations and relative priority agreements provided for herein shall not be
effective as to the particular Collateral which is the subject of the
unperfected or avoidable lien.
SECTION 3. RELATIONSHIPS AMONG SECURED PARTIES.
Section 3.1. Restrictions on Actions. Each Secured Party agrees that,
so long as any Secured Obligations are outstanding or any Secured Party has any
commitment to extend credit in respect thereof pursuant to the terms of the
Credit Agreement, the provisions of this Agreement shall provide the exclusive
method by which any Secured Party may exercise rights and remedies with respect
to the Collateral under the Collateral Documents and under applicable
7
law relating to the rights and remedies of secured creditors. Therefore, each
Secured Party shall, for the mutual benefit of all Secured Parties, except as
permitted under this Agreement:
(a) refrain from taking or filing any action, judicial or
otherwise, to enforce any rights or pursue any remedy under the Collateral
Documents, except for delivering notices hereunder;
(b) refrain from (1) selling any Secured Obligations to the
Company or any Affiliate of the Company and (2) accepting any guaranty of, or
any other security for, the Secured Obligations from the Company or any
Affiliate of the Company or any other Person, except any guaranty or security
granted to the Collateral Agent for the benefit of all Secured Parties in the
relative priorities set forth herein; and
(c) refrain from exercising any rights or remedies with respect
to the Collateral under the Collateral Documents, or under applicable law
relating to the rights and remedies of secured creditors, which have or may have
arisen or which may arise as a result of a Default or Event of Default or
otherwise;
PROVIDED, HOWEVER, that nothing contained in subsections (a) through (c) above
shall prevent the Agent or any Secured Party from exercising or enforcing any
other right or remedy available to the Agent or any Secured Party under the Note
Agreement, the Notes, the Credit Agreement, the Subsidiary Guaranties or the
other Loan Documents (as defined in the Credit Agreement), as the case may be,
including, without limitation, accelerating the maturity of the Term Debt, the
Revolving Debt or the Notes, as the case may be, terminating any commitments to
lend additional money to the Company under the Credit Agreement in accordance
with the terms thereof, imposing a default rate of interest in accordance with
the Credit Agreement or the Note Agreement, as applicable, raising any defenses
in any action in which it has been made a party defendant or has been joined as
a third party, except that the Collateral Agent may, but shall not be obligated
to, direct and control any defense directly relating to the Collateral or any
one or more of the Collateral Documents, which shall be governed by the
provisions of this Agreement. NOTWITHSTANDING THE FOREGOING, NO SECURED PARTY
SHALL EXERCISE, OR ATTEMPT TO EXERCISE, ANY RIGHT OF SET-OFF, BANKER'S LIEN, OR
THE LIKE, AGAINST ANY DEPOSIT ACCOUNT OR PROPERTY OF THE COMPANY OR ANY OF ITS
SUBSIDIARIES HELD OR MAINTAINED BY THE SECURED PARTY WITHOUT THE PRIOR WRITTEN
CONSENT OF THE COLLATERAL AGENT, THE REQUIRED REVOLVING DEBT SECURED PARTIES AND
THE REQUIRED TERM DEBT SECURED PARTIES.
Section 3.2. Representations and Warranties. (a) Each of the Secured
Parties represents and warrants to the other parties hereto that:
(1) It (i) is either (x) a corporation duly organized,
existing and in good standing under the laws of the jurisdiction of its
incorporation or (y) a national banking association duly incorporated and
existing under the laws of the United States of America or a state-licensed
branch of a foreign bank, and (ii) has all requisite power (corporate or
8
otherwise) to own its property and conduct its business as now conducted and as
presently contemplated.
(2) The execution, delivery and performance by such
Secured Party of this Agreement has been authorized by all necessary proceedings
(corporate or otherwise) and does not and will not contravene any provision of
law, its charter or by-laws or any amendment thereof, or of any indenture,
agreement, instrument or undertaking binding upon such Secured Party.
(3) The execution, delivery and performance by such
Secured Party of this Agreement will result in a valid and legally binding
obligation of such Secured Party enforceable in accordance with its terms.
(b) The Collateral Agent hereby represents and warrants that:
(1) Collateral Agent is a New York state-licensed branch
of a Netherlands banking cooperative validly existing and in good standing under
the laws of the State of New York.
(2) Collateral Agent has full power, authority and legal
right under the laws of New York pertaining to its banking powers to execute,
deliver, and perform this Agreement and has taken all necessary action to
authorize the execution, delivery and performance by it of this Agreement.
(3) execution,delivery and performance by the Collateral
Agent of this Agreement will not contravene any law, rule or regulation of the
United States or any United States governmental authority or agency regulating
the Collateral Agent's banking activities or any judgment or order applicable to
or binding on the Collateral Agent and will not contravene or result in any
breach of, or constitute a default under, the Collateral Agent's constitutive
documents or the provision of any indenture, mortgage, contract or other
agreement to which it is a party or by which it or any of its properties is
bound.
(4) execution,delivery and performance by the Collateral
Agent of this Agreement will not require the authorization, consent, or approval
of, the giving of notice to, the filing or registration with, or the taking of
any other action in respect of, any United States governmental authority or
agency regulating the banking activities of the Collateral Agent.
(5) Agreement has been duly executed and delivered
by the Collateral Agent and constitutes the legal, valid, and binding agreement
of the Collateral Agent, enforceable in accordance with its terms, subject to
bankruptcy, insolvency, fraudulent conveyance and similar laws affecting
creditors' rights generally, and general principles of equity (regardless of
whether the application of such principles is considered in a proceeding in
equity or at law).
Section 3.3. Cooperation; Accountings. Each of the parties hereto will,
upon the reasonable request of another party, from time to time execute and
deliver or cause to be
9
executed and delivered such further instruments, and do and cause to be done
such further acts as may be necessary or proper to carry out more effectively
the provisions of this Agreement. The Secured Parties agree to provide to each
other upon reasonable request a statement of all payments received in respect of
Secured Obligations.
Section 3.4. Termination of Credit Agreement, Note Agreement or
Additional Facilities. Upon final payment in full of all Secured Obligations
owing to any Secured Party, and, in the case of any Facility Lender, after the
termination of such Facility Lender's Revolving Commitment (as defined in the
Credit Agreement), such Secured Party shall cease to be a party to this
Agreement; provided, however, if all or any part of any payments to such Secured
Party are invalidated or set aside or required to be paid or repaid to any
Person in any Bankruptcy Proceeding or otherwise (including, without limitation,
any payment required to be made by such Secured Party to one or more of the
other Secured Parties pursuant to ss.6.15 hereof), then this Agreement shall be
renewed as of such date and shall thereafter continue in full force and effect
to the extent of the Secured Obligations so invalidated, set aside, paid or
repaid.
SECTION 4. APPOINTMENT AND AUTHORIZATION OF COLLATERAL AGENT.
(a)Each Secured Party hereby irrevocably designates and appoints
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank International",
New York Branch as the Collateral Agent of such Secured Party under this
Agreement and the Collateral Documents, and each Secured Party hereby
irrevocably authorizes Cooperatieve Centrale Raiffeisen- Boerenleenbank B.A.,
"Rabobank International", New York Branch as the Collateral Agent for such
Secured Party to execute and enter into each of the Collateral Documents and all
other instruments relating to said Collateral Documents and (i) to take action
on its behalf and exercise such powers and use such discretion as are expressly
permitted hereunder and under the Collateral Documents and all instruments
relating hereto and thereto and (ii) to exercise such powers and perform such
duties as are, in each case, expressly delegated to the Collateral Agent by the
terms hereof and thereof together with such other powers and discretion as are
reasonably incidental hereto and thereto.
(b) Notwithstanding any provision to the contrary elsewhere in
this Agreement or the Collateral Documents, the Collateral Agent shall not have
any duties or responsibilities except those expressly set forth herein or
therein or any fiduciary relationship with any Secured Party, and no implied
covenants, functions, responsibilities, duties, obligations or liabilities shall
be read into this Agreement or any Collateral Document or otherwise exist
against the Collateral Agent.
SECTION 5. AGENCY PROVISIONS.
Section 5.1. Delegation of Duties. The Collateral Agent may exercise
its powers and execute any of its duties under this Agreement and the Collateral
Documents by or through employees, agents or attorneys-in-fact and shall be
entitled to take and to rely on advice of counsel concerning all matters
pertaining to such powers and duties. The Collateral Agent shall not be
responsible for the negligence or misconduct of any agents or attorneys-in-fact
selected by it with reasonable care. The Collateral Agent may utilize the
services of such Persons as the
10
Collateral Agent in its sole discretion may determine, and all reasonable fees
and expenses of such Persons shall be borne by the Company.
Section 5.2. Exculpatory Provisions. Neither the Collateral Agent nor
any of the Collateral Agent's officers, directors, employees, agents,
attorneys-in-fact or Affiliates shall be (a) liable for any action taken or
omitted to be taken by it or such Person under or in connection with this
Agreement or any Collateral Document or any Collateral (except for its or such
Person's own gross negligence or willful misconduct), or (b) responsible in any
manner to any of the Secured Parties for any recitals, statements,
representations or warranties made by the Grantors, any officer thereof or any
other Person contained in, or made or deemed made in connection with, the Credit
Agreement, the Note Agreement or any Collateral Document or in any certificate,
report, statement or other document referred to or provided for in, or received
by the Collateral Agent under or in connection with, this Agreement, the Credit
Agreement, the Note Agreement or any Collateral Document, or for the due
execution, legality, value, validity, effectiveness, genuineness, enforceability
or sufficiency of the Credit Agreement, the Note Agreement or any Collateral
Document or any other document or instrument furnished pursuant thereto or of
any of the Collateral or for any failure of any Grantor to perform its
obligations under such documents. The Collateral Agent shall be under no
obligation to the Secured Parties to ascertain or to inquire as to the
observance or performance of any of the agreements contained in, statements made
in, or conditions of the Credit Agreement, the Note Agreement or any Collateral
Document or to inspect the property (including the books and records) of the
Grantors.
Section 5.3. Reliance by Collateral Agent. The Collateral Agent shall be
entitled to rely, and shall be fully protected and shall incur no liability in
acting and relying, upon any writing, resolution, notice, consent, certificate,
affidavit, letter, cablegram, telegram, telecopy, telex or teletype message,
statement, order or other document or conversation reasonably believed by it to
be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Grantors), independent accountants and other
experts selected by the Collateral Agent. Without limiting the generality of the
foregoing, the Collateral Agent may treat the payee of any Term Debt or
Revolving Debt as the registered holder thereof until it receives notice or
otherwise has actual knowledge that such payee is no longer the registered
holder of such Term Debt or Revolving Debt. Notwithstanding anything to the
contrary contained herein or in any Collateral Document, the Collateral Agent
shall be fully justified in failing or refusing to take action under this
Agreement or the Collateral Documents (including, without limitation, the
exercise of any rights or remedies under, or the entering into of any agreement
amending, modifying, supplementing, waiving any provision of, or the giving of
consent pursuant to, any of the Collateral Documents) unless it shall first
receive instructions of the relevant Required Secured Parties as is contemplated
by ss.6 hereof and it shall first be indemnified to its reasonable satisfaction
by the relevant Secured Parties against any and all liability and expense which
may be incurred by it by reason of taking, continuing to take or refraining from
taking any such action. The Collateral Agent shall in all cases be fully
protected in acting, or in refraining from acting, under this Agreement and the
Collateral Documents in accordance with the provisions of ss.6.5 hereof and in
accordance with written instructions of the relevant Required Secured Parties
pursuant to ss.6.3 hereof, and such instructions and any action taken or failure
to act pursuant thereto shall be binding upon all the relevant Secured Parties.
11
Section 5.4. Knowledge or Notice of Default, Event of Default. The Collateral
Agent shall not be deemed to have actual, constructive, direct or indirect
knowledge or notice of the occurrence of any Default or Event of Default unless
and until the Collateral Agent has received written notice from a Secured Party
or the Company referring to the Credit Agreement, the Note Agreement or the
Collateral Documents, describing such Default or Event of Default, setting forth
in reasonable detail the facts and circumstances thereof and stating that the
Collateral Agent may rely on such notice without further inquiry; provided that
if the Agent is the Collateral Agent hereunder, the Collateral Agent shall be
deemed to have actual knowledge and notice of the occurrence of any Default or
Event of Default (as defined in the Credit Agreement) under the Credit Agreement
if the Agent has actual knowledge of such Default or Event of Default or has
declared an Event of Default under the Credit Agreement. The Collateral Agent
shall have no obligation or duty prior to or after receiving any such notice to
inquire whether a Default or Event of Default has in fact occurred and shall be
entitled to rely, and shall be fully protected in so relying, on any such notice
furnished to it.
Section 5.5. Non-Reliance on Collateral Agent and Other Secured Parties. Each
Secured Party expressly acknowledges that, except as expressly set forth in this
Agreement, neither the Collateral Agent nor any of the Collateral Agent's
officers, directors, employees, agents, attorneys-in-fact or Affiliates has made
any representations or warranties to it and that no act by the Collateral Agent
hereafter taken, including any review of the affairs of the Grantors, shall be
deemed to constitute any representation or warranty by the Collateral Agent to
any Secured Party. Each Secured Party represents that it has, independently and
without reliance upon the Collateral Agent or any other Secured Party, and based
on such documents and information as it has deemed appropriate, made its own
appraisal of and investigation into the business, operations, property,
financial and other condition and credit-worthiness of the Grantors and made its
own decision to enter into this Agreement, the Credit Agreement, the Note
Agreement or any Collateral Document. Each Secured Party also represents that it
will, independently and without reliance upon the Collateral Agent or any other
Secured Party, and based on such documents and information as it shall deem
appropriate at the time, continue to make its own credit analysis, appraisals
and decisions in taking or not taking action under the Credit Agreement, the
Note Agreement or any Collateral Document and this Agreement, and to make such
investigation as it deems necessary to inform itself as to the business,
operations, property, financial and other condition and credit-worthiness of the
Grantors. Except for notices, reports and other documents expressly required to
be furnished to the Secured Parties by the Collateral Agent hereunder, the
Collateral Agent shall not have any duty or responsibility to provide the
Secured Parties with any credit or other information concerning the business,
operations, property, financial and other condition or credit-worthiness of the
Grantors which may come into the possession of the Collateral Agent or any of
its officers, directors, employees, agents, attorneys-in-fact or Affiliates.
Section 5.6. Indemnification. The Secured Parties agree to indemnify the
Collateral Agent in its capacity as such (to the extent not reimbursed by the
Company or the Subsidiary Guarantors, but without limiting any obligation of the
Company and the Subsidiary Guarantors to do so) ratably in accordance with the
Secured Parties' Pro Rata Shares, against, and hold the Collateral Agent
harmless from, any and all liabilities, obligations, losses, claims, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind or nature
12
whatsoever, which may be imposed on, incurred by, or asserted against the
Collateral Agent, in any way relating to or arising out of this Agreement or any
Collateral Document or the transactions contemplated hereby or thereby or any
action taken or omitted by the Collateral Agent in connection with any of the
foregoing; PROVIDED that no Secured Party shall be liable to the Collateral
Agent for any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements to the
extent they are found by a final decision of a court of competent jurisdiction
to have resulted from the Collateral Agent's gross negligence or willful
misconduct.. The agreements in
this ss.5.6 shall survive the payment of the Secured Obligations.
Section 5.7. Collateral Agent in Its Individual Capacity. Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank International", New York
Branch and its Affiliates may make loans to and generally engage in any kind of
business with the Company or any other Grantor as though such Person was not the
Collateral Agent hereunder and without any duty to account therefor to the
Secured Parties. With respect to any Term Debt or Revolving Debt issued to it
and advances made by it under the Credit Agreement, if any, Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank International", New York
Branch shall have the same rights and powers under this Agreement as any Secured
Party and may exercise the same as though it were not the Collateral Agent, and
the terms "Secured Party" and "Secured Parties" shall include Cooperatieve
Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank International", New York
Branch in its individual capacity.
Section 5.8. Successor Collateral Agent.
(a) The Collateral Agent may resign at any time upon sixty
days' notice to the Secured Parties and the Company and may be removed at any
time, with or without cause, by the Required Secured Parties by written notice
delivered to the Company, the Collateral Agent and the Secured Parties. If the
Collateral Agent is also a Facility Lender, then the Noteholders may remove the
Collateral Agent for a continuing breach of its obligations under this Agreement
at any time upon a vote of the holders of 66-2/3% or more of the aggregate
principal amount of outstanding Notes, PROVIDED that the Collateral Agent shall
be given a reasonable opportunity to cure such breach prior to any such removal.
After any resignation or removal hereunder of the Collateral Agent, the
provisions of this ss.5 shall continue to inure to its benefit as to any actions
taken or omitted to be taken by it in connection with its role as Collateral
Agent hereunder while it was the Collateral Agent under this Agreement and it
shall be entitled to be paid promptly when due any amounts owing to it pursuant
to ss.5.6.
(b) Upon receiving notice of any such resignation or removal,
a successor Collateral Agent shall be appointed by the Required Secured Parties;
provided, however, that such successor Collateral Agent shall be (i) a bank or
trust company having a combined capital and surplus of at least $500,000,000,
subject to supervision or examination by a federal or state banking authority;
and (ii) authorized under the laws of the jurisdiction of its incorporation or
organization to assume the functions of the Collateral Agent. If the appointment
of such successor shall not have become effective (as hereafter provided) (x)
within such sixty day period after the Collateral Agent's notice of resignation
or (y) upon removal of the Collateral Agent, then the Collateral Agent may
assign the Liens and its duties hereunder and under the Collateral
13
Documents to the Secured Parties, as their interests may appear, and in such
case all references herein to "Collateral Agent" shall be deemed to refer to the
"Required Secured Parties." Any Secured Party may petition a court of competent
jurisdiction for the appointment of a successor Collateral Agent. Such court
shall, after such notice as it may deem proper, appoint a successor Collateral
Agent meeting the qualifications specified in this ss.5.8(b). The Secured
Parties hereby consent to such petition and appointment so long as such criteria
are met.
(c) The resignation or removal of a Collateral Agent shall
become effective upon the execution and delivery of such documents or
instruments as are necessary to transfer the rights and obligations of the
Collateral Agent under the Collateral Documents, including, without limitation,
the delivery and recordation of all amendments, instruments, Deed of Trusts,
financing statements, continuation statements and other documents necessary to
maintain the perfection of the security interests held by the Collateral Agent
hereunder. Copies of each such document or instrument shall be delivered to all
Secured Parties. Subject to the foregoing provisions of this ss.5.8(c), the
appointment of a successor Collateral Agent pursuant to this ss.5.8 shall become
effective upon the acceptance of the appointment as Collateral Agent hereunder
by a successor Collateral Agent. Upon such effective appointment, the successor
Collateral Agent shall succeed to and become vested with all the rights, powers,
privileges and duties of the retiring Collateral Agent and the retiring
Collateral Agent shall be discharged from its rights, powers, privileges and
duties under this Agreement and the other Collateral Documents; provided,
however, that the provisions of this ss.5 shall continue to inure to the
retiring Collateral Agent's benefit as to any actions taken or omitted to be
taken by it in connection with its role as Collateral Agent hereunder while it
was the Collateral Agent under this Agreement.
SECTION 6. ACTIONS BY THE COLLATERAL AGENT.
Section 6.1. Duties and Obligations. The duties and obligations of the
Collateral Agent are only those set forth in this Agreement and in the
Collateral Documents.
Section 6.2. Notification of Default. If the Collateral Agent has been
notified in a writing conforming to the requirements of ss.5.4 by any Secured
Party that a Default, an Event of Default or a Special Event of Default has
occurred, the Collateral Agent shall furnish to the Secured Parties a copy of
such written notice and may, but is under no obligation to, furnish to the
Company a copy of the notice received by the Collateral Agent and a copy of the
Collateral Agent's notice to the Secured Parties. The failure of any Secured
Party having knowledge of the occurrence of a Default, an Event of Default or a
Special Event of Default to notify the Collateral Agent or any Secured Party of
such occurrence, however, does not constitute a waiver of such Default, Event of
Default or Special Event of Default by the Secured Parties. Upon receipt of a
notice conforming to the requirements of ss.5.4 from a Secured Party of the
occurrence of an Event of Default or a Special Event of Default, the Collateral
Agent shall (in addition to the action required by the first sentence of this
ss.6.2) promptly (and in any event no later than three Business Days after
receipt of such notice) issue its Notice of Default to all Secured Parties. Such
Notice of Default shall indicate the nature of such Event of Default or Special
Event of Default. The Notice of Default may contain a recommendation of actions
to be taken by the Secured Parties and/or request instructions from the Secured
Parties and shall specify the date on which responses are due in order to be
timely within ss.6.4 hereof.
14
Section 6.3. Exercise of Remedies. Except as otherwise provided in ss.6.5, the
Collateral Agent shall take only such actions and exercise only such remedies
under the Collateral Documents as are approved in written instructions delivered
to the Collateral Agent and signed by the relevant Required Secured Parties
required under ss.6.4. In the event that the Collateral Agent shall determine in
good faith that taking the actions specified in such instructions is contrary to
law, it may refrain (and shall be fully protected in so refraining) from taking
such action and shall immediately give notice of such fact to each of the
Secured Parties. In the event that instructions received by the Collateral Agent
are in its good faith judgment ambiguous or conflict with other instructions
received by the Collateral Agent, the Collateral Agent (a) shall promptly notify
the Secured Parties of such ambiguity or conflict and request clarifying
instructions, and (b) may either (1) delay taking any such action or exercising
any such remedy pending the receipt of such clarifying instructions (and shall
be fully protected in so delaying) or (2) take such actions as it is entitled
under ss.6.5.
Section 6.4. Instructions from Secured Parties.
Notwithstanding anything express or implied to the contrary in any
Collateral Document:
(a) remedies and other actions to be taken under the
Collateral Documents or applicable law with respect to the Revolving Debt
Priority Collateral shall be directed by the Required Revolving Debt Secured
Parties, or by the Required Term Debt Secured Parties with the written consent
of the Required Revolving Debt Secured Parties (such consent not to be
unreasonably withheld or delayed);
(b) remedies and other actions to be taken under the
Collateral Documents or applicable law with respect to the Term Debt Priority
Collateral shall be directed by the Required Term Debt Secured Parties, or by
the Required Revolving Debt Secured Parties with the written consent of the
Required Term Debt Secured Parties (such consent not to be unreasonably withheld
or delayed);
(c) remedies and other actions to be taken under the Collateral
Documents or applicable law with respect to the Patent and Trademark Collateral
shall be directed by both the Required Term Debt Secured Parties and by the
Required Revolving Debt Secured Parties; and
(d) if any Secured Party does not respond in a timely manner to
any notice (including, without limitation, a Notice of Default) from the
Collateral Agent or request for instructions within the time period specified by
the Collateral Agent in such notice or request for instructions (which shall be
a minimum of five Business Days), the Secured Obligations held by such Secured
Party which would otherwise be included in a determination of Required Secured
Parties shall not be included in the determination of Required Secured Parties
for purposes of such notice or request for instructions. Any action taken or not
taken without the vote of such Secured Party or Secured Parties under this
ss.6.4 shall nevertheless be binding on such Secured Party or Secured Parties.
Section 6.5. Emergency Actions. If the Collateral Agent has asked the relevant
Secured Parties for instruction and if the relevant Required Secured Parties
have not yet
15
responded to such request, the Collateral Agent shall be authorized to take, but
shall not be required to take and shall in no event have any liability for the
taking or the failure to take, such actions (other than any action described or
permitted under ss.6.7 hereof) with regard to a Default or Event of Default
which the Collateral Agent, in good faith, believes to be reasonably required to
promote and protect the interests of the Secured Parties and to preserve the
value of the Collateral and shall give the Secured Parties appropriate notice of
such action; PROVIDED that once instructions with respect to such request have
been received by the Collateral Agent from the relevant Required Secured
Parties, the actions of the Collateral Agent shall be governed thereby and the
Collateral Agent shall not take any further action which would be contrary
thereto.
Section 6.6. Changes to Collateral Documents. Any term of the
Collateral Documents may be amended, and the performance or observance by the
parties to a Collateral Document of any term of such Collateral Document may be
waived (either generally or in a particular instance and either retroactively or
prospectively) with the written consent of both the Required Term Debt Secured
Parties and the Required Revolving Debt Secured Parties.
Section 6.7. Release of Collateral. The release of any Collateral by
the Collateral Agent from the Lien of any Collateral Document shall be permitted
with the written consent of all of the Secured Parties; provided, however, that
if the Company or its Subsidiaries disposes of Collateral pursuant to a
disposition that is permitted under both the Credit Agreement and the Note
Agreement, then the written consent of the Secured Parties to the release by the
Collateral Agent of such Collateral shall not be required.
Section 6.8. Other Actions. The Collateral Agent shall have the right
to take such actions, or omit to take such actions, hereunder and under the
Collateral Documents not inconsistent with the written instructions of the
relevant Required Secured Parties delivered pursuant to ss.6.3 hereof or the
terms of this Agreement, including actions the Collateral Agent deems necessary
or appropriate to perfect or continue the perfection of the Liens on the
Collateral for the benefit of the Secured Parties. Except as otherwise provided
by applicable law, the Collateral Agent shall have no duty as to any Collateral,
the collection or protection of the Collateral or any income therefrom
(including any duty to ascertain or take action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Collateral Agent has or is deemed to have
knowledge of such matters), nor as to the preservation of rights against prior
parties, nor as to the preservation of rights pertaining to the Collateral
beyond the safe custody of any Collateral in the Collateral Agent's actual
possession.
Section 6.9. Cooperation. To the extent that the exercise of the
rights, powers and remedies of the Collateral Agent in accordance with this
Agreement requires that any action be taken by any Secured Party, such Secured
Party shall take such action and cooperate with the Collateral Agent to ensure
that the rights, powers and remedies of all Secured Parties are exercised in
full.
16
Section 6.10. Distribution of Proceeds of Collateral and Subsidiary
Guaranties.
(a) Upon any realization upon the Term Debt Priority Collateral,
the Secured Parties agree that the proceeds thereof shall be applied (i) first,
to the amounts owing to the Collateral Agent, solely in its capacity as
Collateral Agent (or owing to the Secured Parties in such capacity if the
Collateral Agent has resigned or has been removed), by the Grantors or the
Secured Parties pursuant to this Agreement or the Collateral Documents; (ii)
second, ratably to the payment of the Agent's administrative agency fee (which
fee shall not exceed $30,000 per year) and all professional and other
out-of-pocket fees, costs and expenses owing to the Agent and the Secured
Parties by the Grantors according to the aggregate amounts of such fees, costs
and expenses then owing to the Agent and each Secured Party; (iii) third,
ratably to the payment of all amounts of accrued and unpaid interest (other than
breakage costs or any Make-Whole Amount) which constitute Term Debt according to
the aggregate amounts of such interest then owing to each Term Debt Secured
Party; (iv) fourth, ratably to all amounts of principal outstanding in respect
of the Term Debt according to the aggregate amounts of such principal then owing
to each Term Debt Secured Party; (v) fifth, ratably to all other Secured
Obligations then owing to the Term Debt Secured Parties according to the
aggregate amounts of such Secured Obligations then owing to each Term Debt
Secured Party; (vi) sixth, ratably to all Secured Obligations then owing to the
Revolving Debt Secured Parties (such amounts to be ratably applied to the
Secured Obligations of the Revolving Debt Secured Parties in the same order as
provided in ss.6.10(b) below); and (vii) seventh, the balance, if any, shall be
returned to the Grantors or such other Persons as are entitled thereto.
(b) Upon any realization upon the Revolving Debt Priority
Collateral, the Secured Parties agree that the proceeds thereof shall be applied
(i) first, to the amounts owing to the Collateral Agent, solely in its capacity
as Collateral Agent (or owing to the Secured Parties in such capacity if the
Collateral Agent has resigned or has been removed), by the Grantors or the
Secured Parties pursuant to this Agreement or the Collateral Documents; (ii)
second, ratably to the payment of the Agent's administrative agency fee (which
fee shall not exceed $30,000 per year) and all professional and other
out-of-pocket fees, costs and expenses owing to the Agent and the Secured
Parties by the Grantors according to the aggregate amounts of such fees, costs
and expenses then owing to the Agent and each Secured Party; (iii) third,
ratably to the payment of all amounts of accrued and unpaid interest (other than
any breakage costs) which constitute Revolving Debt according to the aggregate
amounts of such interest then owing to each Revolving Debt Secured Party; (iv)
fourth, ratably to all amounts of principal and obligations owing in respect of
Specified Swap Contracts outstanding in respect of the Revolving Debt according
to the aggregate amounts of such principal or obligations then owing to each
Revolving Debt Secured Party; (v) fifth, ratably to all other Secured
Obligations then owing to the Revolving Debt Secured Parties according to the
aggregate amounts of such Secured Obligations then owing to each Revolving Debt
Secured Party; (vi) sixth, ratably to all Secured Obligations then owing to the
Term Debt Secured Parties (such amounts to be ratably applied to the Secured
Obligations of the Term Debt Secured Parties in the same order as provided in
ss.6.10(a) above); and (vii) seventh, the balance, if any, shall be returned to
the Grantors or such other Persons as are entitled thereto.
17
(c) Upon any realization upon the Patent and Trademark
Collateral, the Secured Parties agree that the proceeds thereof shall be applied
(i) first, to the amounts owing to the Collateral Agent, solely in its capacity
as Collateral Agent (or owing to the Secured Parties in such capacity if the
Collateral Agent has resigned or has been removed), by the Grantors or the
Secured Parties pursuant to this Agreement or the Collateral Documents; (ii)
second, ratably to the payment of the Agent's administrative agency fee (which
fee shall not exceed $30,000 per year) and all professional and other
out-of-pocket fees, costs and expenses owing to the Agent and the Secured
Parties by the Grantors according to the aggregate amounts of such fees, costs
and expenses then owing to the Agent and each Secured Party; (iii) third,
ratably to the payment of all amounts of accrued and unpaid interest (other than
breakage costs or any Make-Whole Amount) which constitute Secured Obligations
according to the aggregate amounts of such interest then owing to each Secured
Party; (iv) fourth, ratably to all amounts of principal outstanding in respect
of the Secured Obligations according to the aggregate amounts of such principal
then owing to each Secured Party; (v) fifth, ratably to all other Secured
Obligations then owing to the Secured Parties according to the aggregate amounts
of such Secured Obligations then owing to each Secured Party; and (vi) sixth,
the balance, if any, shall be returned to the Grantors or such other Persons as
are entitled thereto.
(d) Upon any payment or other recovery under the Subsidiary
Guaranties, the Secured Parties agree that the proceeds thereof shall be applied
(i) first, to the amounts owing to the Collateral Agent, solely in its capacity
as Collateral Agent (or owing to the Secured Parties in such capacity if the
Collateral Agent has resigned or has been removed), by the Grantors or the
Secured Parties pursuant to this Agreement or the Collateral Documents; (ii)
second, ratably to the payment of the Agent's administrative agency fee (which
fee shall not exceed $30,000 per year) and all professional and other
out-of-pocket fees, costs and expenses owing to the Agent and the Secured
Parties by the Grantors according to the aggregate amounts of such fees, costs
and expenses then owing to the Agent and each Secured Party; (iii) third,
ratably to the payment of all amounts of accrued and unpaid interest (other than
breakage costs or any Make-Whole Amount) which constitute Secured Obligations
according to the aggregate amounts of such interest then owing to each Secured
Party; (iv) fourth, ratably to all amounts of principal outstanding in respect
of the Secured Obligations according to the aggregate amounts of such principal
then owing to each Secured Party; and (v) fifth, ratably to all other Secured
Obligations then owing to the Secured Parties according to the aggregate amounts
of such Secured Obligations then owing to each Secured Party.
(e) Upon the request of the Collateral Agent prior to any
distribution under this ss.6.10, each Secured Party shall provide to the
Collateral Agent certificates, in form and substance reasonably satisfactory to
the Collateral Agent, setting forth the respective amounts referred to in
ss.6.10(a), ss.6.10(b), ss.6.10(c) and ss.6.10(d) hereof which each such Secured
Party believes it is entitled to receive.
(f) Notwithstanding the preceding subsections 6.10(a) through
6.10(c), in the event that the Company is required to mandatorily prepay the
Facility Debt under Section 5.03(b)(ii), (b)(iii) or (b)(iv) of the Credit
Agreement, such prepayments shall be made in accordance with the terms thereof;
provided, however, that if either (1) an Event of Default has occurred and is
continuing at the time of such prepayment or (2) after giving effect on a pro
18
forma basis to the application of such prepayment proceeds as provided in the
Credit Agreement a Specified Loan to Value Event (as defined in the Note
Agreement) would occur as a result thereof, then the provisions of this
Agreement shall govern the application of the prepayment proceeds and such
proceeds shall be applied to the Secured Obligations pursuant to the terms of
this Section 6.10; PROVIDED FURTHER that if the terms of this Section 6.10 shall
govern the application of such prepayment proceeds as a result of the facts set
forth only in clause (2) hereof, then the amount of such prepayment proceeds
that shall be applied pursuant to this Section 6.10 shall be that amount of the
proceeds which will be required to prepay the Secured Obligations so that a
Specified Loan to Value Event will not occur and be continuing after giving
effect to the application of such proceeds under this Section 6.10.
Notwithstanding the preceding Sections 6.10(a) through (d) to the
contrary, any payment hereunder of the Agent's administrative agency fee
pursuant to the Sections 6.10(a)(ii), (b)(ii), (c)(ii) and (d)(ii) shall not
exceed $30,000 in the aggregate per year.
Section 6.11. Senior Preferential Payments and Special Trust Account.
(a) After the receipt by each Secured Party of a Notice of
Default pursuant to ss.6.2 stating that a Special Event of Default has occurred,
all Senior Preferential Payments other than those payments received pursuant to
subsection (b) of this ss.6.11 shall be delivered to the Collateral Agent for
deposit into the Special Trust Account.
(b) If (i) such Special Event of Default is waived by the
Facility Lenders and the Noteholders and if no other Event of Default has
occurred and is continuing, (ii) such Special Event of Default is cured by the
Company or by any amendment of the Credit Agreement or the Note Agreement, as
the case may be, and if no other Event of Default has occurred and is continuing
or (iii) any or all of the Secured Obligations have not been accelerated and the
Required Secured Parties have not instructed the Collateral Agent to foreclose
on a substantial portion of the Collateral, seek the appointment of a receiver,
commence litigation against the Company, liquidate the Collateral, commence a
Bankruptcy Proceeding against the Company, seize Collateral, or exercise other
remedies of similar character prior to the 180th day following such Special
Event of Default, the Collateral Agent thereupon shall return all amounts,
together with their pro rata share of any interest earned thereon, held in the
Special Trust Account representing payment of any Secured Obligations to the
Secured Party initially entitled thereto, and no payments thereafter received by
a Secured Party shall constitute a Senior Preferential Payment by reason of such
cured or waived Special Event of Default. No payment returned to a Secured Party
for which such Secured Party has been obligated to make a deposit into the
Special Trust Account shall thereafter ever be characterized as a Senior
Preferential Payment.
(c) Each Secured Party agrees that upon the occurrence of a
Special Event of Default it shall (i) promptly notify the Collateral Agent of
the receipt of any Senior Preferential Payments, (ii) hold such amounts in trust
for the Secured Parties and act as agent of the Secured Parties during the time
any such amounts are held by it, and (iii) deliver promptly to the Collateral
Agent such amounts for deposit into the Special Trust Account as soon as
practicable.
19
(d) If the Secured Obligations have been accelerated or the
Required Secured Parties have instructed the Collateral Agent to foreclose on a
substantial portion of the Collateral, seek the appointment of a receiver,
commence litigation against the Company, liquidate the Collateral, commence a
Bankruptcy Proceeding against the Company, seize Collateral, or exercise other
remedies of similar character, then all funds, together with interest earned
thereon, held in the Special Trust Account and all subsequent Senior
Preferential Payments shall be applied in accordance with the provisions of
ss.6.10 above.
Section 6.12. Authorized Investments. Any and all funds held by the
Collateral Agent in its capacity as Collateral Agent, whether pursuant to any
provision of this Agreement or any of the Collateral Documents, shall to the
extent feasible within a reasonable time be invested by the Collateral Agent in
Cash Equivalent Investments. Prior to making such investment or to the extent it
is not feasible to invest such funds in Cash Equivalent Investments, the
Collateral Agent shall hold any such funds in an interest bearing account. Any
interest earned on such funds shall be disbursed to the Secured Parties in
accordance with ss.6.10 or ss.6.11, as applicable. The Collateral Agent shall
have no duty to place funds held and invested pursuant to this ss.6.12 in
investments which provide a maximum return. The Collateral Agent shall not be
responsible for any loss of any funds invested in accordance with this ss.6.12.
Section 6.13. Restoration of Obligations. For the purposes of
determining the amount of outstanding Secured Obligations, if any Secured Party
is required to deposit any Senior Preferential Payment in the Special Trust
Account, then the obligations intended to be satisfied by such Senior
Preferential Payment shall be revived, as of the date of the deposit of such
amount with the Collateral Agent, in the amount of such Senior Preferential
Payment and such obligation shall continue in full force and effect (and, if
applicable, bear interest from such deposit date at the non-default rate as
provided in the Notes or in the Credit Agreement, as the case may be) as if such
Secured Party had not received such payment. All such revived obligations shall
be included as Secured Obligations for purposes of allocating any payments under
ss.6.10 and for applying the definition of Required Secured Parties. If any such
revived obligation shall not be allowed as a claim under the Bankruptcy Code due
to the fact that the Senior Preferential Payment has in fact been made by the
Company, the Secured Parties shall make such other equitable arrangements for
the purchase and sale of participations in the Secured Obligations to effectuate
the intent of this ss.6.13.
Section 6.14. Bankruptcy, Preferences, etc. If any payment to a Secured
Party is subsequently invalidated, declared to be fraudulent or preferential or
set aside and is required to be repaid to a trustee, receiver or any other party
under any bankruptcy law, state or Federal law, common law or equitable cause,
and such Secured Party has previously made a deposit in respect of such payment
into the Special Trust Account pursuant to ss.6.11, then the Collateral Agent
shall distribute to such Secured Party proceeds from the Special Trust Account
in an amount equal to such deposit or so much thereof as is affected by such
events and if, due to previous disbursements to the Secured Parties pursuant to
ss.6.11(d), the proceeds in the Special Trust Account are insufficient for such
purpose, then each other Secured Party shall pay to such Secured Party upon
demand an amount equal to a ratable portion of such disbursements of the deposit
which was distributed to each such Secured Party according to the aggregate
amounts so distributed to each such Secured Party.
20
Section 6.15. Sharing of Proceeds. If, despite the provisions of this
Agreement, any Secured Party shall receive any payment or other recovery in
excess of its portion of payments on account of the Secured Obligations to which
it is then entitled in accordance with this Agreement, such Secured Party shall
hold such payment or other recovery in trust for the benefit of the parties
entitled thereto and promptly pay over or deliver such payment or other recovery
to the Collateral Agent for application by the Collateral Agent in accordance
with this Agreement.
SECTION 7. BANKRUPTCY PROCEEDINGS.
The following provisions shall apply during any Bankruptcy Proceeding
of any Grantor:
(a) The Collateral Agent shall represent all Secured Parties in
connection with all matters directly relating to the Collateral, including
without limitation, use, sale or lease of Collateral, use of cash collateral,
relief from the automatic stay and adequate protection. The Collateral Agent
shall act on the instructions of the Required Secured Parties; provided that
such instructions by the Required Secured Parties shall not treat any Secured
Party differently with respect to rights in the Collateral from any other
Secured Party; and provided further that if action is required prior to the time
such instructions are received or if the Required Secured Parties fail to give
instructions with respect to any matter, the Collateral Agent shall be
authorized to act, or refrain from acting, in accordance with ss.6.5 hereof.
(b) Each Secured Party shall be free to act independently on any
issue not directly relating to the Collateral, including without limitation,
matters relating to appointment of a trustee, conversion of a case, filing of
claims, and plans of reorganization. Each Secured Party shall give prior notice
to the Collateral Agent of any such action to the extent that such notice is
possible. If such prior notice is not given, such Secured Party shall give
prompt notice following any such action.
SECTION 8. ADDITIONAL AGREEMENTS OF SECURED PARTIES.
(a) The Term Debt Secured Parties agree that the Revolving Debt
Secured Parties, through their authorized representatives or agents, may (to the
extent the Term Debt Secured Parties have the right to restrict access to the
Term Debt Priority Collateral) enter upon any real property constituting Term
Debt Priority Collateral from time to time during normal business hours for the
sole purpose of inspecting, repairing, removing, caring for, harvesting,
protecting or conducting a sale or sales of any or all of the Revolving Debt
Priority Collateral if the Agent provides the Term Debt Secured Parties notice
prior to each entry (which shall not be less than two (2) business days except
in the case of emergency). The Term Debt Secured Parties further agree that
neither the Agent nor any Revolving Debt Secured Party shall have any obligation
or liability to any Term Debt Secured Party, except, however, that the Revolving
Debt Secured Parties shall promptly repair any damage to the Term Debt Priority
Collateral caused by the removal, repair, sale or inspection and the Revolving
Debt Secured Parties shall be liable for, and shall indemnify, defend and hold
the Collateral Agent and the Term Debt Secured Parties harmless from the gross
negligence or willful misconduct of their employees or agents in connection with
such removal, repairs, sale or inspection. The Agent and Revolving Debt Secured
Parties agree that neither the Collateral Agent nor the Term Debt Secured
Parties shall
21
have any obligation or liability to preserve, protect, manage, maintain,
safekeep or otherwise have any responsibility for the Revolving Debt Priority
Collateral beyond the safe custody of any Collateral in any such Person's actual
possession; provided, however, that the Term Debt Secured Parties agree that
they will not take or direct the Collateral Agent to take any action to destroy
or damage any crops grown on, attached to, affixed to, or located on any Term
Debt Priority Collateral.
(b) The Collateral Agent agrees to use its best efforts to
give to the Agent, via certified mail, written notice prior to the exercise by
the Collateral Agent of any of its rights or remedies against the Term Debt
Priority Collateral at the address provided for in ss.10.2 below; PROVIDED,
HOWEVER, that any failure to so provide such notice shall have no effect on the
ability of the Collateral Agent to exercise any of its rights or remedies
against the Term Debt Priority Collateral.
(c) The Collateral Agent agrees to use its best efforts to give
to the Term Debt Secured Parties, via certified mail, written notice prior to
the exercise by Collateral Agent of any of its rights or remedies against the
Revolving Debt Priority Collateral at the address provided for in ss.10.2 below;
PROVIDED, HOWEVER, that any failure to so provide such notice shall have no
effect on the ability of the Collateral Agent to exercise any of its rights or
remedies against the Revolving Debt Priority Collateral.
(d) If the Collateral Agent takes possession of the Grantors'
books and records included in the Revolving Debt Priority Collateral, the
Collateral Agent shall provide the Term Debt Secured Parties reasonable access
to inspect and copy such books and records if the Term Debt Secured Parties
provide prior notice (which shall be not less than two (2) business days except
in the case of emergency) and if such access is necessary to exercise its rights
and remedies in the Term Debt Priority Collateral.
(e) If the Collateral Agent or the Revolving Debt Secured
Parties receives any Term Debt Priority Collateral or any proceeds thereof
(other than crops and proceeds of crops which are not included in the Term Debt
Priority Collateral) in which the Term Debt Secured Parties have a prior
perfected security interest or if the Collateral Agent or Term Debt Secured
Parties receives any Revolving Debt Priority Collateral or any proceeds thereof
in which the Revolving Debt Secured Parties have a prior perfected security
interest, such party shall (a) notify the other party in writing of the nature
of such receipt, the date of the receipt and the amount thereof; (b) deduct from
the proceeds received any costs or expenses (including attorneys' fees and
expenses) incurred in connection with the acquisition of such proceeds; (c) hold
the remaining amount of such proceeds in trust for the benefit of the other
party until paid over to the other party; and (d) pay the remaining amount of
such proceeds or deliver the applicable Collateral to the other party hereto
promptly upon receipt thereof. If at any time payment, in whole or in part, of
any Collateral or proceeds of Collateral distributed hereunder is rescinded or
must otherwise be restored or returned as a preference, fraudulent conveyance or
otherwise under any bankruptcy, insolvency or similar law, then each party
receiving any portion of such proceeds agrees, upon demand, to return the
portion of such proceeds it has received to the party responsible for restoring
or returning such proceeds.
22
SECTION 9. PROVISIONS RELATING TO PATENT & TRADEMARK COLLATERAL
For the purpose of enabling the Collateral Agent to exercise its rights
and remedies under the Collateral Documents and under applicable law in respect
of the Revolving Debt Priority Collateral, each Secured Party hereby permits the
Collateral Agent to use, license or sublicense any of the Patent and Trademark
Collateral as reasonably required in connection therewith.
SECTION 10. MISCELLANEOUS.
Section 10.1. Entire Agreement. This Agreement represents the entire
Agreement among the Collateral Agent, the Agent, the Secured Parties and the
Grantors in respect of the subject matter hereof.
Section 10.2. Notices. Notices hereunder shall be given to the Secured
Parties at their addresses as set forth in the Note Agreement or the Credit
Agreement or at such other address as may be designated by each in a written
notice to the other parties hereto.
Section 10.3. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the Collateral Agent, the Agent and each of the
Secured Parties and their respective successors and assigns, whether so
expressed or not, and, in particular, shall inure to the benefit of and be
enforceable by and against any future holder or holders of any Secured
Obligations, and the term "Secured Party" shall include any such subsequent
holder of Secured Obligations, wherever the context permits.
Section 10.4. Consents, Amendment, Waivers. All amendments, waivers or
consents of any provision of this Agreement shall be effective only if the same
shall be in writing and signed by the Collateral Agent, the Agent and all of the
Secured Parties.
Section 10.5. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any conflicts of law principles.
Section 10.6. Counterparts. This Agreement may be executed in any
number of counterparts, all of which taken together shall constitute one
Agreement, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
Section 10.7. Sale of Interest. No Secured Party will sell, transfer or
otherwise dispose of any interest in the Secured Obligations unless such
purchaser or transferee shall agree, in writing, to be bound by the terms of
this Agreement.
Section 10.8. Severability. In case any one or more of the provisions
contained in this Agreement shall be invalid, illegal or unenforceable in any
respect, the validity, legality and enforceability of the remaining provisions
of this Agreement shall not in any way be affected or impaired thereby.
23
Section 10.9. Expenses. In the event of any litigation to enforce this
Agreement, the prevailing party shall be entitled to its reasonable attorney's
fees (including the allocated costs of in-house counsel).
Section 10.10. Term of Agreement. This Agreement shall terminate when
all Secured Obligations are paid in full and such payments are not subject to
any possibility of revocation or rescission and no Secured Party has any
commitment to extend any additional credit constituting Secured Obligations
under the terms of the Credit Agreement, or when the Collateral Agent, the Agent
and all of the Secured Parties mutually agree in a writing to terminate this
Agreement, whichever occurs earlier.
Section 10.11. Obligations Several. The obligations of the Secured
Parties, the Agent and the Collateral Agent hereunder are several. The failure
of any Secured Party, the Agent or the Collateral Agent to carry out its
obligations hereunder shall not relieve any other Secured Party, the Agent or
the Collateral Agent of any obligation hereunder, nor shall any Secured Party,
the Agent or the Collateral Agent be responsible for the obligations of, or any
action taken or omitted by, any other Person hereunder. Nothing contained in
this Agreement shall be deemed to cause any Secured Party, the Agent or the
Collateral Agent to be considered a partner of or joint venturer with any other
Secured Party, the Collateral Agent, the Agent, the Subsidiary Guarantors or the
Company.
IN WITNESS WHEREOF, each of the parties hereto has caused this
Agreement to be executed as of the date first above written.
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEEBANK B.A., "RABOBANK
INTERNATIONAL", NEW YORK BRANCH, AS
AGENT
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
24
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEEBANK B.A., "RABOBANK
INTERNATIONAL", NEW YORK BRANCH, AS
COLLATERAL AGENT
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
FARM CREDIT SERVICES OF AMERICA, PCA
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
AGSTAR FINANCIAL SERVICES, PCA, D/B/A FARM
CREDIT SERVICES COMMERCIAL FINANCE GROUP
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
25
COOPERATIEVE CENTRALE RAIFFEISEN-
BOERENLEEBANK B.A., "RABOBANK
INTERNATIONAL", NEW YORK BRANCH, AS
A FACILITY LENDER
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
FARM CREDIT WEST FLCA
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
U.S. BANK NATIONAL ASSOCIATION
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
26
COMERICA BANK - CALIFORNIA
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
THE UNDERSIGNED HEREBY ACKNOWLEDGE AND AGREE TO THE FOREGOING AGREEMENT.
EDNA VALLEY VINEYARD
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
SHW EQUITY CO.
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
CANOE RIDGE VINEYARD, L.L.C.
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
27
STATON HILLS WINERY COMPANY LIMITED
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
CANOE RIDGE WINERY, INC.
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
THE CHALONE WINE GROUP, LTD.
BY:___________________________________
NAME: ________________________________
ITS:__________________________________
28
Exhibit A
to
Intercreditor Agreement
Revolving Debt Priority Collateral
The collateral described in the granting clauses of the Security
Agreements each dated as of April 19, 2002, made by the Grantors in favor of the
Collateral Agent to secure the Facility Debt (as the same may from time to time
be amended, restated, supplemented or otherwise modified, the "SECURITY
AGREEMENT") including, without limitation:
Each Grantor's right, title and interest in, to and under all of its
personal property, wherever located and whether now existing or owned or
hereafter acquired or arising, including the following property: (i) all
Accounts; (ii) all Chattel Paper; (iii) all Commercial Tort Claims; (iv) all
Deposit Accounts; (v) all Documents; (vi) all Equipment; (vii) all Farm
Products, (viii) all General Intangibles; (ix) all Instruments; (x) all
Inventory; (xi) all Investment Property; (xii) all Letter-of-Credit Rights; and
(xii) all money, all products and Proceeds of any and all of the foregoing, and
all Supporting Obligations of any and all of the foregoing. Notwithstanding the
foregoing, except for fixtures (as provided in Section 9-313 of the UCC), such
grant of a security interest shall not extend to any asset which would be real
property under the law of the jurisdiction in which it is located or any
Excluded Collateral.
Capitalized terms used in this Exhibit A and not otherwise defined in
this Agreement or in this Exhibit A shall have the meanings given to such terms
in the Security Agreement.
Exhibit B
to
Intercreditor Agreement
Real Property
Real Property
All of the Mortgaged Property (as defined in the subject Deed of Trust)
described in each Deed of Trust in each of the following locations:
Deeds of Trusts executed by the Company and/or various Subsidiary
Guarantors for real properties bearing the following APN designations in the
States of California and Washington:
APN
047-272-012
047-272-011
047-272-016
047-272-018
027-470-030
127-011-001
053-070-037
417-181-053
417-201-001
417-181-029
417-181-030
417-181-036
417-181-052
417-201-002
36-07-19-51-2701
36-07-19-51-2702
36-07-19-51-2601
36-07-19-51-2602
1-2554-400-0004-001
1-3055-200-0001-001
1-2554-400-0003-000
191221-41002
191211-42001
191221-13001
191221-14001
191221-31013
-2-
Exhibit C
to
Intercreditor Agreement
TERM DEBT PRIORITY COLLATERAL
THE COLLATERAL DESCRIBED IN THE GRANTING CLAUSES OF THE DEEDS OF TRUST
INCLUDING, WITHOUT LIMITATION:
GRANTING CLAUSE FIRST
COLLATERAL
[For leasehold properties: All of the Company's leasehold estate
created under that certain lease dated __________, 19__ between the Company, as
Lessee and ___________, as Lessor (said Lessor, together with their respective
successors and assigns, said Lease as heretofore amended together with any
future modifications, amendments, additions, assignments and supplements
thereto, and substitutions, extensions, renewals or replacements thereof is
hereafter referred to as the "Lease") demising the parcels of land in ______
County in the State of California described in Annex A attached hereto and made
a part hereof ("Land"), together with all options to renew, extend or purchase
(including rights of first refusal) now or hereafter contained in the Lease, and
the benefits of all covenants contained in the Lease whether running with the
Land or otherwise, together with the entire interest of the Company in and to
all buildings, structures, improvements and appurtenances now standing, or at
any time hereafter constructed or placed, upon such land, including all right,
title and interest of the Company, if any, in and to all building material,
building equipment and fixtures of every kind and nature whatsoever on said land
or in any building, structure or improvement now or hereafter standing on said
land which are classified as fixtures under applicable law and which are used in
connection with the operation, maintenance or protection of said buildings,
structures and improvements as such (including, without limitation, all boilers,
air conditioning, ventilating, plumbing, heating, lighting and electrical
systems and apparatus, all communications equipment and intercom systems and
apparatus, all sprinkler equipment and apparatus and all elevators and
escalators) and the reversion or reversions, remainder or remainders, in and to
said land, and together with the entire interest of the Company in and to all
and singular the tenements, hereditaments, easements, rights of way, rights,
privileges and appurtenances to said land, belonging or in anywise appertaining
thereto, including, without limitation, the entire right, title and interest of
the Company in, to and under any streets, ways, alleys, gores or strips of land
adjoining said land, and all claims or demands whatsoever of the Company either
in law or in equity, in possession or expectancy, of, in and to said land, it
being the intention of the parties hereto that, so far as may be permitted by
law, all property of the character hereinabove described, which is now owned or
is hereafter acquired by the Company and is affixed or attached or annexed to
said land, shall be and remain or become and constitute the security
covered by and subject to the Lien of this Deed of Trust, together with all
accessions, parts and appurtenances appertaining or attached thereto and all
substitutions, renewals or replacements of and additions, improvements,
accessions and accumulations to any and all thereof, and together with all
rights, powers, privileges, options and other benefits of the Company, as
sublessor, under any subleases including the right to collect any and all rents,
profits or other income and the present and continuing right to make claim for,
collect, receive and receipt for any and all of such rents, profits or other
income (all of which properties are hereinafter referred to as the "REAL
PROPERTY"). The assignment of rents set forth in the proceeding sentence is
intended by the parties hereto to be effective to create a present security
interest in all existing and future rents, profits or other income arising from
or related to the Land under California Civil Code Section 2938, as amended from
time to time.]
[For fee owned properties: The parcels of land in ______ County in the
State of California described in Annex A attached hereto and made a part hereof
("LAND"), together with the entire interest of the Company in and to all
buildings, structures, improvements and appurtenances now standing, or at any
time hereafter constructed or placed, upon such land, including all right, title
and interest of the Company, if any, in and to all building material, building
equipment and fixtures of every kind and nature whatsoever on said land or in
any building, structure or improvement now or hereafter standing on said land
which are classified as fixtures under applicable law and which are used in
connection with the operation, maintenance or protection of said buildings,
structures and improvements as such (including, without limitation, all boilers,
air conditioning, ventilating, plumbing, heating, lighting and electrical
systems and apparatus, all communications equipment and intercom systems and
apparatus, all sprinkler equipment and apparatus and all elevators and
escalators) and the reversion or reversions, remainder or remainders, in and to
said land, and together with the entire interest of the Company in and to all
and singular the tenements, hereditaments, easements, rights of way, rights,
privileges and appurtenances to said land, belonging or in anywise appertaining
thereto, including, without limitation, the entire right, title and interest of
the Company in, to and under any streets, ways, alleys, gores or strips of land
adjoining said land, and all claims or demands whatsoever of the Company either
in law or in equity, in possession or expectancy, of, in and to said land, it
being the intention of the parties hereto that, so far as may be permitted by
law, all property of the character hereinabove described, which is now owned or
is hereafter acquired by the Company and is affixed or attached or annexed to
said land, shall be and remain or become and constitute a portion of said land
and the security covered by and subject to the Lien of this Deed of Trust,
together with all accessions, parts and appurtenances appertaining or attached
thereto and all substitutions, renewals or replacements of and additions,
improvements, accessions and accumulations to any and all thereof, and together
with all rights, powers, privileges, options and other benefits of the Company,
as lessor, under any leases including the right to collect any and all rents,
profits or other income and the present and continuing right to make claim for,
collect, receive and receipt for any and all of such rents, profits or other
income (all of which properties are hereinafter referred to as the "REAL
PROPERTY"). The assignment of rents set forth in the proceeding sentence is
intended by the parties hereto to be effective to create a present security
interest in all existing and future rents, profits or other income arising from
or related to the Land under California Civil Code Section 2938, as amended from
time to time.]
-2-
GRANTING CLAUSE SECOND
TRADE PROPERTY
All materials, furniture, furnishings, machinery, fixtures and
equipment now or hereafter erected on or affixed to the Collateral and
including, but not limited to, all heating, plumbing, lighting, water heating,
cooking, laundry, refrigerating, incinerating, communications, ventilating and
air conditioning equipment, building signs, disposals, dishwashers, telephone
systems, sprinkler systems, fire extinguishing apparatus and equipment, water
tanks, engines, machines, boilers, dynamos, stokers, elevators, motors,
cabinets, shades, blinds, partitions, window screens, screen doors, storm
windows, awnings, drapes, rugs and other floor coverings, furniture,
furnishings, radios and television sets and wiring and antennae therefor, and
all fixtures, accessions and appurtenances thereto, and all renewals or
replacements of or substitutions for any of the foregoing, together with all
other goods, equipment, furnishings, fixtures, machinery and furniture owned by
the Company now or hereafter attached or affixed to or used in and about the
building or buildings now erected or hereafter to be erected on the Collateral,
or otherwise located on the Collateral, and all fixtures, accessions and
appurtenances thereto, and all renewals or replacements of or substitutions for
any of the foregoing (all of which properties are hereinafter referred to as
"TRADE PROPERTY").
GRANTING CLAUSE THIRD
CONDEMNATION AWARDS AND PAYMENTS
To the extent assignable, all judgments, awards of damages, settlements
and other compensation heretofore or hereafter made resulting from condemnation
proceedings or the taking of the Collateral or any part thereof or any
improvements now or at any time hereafter located thereon or any easement or
other appurtenance thereto under the power of eminent domain, or any similar
power or right (including any award from the United States Government at any
time after the allowance of the claim therefor, the ascertainment of the amount
thereof and the issuance of the warrant for the payment thereof), whether
permanent or temporary, or for any damage (whether caused by such taking or
otherwise) to said Collateral or any part thereof or the improvements thereon or
any part thereof, or to any rights appurtenant thereto, including severance and
consequential damage, and any award for change of grade of streets
(collectively, "CONDEMNATION AWARDS").
GRANTING CLAUSE FOURTH
Subject to the satisfaction in full of all indebtedness outstanding
under the Revolving Credit Agreement Notes, a collateral security interest in
all of the Company's right,
-3-
title and interest in and to the General Intangibles related to the Collateral
(as defined in the Credit Agreement) of the Company.
GRANTING CLAUSE FIFTH
PROCEEDS
All proceeds of the conversion, voluntary or involuntary, of any of the
foregoing into cash or other liquidated claims, including, without limitation,
all proceeds and payments of insurance related to the Collateral.
EXCEPTED PROPERTY
There is, however, expressly excepted and excluded from the Term Debt
Priority Collateral, the Revolving Debt Priority Collateral of the Company and
the other Grantors, now owned or hereafter acquired (herein called the "EXCEPTED
PROPERTY").
-4-
Schedule I to Intercreditor Agreement
List of Noteholders
Farm Credit Services of America, PCA
Agstar Financial Services, PCA, D/B/A Farm Credit Services Commercial
Finance Group
-5-
Schedule II to Intercreditor Agreement
List of Facility Lenders
Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank International",
New York Branch
Farm Credit West FLCA
U.S. Bank National Association
Comerica Bank - California
-6-
FORM OF COMPLIANCE CERTIFICATE
To Each Of The Purchasers
Listed In The Attached Schedule 2
Re: The Chalone Wine Group, Ltd.
Ladies and Gentlemen:
This Compliance Certificate is made and delivered pursuant to the
Amended and Restated Note Purchase Agreement dated as of April 19, 2002 (as
amended, modified, supplemented, renewed or extended from time to time, the
"Note Purchase Agreement") among The Chalone Wine Group, Ltd. (the "Company"),
and each of the Purchasers listed in the attached Schedule 2, and reference is
made thereto for full particulars of the matters described therein. All
capitalized terms used in this Compliance Certificate and not otherwise defined
herein shall have the meanings assigned to them in the Note Purchase Agreement.
This Compliance Certificate relates to the accounting period ending __________.
I am the [Chief Financial Officer] of the Company. I have reviewed the
terms of the Note Purchase Agreement and I have made, or caused to be made under
my supervision, a detailed review of the transactions and conditions of the
Company and its Subsidiaries during such accounting period. I hereby certify
that the information set forth on Schedule 1 hereto (and on any additional
schedules hereto setting forth further supporting detail) is true, accurate and
complete as of the end of such accounting period.
I hereby further certify that (i) as of the date hereof, no Default has
occurred and is continuing, and (ii) on and as of the date hereof, there has
occurred no Material Adverse Effect since December 31, 2001 except in each case
as may be set forth in a separate attachment hereto describing in detail the
nature of each condition or event constituting an exception to the foregoing
statements, the period during which it has existed and the action which the
Company is taking or proposes to take with respect to each such condition or
event.
IN WITNESS WHEREOF, the undersigned officer has signed this Compliance
Certificate this ____ day of ______________.
_________________________________
Name:
Title:
EXHIBIT F
(to the Note Purchase Agreement)
SCHEDULE 1
TO COMPLIANCE CERTIFICATE
Worksheet for Financial Covenants
for the accounting period ending ____________________.
Section 10.4(a)-Leverage Ratio Actual Required
______________________________ ______ ________
A. Consolidated Indebtedness
(i) total Indebtedness of the $_____________
Company and its Subsidiaries on a
consolidated basis
(ii) accounts payable to trade $_____________
creditors for goods and services and
current operating liabilities (not the
result of the borrowing of money)
incurred in the ordinary course of the
Company's or the Subsidiaries'
business in accordance with
customary terms and paid within the
specified time (unless contested in
good faith by appropriate
proceedings and reserved for in
accordance with GAAP)
(iii) Indebtedness owing by the $_____________
Company to the estate of Richard
Graff in a principal amount not to
exceed $1,000,000
(i) minus (ii) minus (iii) $
==============
B. 600% of Consolidated Rent Expense $______________
(calculated on a rolling 4-quarter basis)
C. A + B $______________
F-2
D. Consolidated EBITDA
(calculated on a rolling 4-quarter basis)
(i) Consolidated Net Income (computed $______________
without giving effect to
any gains or losses from dispositions
of assets and other extraordinary
items)
(ii) Consolidated Interest Expense $______________
(iii) income tax expense $______________
(iv) depreciation expense, $______________
amortization expense, other non-cash
expenses
Sum of (i) + (ii) + (iii) + (iv) $
==============
E. Consolidated Rent Expense $______________
(calculated on a rolling 4-quarter basis)
F. D + E $______________
G. Ratio of C to F ______:________ See Section 10.4
(a) of the Note
Purchase
Agreement
Section 10.4(b) - Consolidated Tangible
Net Worth
A. Minimum Consolidated Tangible Net
Worth Calculation
(i) $76,000,000 $______________ $76,000,000
F-3
(ii) Net Issuance Proceeds received
by the Company or any Subsidiary
from the sale or issuance of equity
securities to any Person other than
the Company or any Subsidiary after
December 31,2001 $______________
(iii) Net Issuance Proceeds received
by the Company or any Subsidiary
from the sale or issuance of
Subordinated Debt to any Person
other than the Company or any
Subsidiary after December 31, 2001 $______________
(iv) 75% of positive Consolidated
Net Income, if any, for each fiscal
quarter elapsed after
December 31, 2001 $______________
Sum of (i) + (ii) + (iii) + (iv) $______________
B. Consolidated Tangible Net Worth
(i) Consolidated Total Assets $______________
(ii)Intangible Assets (including $______________
goodwill, organizational expense,
research and development expense,
patent applications, patents,
trademarks, trade names, brands,
copyrights, trade secrets, customer
lists, licenses, franchises and
covenants not to compete)
(iii) Subordinated Debt $______________
(iv) Consolidated Total Liabilities $______________
Sum of (i) - (ii) + (iii) - (iv) $
==============
C. Excess (deficient) for covenant $______________
compliance
(B minus A)
F-4
Section 10.4(c) - Interest Coverage
Ratio
A. Consolidated EBIT (calculated on a $______________
rolling 4-quarter basis)
(i) Consolidated Net Income $______________
(computed without giving effect to
any gains or losses from dispositions
of assets and other extraordinary
items)
(ii) Consolidated Interest Expense $______________
(iii) income tax expense $______________
Sum of (i) + (ii) + (iii) $
==============
B. Consolidated Interest Expense $______________
(calculated on a rolling 4-quarter
basis)
C. Ratio of A to B ______:________ See Section 10.4
(c) of the Note
Purchase
Agreement
Section 10.4(d) - Fixed Charge
Coverage Ratio
A. Consolidated EBITDA (calculated $______________
on a rolling 4-quarter basis)
B. Fixed Charge calculation
(i) Consolidated Interest Expense $______________
(calculated on a rolling 4-quarter
basis)
F-5
(ii) regularly scheduled principal
payments on Indebtedness (including
such payments attributable to Capital
Leases) of the Company and its
Subsidiaries for the four consecutive
fiscal quarters then most recently
ended $______________
(iii) cash income taxes of the
Company and its Subsidiaries for the
four consecutive fiscal quarters then
most recently ended $______________
(iv) Cash dividends of the Company
and its Subsidiaries for the four
consecutive fiscal quarters then most
recently ended $______________
Sum of (i) + (ii) + (iii) + (iv) $______________
C. Ratio of A to B ______:________ See Section 10.4
(d) of the Note
Purchase
Agreement
Section 10.4(e)(i) - Capital Expenditure
on new wine barrels
A. Capital expenditures made on new
wine barrels during fiscal year to
date $______________
B. Capital expenditures on new wine
barrels that could have been made
during prior fiscal year but which
were not made $______________
C. Maximum permitted capital
expenditures on wine barrels
($_________ plus Line B above) $______________
D. Excess (deficient) for covenant
compliance (C minus A) $
==============
F-6
Section 10.4(e)(ii) - Capital Expenditure
on other fixed or capital assets
A. Capital expenditures made on other
assets during fiscal year to date $______________
B. Capital expenditures on other assets
that could have been made during
prior fiscal year but which were not
made $______________
C. Maximum permitted capital
expenditures on other assets
($_________ plus Line B above) $______________
D. Excess (deficient) for covenant
compliance (C minus A) $
==============
Section 10.8(h) - Intercompany Loans
A. Canoe Ridge Intercompany Loan $7,000,000
Amount $______________ (adjusted
annually)
B. Edna Valley Intercompany Loan $20,000,000
Amount $______________ (adjusted
annually)
C. SHW Intercompany Loan Amount $______________ $8,000,000
(adjusted
annually)
D. A + B + C $ $35,000,000
============== (adjusted
annually)
F-7
FORM OF UPDATE CERTIFICATE
See attached certificate.
EXHIBIT G
(to the Note Purchase Agreement)
UPDATE CERTIFICATE
for the Reporting Period ended _______________, 20__
Date: [ ], 200[ ]
To: The Parties to the Note Agreement described below.
Ladies and Gentlemen:
Reference is made to that certain Amended and Restated Note Purchase
Agreement dated as of April 19, 2002 (as amended, modified, renewed or extended
from time to time, the "Agreement"), between The Chalone Wine Group, Ltd. (the
"Company") and each of the Purchasers named therein. Capitalized terms used and
not defined herein shall have the meanings assigned to such terms in the
Agreement, as applicable.
This Update Certificate is provided pursuant to the Agreement without
limiting the Company's or any Subsidiary's ongoing reporting obligations under
the Loan Documents with respect to the matters covered by this Update
Certificate.
The undersigned hereby certifies to the Purchasers, that as to the
Company and each Subsidiary (each a "Loan Party" and, collectively, the "Loan
Parties") that, during the period referred to below to the date hereof (the
"Reporting Period"), there has not been (i) any change in its corporate name, in
its registration as an organization (or new registration) or in its jurisdiction
of organization, (ii) any change in the location of its chief executive office,
its principal place of business, any office in which it maintains books or
records relating to Collateral owned by it or any office or facility at which
Collateral owned by it is located (including the establishment of any new such
office or facility), (iii) any securities account, bank account or other deposit
account opened by a Loan Party or any change in the names or locations of any
other persons in possession of Collateral, (iv) any new lease of real property
entered into by a Loan Party, (v) the creation or acquisition of any Subsidiary
by a Loan Party, (vi) any creation or acquisition by a Loan Party of any new
patent or trademark rights, or copyrights, owned or maintained by a Loan Party,
(vii) any acquisition of any right to payment or performance under a letter of
credit, or (viii) any new claims of any Loan Party against any third person for
damages (whether or not suit has been filed), except as follows:
1. Names; Jurisdiction of Organization.
(a) During the Reporting Period, a Loan Party changed its
corporate
(b) During the Reporting Period, a Loan Party changed its
jurisdiction of organization as follows:
(c) During the Reporting Period, a Loan Party changed its registration as an
organization or obtained a new registration as follows:
G-2
2. Locations.
(a) During the Reporting Period, a Loan Party changed the
location of its chief executive office as follows:
(b) During the Reporting Period, a Loan Party changed the
location of its principal place of business as follows:
(c) During the Reporting Period, a Loan Party changed the
location of any office in which it maintains books and records relating to the
Collateral owned by it or any office or facility at which Collateral owned by it
is located (including the establishment of any such new office or facility and
any new co-location of Collateral or other third party site) as follows, and the
value of the Collateral at any such new location is also identified:
3. New Names and Locations of Persons Possessing Collateral
(including New Deposit Accounts). During the Reporting Period, the names and
locations of any persons other than a Loan Party that have possession of any
Collateral of a Loan Party changed as follows (include the location of any new
bank accounts, securities custody accounts, or similar accounts opened by a Loan
Party during the Reporting Period):
4. Real Property Leases. During the Reporting Period, a Loan Party
entered into new real property leases as follows:
5. Subsidiaries. During the Reporting Period, a Loan Party created
or acquired the following direct or indirect Subsidiaries:
6. Intellectual Property. During the Reporting Period, a Loan Party
created or acquired, or otherwise become entitled to the benefit of,
intellectual property consisting of any patents, trademarks, or copyrights (or
any renewals, extensions or applications with regard to the foregoing), as
follows:
7. Letter-of-Credit Rights. During the Reporting Period, a Loan
Party acquired right to payment or performance under a letter of credit as
follows:
8. Commercial Tort Claims. During the Reporting Period, new claims
of a Loan Party against any third person for damages (whether or not suit has
been filed) arose as follows:
Consistent with the provisions of revised Article 9 of the Uniform
Commercial Code of the relevant jurisdiction(s) (as and when adopted), the Loan
Parties hereby authorize the Collateral Agent to file (with or without a Loan
Party's signature), at any time and from time to time thereafter, all financing
statements, assignments, continuation financing statements, financing statement
amendments, termination statements and other documents and instruments, in form
reasonably satisfactory to the Collateral Agent, and take all other action, as
the Collateral Agent may deem reasonable, to perfect and continue perfected,
maintain the priority of or provide notice of any security interest of the
Collateral Agent in the Collateral and to accomplish the purposes of the
Agreement.
G-3
IN WITNESS WHEREOF, the undersigned has executed this Update
Certificate on behalf of the Loan Parties.
_____________________________________________
Name:
Title:
Note Agreement dated: April 19, 2002
Start date of Reporting Period: ______________
G-4
EXHIBIT 10.56
SECOND AMENDMENT TO
JOINT VENTURE AGREEMENT
OF
EDNA VALLEY VINEYARD
THIS SECOND AMENDMENT (the "Amendment") is made and entered into as of
this ___ day of June, 2002, by and between Paragon Vineyard Co., Inc., a Nevada
corporation ("Paragon"), and The Chalone Wine Group, Ltd., a California
corporation ("Chalone").
RECITALS
A. Paragon and Chalone entered into a Joint Venture Agreement on April
18, 1980, pursuant to which the parties established the Edna Valley Vineyard
Joint Venture. The original Joint Venture Agreement was amended and restated as
of January 1, 1991 (hereinafter, the "1991 Joint Venture Agreement"). The 1991
Joint Venture Agreement was amended by the parties pursuant to an amendment
dated December 27, 1996 (hereinafter, the "1996 Amendment"). The 1991 Joint
Venture Agreement, as amended by the 1996 Amendment, and as amended herein, is
referred to hereinafter as the "Joint Venture Agreement," and the joint venture
established thereby is referred to hereinafter as the "Joint Venture."
B. Paragon and Chalone desire to amend the Joint Venture Agreement in
those respects specified herein, and only in those respects specified herein.
IN CONSIDERATION of the foregoing and the mutual covenants set forth
herein, Paragon and Chalone agree as follows:
1
1. AMENDMENTS TO ARTICLE V OF THE JOINT VENTURE AGREEMENT
(SUPPLY OF GRAPES BY PARAGON TO THE JOINT VENTURE)
Article V of the Joint Venture Agreement is hereby amended in the
following respects and in the following respects only.
Section 5.1(a) is hereby amended in its entirety to read as follows:
"(a) Paragon and the Joint Venture shall, concurrently with the execution of
this Amendment, enter into the Second Amended and Restated Grape Purchase
Agreement (the "Amended Grape Purchase Agreement"), substantially in the form
attached hereto as EXHIBIT A. The Joint Venture may, upon Review Committee
approval, purchase and resell, or vint as bulk wine, a portion of the grapes
required to be purchased by the Joint Venture from Paragon."
2. AMENDMENTS TO ARTICLE VII OF THE JOINT VENTURE AGREEMENT
(DISTRIBUTIONS; ALLOCATION OF INCOME AND LOSS)
Article VII of the Joint Venture Agreement is hereby amended in the
following respects and in the following respects only.
Section 7.3 is hereby added to Article VII to read in its entirety as
follows:
"7.3 DISTRIBUTIONS
For purposes of covering the estimated taxes of each of the Joint
Venture Partners in connection with the Joint Venture, by December 15 of each
year, the Joint Venture shall distribute to the Joint Venture Partners cash in
the aggregate amount of fifty percent (50%) of the projected earnings of the
Joint Venture for that year as reasonably determined by the Managing Joint
Venture Partner. In addition, by April 15 of the following year, the Joint
Venture shall distribute to the Joint Venture Partners an additional amount of
cash sufficient to bring the aggregate amount of distributions made to
sixty-seven percent (67%) of the actual earnings of the Joint Venture for the
previous year; PROVIDED, HOWEVER, that if by April 15 the Joint Venture has not
2
yet determined actual earnings for the previous year, a good faith estimate
shall be paid and the Joint Venture shall adjust the foregoing cash
distributions totaling sixty-seven percent (67%) to reflect actual earnings once
determined.
If the adjustment requires additional distributions to the Joint
Venture Partners, the Joint Venture shall make such additional distributions as
soon as practically possible. If the aggregate distributions made exceed 67% of
actual earnings, the Joint Venture may subtract the overpayment from subsequent
distributions to be made to the Joint Venture Partners. In certain years, the
Joint Venture Partners may agree to reduce or increase the 67% provided for
above.
The Joint Venture computation of profits shall be made according to
generally accepted accounting principles and shall be audited by the Company's
accountants.
3. AMENDMENTS TO ARTICLE VIII OF THE JOINT VENTURE AGREEMENT
(MANAGEMENT OF THE JOINT VENTURE)
Article VIII of the Joint Venture Agreement is herby amended in the
following respects and in the following respects only.
Section 8.3(d) is hereby amended in its entirety to read as follows:
"(d) The Managing Director of the Committee shall be Thomas B.
Selfridge, so long as Mr. Selfridge serves as a director of Chalone and so long
as Chalone remains the Managing Joint Venture Partner of the Joint Venture. In
the event that Mr. Selfridge is no longer qualified or is unable to serve, at a
point in time when Chalone is the Managing Joint Venture Partner of the Joint
Venture, then the position of Managing Director of the Committee shall be filled
as follows: Chalone shall, by written notice to Paragon, identify three
candidates each of whom is an officer or director of Chalone and each of whom,
3
by reason of his or her education, training, experience and knowledge of the
wine business and the business of the Joint Venture, is qualified to serve as
Managing Director of the Committee. The written notice shall specify, in
reasonable detail, the qualifications of each candidate to serve as Managing
Director of the Committee. Within thirty (30) days of receipt of the aforesaid
notice from Chalone, Paragon shall notify Chalone, in writing, of its agreement
to the election of one of the three candidates identified by Chalone to serve as
Managing Director of the Committee, and such person shall thereafter serve as
managing Director of the Committee pursuant to the terms and provisions of the
Joint Venture Agreement. If Paragon does not notify Chalone, in writing, of its
agreement to the selection of one of the three candidates identified by Chalone
within thirty (30) days of Paragon's receipt of the notice from Chalone as
aforesaid, then Chalone may, by notice to Paragon, select one of the three
candidates identified by Chalone as the Managing Director of the Committee. In
the event that Chalone ceases to be the Managing Joint Venture Partner of the
Joint Venture, then the position of Managing Director of the Committee shall
forthwith become vacant and the individual who shall serve as Managing Director
of the Committee shall be determined by the Review Committee. The Managing
Director of the Committee shall preside at all meetings of the Committee and
shall exercise and perform such other powers and duties as may from time to time
be assigned to him by the Committee."
Section 8.5(e)(i) is hereby amended in its entirety to read as follows:
"(i) The Joint Venture shall bear all costs of promotion and marketing
of the wines sold by the Joint Venture except asprovided by paragraph (ii)
below. In consideration thereof and its services rendered in promoting and
marketing the wines of the Joint Venture, the Managing Joint Venture Partner
4
shall receive a commission, PROVIDED, HOWEVER, that the Managing Joint Venture
Partner shall not receive any commission for wines sold at the Winery, through
the Edna Valley VineyardWine Club, or over the internet, PROVIDED, HOWEVER, any
costs incurred by the Managing General Partner for internet sales shall be
reimbursed on a monthly basis. The Managing Joint Venture Partner's commission
shall be payable at such time as the Joint Venture receives payment for the
merchandise sold. The commission shall be in the following percentages, by
category sale:
(A) Private label wines: five percent (5%).
(B) Branded wines sold in California: ten percent (10%).
(C) Branded wines sold other than in California: twelve
percent (12%).
The out-of-state transfer price will be FOB net of all discounts
(including special purchase allowances (SPAs), depletion allowances and any
other similar accommodations offered to the trade).
The commissions paid to Chalone as provided above will be reduced on a
monthly basis by the reduction amount listed on the chart below:
Monthly
Reduction
Year Amount
________________________________
2002 $41,667/month
2003 $41,667/month
2004 $41,667/month
2005 $41,667/month
2006 - 2021 $ 8,333/month
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Section 8.5(e)(ii) is hereby amended in its entirety to read as
follows:
"(ii) Chalone shall act as distributor of the Winery's wine for the
State of California. Its continuation as distributor is subject to review from
time to time by the Review Committee, with affirmative approval required of the
Review Committee for Chalone's continuation as a distributor from year to year.
Subject to the foregoing, as distributor of the wines of the Winery in
California, Chalone shall be entitled to purchase the wines for distribution at
the wholesale price thereof net of all discounts (including special purchase
allowances (SPAs), depletion allowances and any other similar accommodations
offered to the trade), less 25%. In addition, the Joint Venture shall bear
one-half of Chalone's wine sample costs and wine list charges. If at any time
Chalone both ceases to be the distributor for the state of California and no
longer receives a margin commission from a broker or distributor in California,
Chalone's commission for branded wines sold in California shall be eleven and
one-quarter percent (11.25%) computed pursuant to Section 8.5(e)(i).
4. REDUCTION IN REVENUE TO PARAGON
The annual payments to Paragon for grapes or distributions shall be
reduced according to the following formula:
YEAR REDUCTION AMOUNT
____ ________________
2003 $125,000
2004 $250,000
2005 $250,000
2006 through and including 2021 $300,000
This reduction in revenue constitutes a revision to the Joint Venture
Agreement and not a modification to the price of grapes. The reduction shall be
paid between December 15 and December 31 of each year commencing with the year
2003 and ending in the year 2021.
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5. RETROACTIVITY OF MODIFICATIONS
The foregoing amendments to the Joint Venture Agreement will be
retroactive to January 1, 2002, and govern the distribution of operating profits
to have been paid in 2002 for the year 2001.
6. FINANCIAL AND MARKETING REPORTING
Chalone on behalf of the Joint Venture shall produce and forward to the
members of the Review Committee financial and marketing reports which include
that information historically included in the financial statements plus a review
of manufacturing costs versus budget and against last year's manufacturing
costs, and capital expenditures versus budget.
The financial and marketing reports will also include (1) an analysis
which explains any significant variance in any expense, sales item, or capital
expense from budget or from last year, (2) marketing commentary, (3) quarterly
case sales versus budget and against last year by product and by market, (4) a
monthly "snapshot" of case sales with an explanation of significant variances,
and (5) quarterly tracking and explanation of marketing support discounts and
programming by product and by market. The reports will be due on the following
dates:
a. Quarterly full financials the 30th day of the month following the
quarter.
b. Annual trial balance, March 31st, and annual K-1, March 20th.
c. All other reports described above on the 15th day following the
month or quarter they are due unless otherwise agreed.
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6. DUE EXECUTION AND VALIDITY OF THIS AMENDMENT
(a) Chalone represents and warrants to Paragon that this Amendment has
been duly authorized and executed by it pursuant to all necessary corporate
action and, upon its due execution by Paragon, this Amendment shall be a valid
and binding agreement of Chalone, enforceable against it in accordance with its
terms and conditions.
(b) Paragon hereby represents and warrants to Chalone that this
Amendment has been duly authorized and executed by it pursuant to all necessary
corporate action and, upon its due execution by Chalone, shall be a valid and
binding agreement of Paragon, enforceable against it in accordance with its
terms and conditions.
7. CONTINUED VALIDITY OF THE 1991 JOINT VENTURE AGREEMENT AND 1996
AMENDMENT
Other than as expressly amended hereby, the terms and provisions of the
1991 Joint Venture Agreement, as amended by the 1996 Amendment, shall remain in
full force and effect, binding upon Chalone and Paragon and their respective
successors and assigns.
________________________________
IN WITNESS WHEREOF, the parties have executed this Amendment of the
Joint Venture Agreement as of the day and year first above written.
PARAGON VINEYARD CO., INC.
By
________________________________
James H. Niven, President
THE CHALONE WINE GROUP, LTD.
By
________________________________
Thomas B. Selfridge,
Chief Executive Officer
8
EXHIBIT A
SECOND AMENDED AND RESTATED GRAPE PURCHASE AGREEMENT
9
EXHIBIT 10.57
SECOND AMENDED AND RESTATED GRAPE PURCHASE AGREEMENT
This SECOND AMENDED AND RESTATED GRAPE PURCHASE AGREEMENT (the
"Agreement") is made and entered into as of this ____ day of June, 2002, by and
between PARAGON VINEYARD CO., INC. ("Grower"), and EDNA VALLEY VINEYARD, a Joint
Venture ("Buyer").
RECITALS
A. Grower is a Nevada corporation operating vineyards in Edna Valley,
San Luis Obispo, California.
B. Buyer is a joint venture between The Chalone Wine Group Ltd., a
California corporation, and Grower (the "Joint Venture"), organized and
operating under that certain Joint Venture Agreement dated as of January 1, 1991
(the "1991 Joint Venture Agreement"). The 1991 Joint Venture Agreement was
amended as of December 27, 1996 (the "First Amendment"), and was further amended
concurrently with the execution of this Agreement as of June __, 2002 (the
"Second Amendment"). The 1991 Joint Venture Agreement, as amended by the First
Amendment, and as amended by the Second Amendment, is referred to hereinafter as
the "Joint Venture Agreement." The purpose of the Joint Venture is to operate a
winery as described in the Joint Venture Agreement.
C. On January 1, 1991, Grower and Buyer entered into a Revised Grape
Purchase Agreement with respect to the sale and purchase of premium varietal
wine grapes exclusively from vineyards owned or leased by Grower (or Grower's
successor pursuant to Article XI of the Joint Venture Agreement) to be produced
at Grower's vineyards (the "Vineyards") in Edna Valley, San Luis Obispo County,
California (the "1991 Grape Purchase Agreement"). The 1991 Grape Purchase
Agreement was amended and restated on January 1, 1997 (the "1997 Grape Purchase
Agreement"). The 1997 Grape Purchase Agreement was amended as of March 1, 1998
(the "1998 Grape Purchase Agreement"). The 1997 Grape Purchase Agreement, as
amended by the 1998 Grape Purchase Agreement, is referred to hereinafter as the
"Existing Agreement." The parties hereto now wish to amend and restate the
1
Existing Agreement to provide for the purchase and sale of such grapes on the
terms and conditions as set forth hereinafter.
AGREEMENT
1. TERM: This contract shall terminate upon the earlier of:
(a) The dissolution of Buyer, unless the business of Buyer is continued
following such dissolution by one or more of the former Joint Venture partners;
or
(b) Upon the transfer by Grower of all of its Chardonnay producing
vineyards in the manner provided in Article XI of the Joint Venture Agreement.
In the event the periods described at (a) and (b) above are in excess
of the maximum term permitted under California or any other applicable law, then
the term of this Agreement shall be the maximum which is lawful under such
California or other applicable law.
2. QUANTITY:
(a) All grapes purchased by the Buyer to be vinted by the Joint Venture
shall be purchased from Grower (or Grower's successor pursuant to Article XI of
the Joint Venture Agreement) except as provided in section 2(c)(iii) below or
otherwise provided in writing by the parties.
(b) All grape purchase contracts with a vineyard other than Grower
shall be terminated as soon as practicable and shall not be renewed or extended
without the prior written consent of Grower.
(c) Grower shall sell and Buyer shall purchase grapes as hereinafter
set forth:
(i) The annual tonnage by varietal to be purchased is as set
forth on EXHIBIT A.
(ii) In any year in which there is an excess crop of Chardonnay
grapes in order to relieve Grower of undue pressure caused by over supply,
Grower shall have the right to deliver, and Buyer shall purchase, up to ten
percent (10%) of the annual tonnage stated for each varietal of grapes on
EXHIBIT A.
(iii) In the event that it appears that Grower's grape crop for any
varietal is short and Grower will therefore be unable to deliver the stated
annual tonnage for any of the varietal grapes as provided for under this
2
Agreement and Buyer notifies Grower of the need to cover the short fall, both
Grower and Buyer shall have the right to propose sources of grapes to cover the
anticipated short fall for that year's harvest. If Grower is proposing to
provide the grapes to cover, Buyer has the right to a reasonable review and to
reject the proposed purchase of grapes based upon quality, price or appellation.
If Buyer is proposing to source the grapes to cover, Buyer shall not contract to
purchase such grapes without the consultation and prior approval of Grower which
may not be unreasonably withheld.
All grapes purchased for the purpose of covering a short crop may be
used in a blend and the wine produced therefrom may be sold under the Edna
Valley Vineyard brand provided it is lawful to do so and such sale shall not
constitute a breach or violation of this Agreement, the Joint Venture Agreement,
the Revised License Agreement between the parties dated as of December 23, 1996,
or any other Agreement between the parties.
(iv) No grapes purchased to cover a short fall may be processed at
the Buyer's Winery if the grapes come from a region known or reasonably
suspected to be infested with phylloxera, the glassy winged sharpshooteror other
serious disease or pest although the juice from such grapes, if crushed at a
facility other than the Winery may be used in a blend.
(v) The obligation to Grower to use its best reasonable efforts to
supply Buyer with grapes shall be subject to Grower's obligations to customers
other than Buyer (as said customers may be replaced by new customers from
time-to-time). By way of illustration and not limitation, should weather
conditions or other circumstances limit the harvest in any one year, then the
grapes sold to Buyer by Grower shall be reduced pro rata based upon Buyer's
share of the year's projected harvest, as determined in good faith by Grower. It
is agreed that because of the fact that different customers of Grower may
purchase grapes for delivery at different times during the harvest, any good
faith allocation made by Grower of its harvest among its customers on or prior
to September 1st of each year, shall be binding and conclusive upon Buyer.
3. BASE PURCHASE PRICE:
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(a) The base purchase price of grapes sold and purchased under this
Agreement for the years 2002, 2003, 2004 and 2005 will be as follows:
2002 2003 2004 2005
Chardonnay $2,325/ton $2,372/ton $2,419/ton $2,467/ton
Pinot Gris $1,800/ton $1,836/ton $1,873/ton $1,910/ton
Viognier $1,800/ton $1,836/ton $1,873/ton $1,910/ton
Sauvignon Blanc $1,300/ton $1,326/ton $1,353/ton $1,380/ton
Pinot Noir $2,800/ton $2,856/ton $2,913/ton $2,971/ton
Syrah(Catharine's Paso Robles) $1,500/ton $1,530/ton $1,561/ton $1,592/ton
Syrah (Paragon) $1,800/ton $1,836/ton $1,873/ton $1,910/ton
(b) For the year 2006 and beyond, the current year's price for each
individual varietal will be calculated by adjusting the prior year's actual
price by a factor which has been calculated using the weighted average of the
top twenty-five percent (25%) of sales (as determined by price per ton) with
Table 8 District 8 and the most recent Grape Crush Report (for the year
immediately preceding the current harvest) as the numerator and using the
weighted average of the top twenty-five percent (25%) of sales (as determined by
price per ton) and Table 8 District 8 from the second year (two years ago)
immediately preceding the most recent Grape Crush Report as the denominator..
Changes can be either positive or negative, but will not be more than $100.00
per ton per varietal in any year. In no case will the grape price drop below the
2002 price as stated in Section3(a).
The following is an example of how this calculation is to be made:
In order to calculate the price for the harvest of 2006:
Assume the actual price for the 2005 harvest was $2,000
per ton
and
Assume the weighted average of the top 25%
for this varietal for the prior year's
harvest (2005) as reported in the Grape
Crush Report, Table 8, for the 2005 harvest
(which was published in March of 2006) was
$1,800
and
Assume the weighted average of the top 25%
for this varietal for the harvest of two
years prior (2004) as reported in the Grape
Crush Report, Table 8, for the 2004 harvest
(which was published in March of 2005) was
$1,750
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Prior year's (2005) top 25% $1,800 (numerator)
Year before that (2004) $1,750 (denominator)
Index would be 102.86%
Times last year's (2005) price
of $2,000 $2,057.14
=========
This becomes the
price for 2006
The Grape Crush Report is the final Grape Crush Report published by the
California Department of Food & Agriculture relating to the year of the harvest
(the Grape Crush Report).
(c) The prices as stated in Section 3(a) will not apply to the
Schiebelhut Chardonnay. The Schiebelhut Chardonnay price is determined by a
separate written agreement which expires after the 2002 harvest. The parties
will jointly monitor the contract to ensure the appropriate notice of
termination is given to Schiebelhut.
(d) In the event the Grape Crush Report should cease to be published or
in the event the parties mutually agree that the sales reported to the Grape
Crush Report do not, in general, reflect arms length transactions and the
formula is materially affected by the non-arms length transactions, the parties
shall agree to another pricing method which when applied will result in grape
pricing which will result in fixing prices in substantially the same manner or
in a reasonably similar manner. If the parties are unable to agree upon another
method the issue shall be mediated or arbitrated pursuant to paragraph 12
hereof.
4. BONUSES AND PENALTIES:
(a) The base purchase price determined as set forth in paragraph 3
above shall be paid for grapes delivered with a brix between 22.5 degrees and
24.5 degrees. There shall be a bonus paid for grapes delivered at a sugar
content above 24.5 degrees (or in certain circumstances above 24 degrees brix)
to a maximum of 27 degrees brix, and a penalty for grapes delivered below 22.5
degrees brix. The bonus or penalty as applicable shall be one percent (1%) of
5
the base price for each one-tenth degree (1/10(degree)) above 24.5 degrees to a
maximum of 27 degrees, or below 22.5 degrees to a maximum of 21 degrees.
Provided, however, in the event 40% or more of the total tonnage under this
Agreement in a given vintage as determined per varietal is not called in by
Buyer at press tank zone sugars of 23.5 degrees brix or below the bonus
threshold shall be reduced from 24.5 degrees to 24.0 degrees brix for the entire
harvest.
The optimum sugar is 23.5 degrees brix.
From time to time Buyer may call for delivery of up to five percent
(5%) of the fruit in a vintage under 22.5 degree brix and such delivery shall be
without penalty.
(b) All bonuses, penalties or rejection shall be computed on the basis
of the weighted average sugar content. The content shall be measured daily and
the bonus, penalty or rejection shall be computed on a day of delivery basis.
The method of calculation of the weighted average sugar content shall be as
depicted in EXHIBIT B, attached hereto and incorporated herein by reference. The
sugar content shall be determined by refractometer. The determination of sugar
content shall be made by Buyer and reported to Grower within twenty-four (24)
hours of each day's delivery. The sugar content shall be determined by zone
press tank samples taken at the conclusion of a day's pressing or as soon as
reasonably practicable thereafter. The results of a zone tank sample analysis
shall be communicated by fax to Grower within two hours of taking the sample.
Grower has the right at any time to take its own samples or to compare sample
results with Buyer's laboratory in order to confirm the accuracy of any sample
testing.
(c) If the weighted average sugar content is below 21 degrees or 27
degrees, the grapes may be rejected.
5. CONDITION OF DELIVERED GRAPES.
All grapes delivered under this contract shall be delivered with a
minimum of Material Other Than Grapes ("MOG"), Defects and Rot.
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(a) Each grape delivery shall be visually inspected by Buyer for
Defects, Rot and MOG. In the event Buyer determines that a load contains
Defects, Rot or MOG justifying a rejection of the load and Grower does not
acquiesce in the determination, the load shall be referred to the Grape
Inspection Service of the California Department of Food & Agriculture for the
purpose of making an inspection and a conclusive determination as to the level
of Defects.
(b) Defects is defined in accordance with the custom of the grape
industry and the practice of the Grape Inspection Service of the California
Department of Food & Agriculture and shall include grapes with mold, raisining,
sunburn, ambering, stress or waterberry conditions, mildew and rot (except Noble
Rot in the case of Chardonnay) if such defects amount to three percent (3%) or
more of the load.
A load of Chardonnay grapes infected with Noble Rot shall not be
considered unacceptable if it contains Noble Rot in an amount of less than
fifteen percent (15%). Any greater amount shall render the load unacceptable.
For the purposes of making the determination as to the type of rot, a
distinction must be made between gray rot and Noble Rot. As defined by Richard
Smart, the malevolent form of Botrytis is known as gray rot, the most common of
all bunch rots. It is typified by rapid growth under moist conditions. On the
other hand if it affects ripe, healthy whole lightskinned grapes and the weather
and conditions are favorable, Botrytis develops into a benevolent form called
Noble Rot ("Noble Rot").
Each load of grapes delivered having more than three percent (3%)
Defects, or, for Chardonnay, more than fifteen percent (15%) Noble Rot may be
rejected by Buyer subject to confirmation of rejection by State inspection
unless Grower acquiesces with Buyer's rejection.
(c) MOG shall be defined in accordance with the custom of the grape
industry and the practice of the Grape Inspection Service of the California
Department of Food & Agriculture and shall include leaves, leaf stems, canes and
any other materials foreign to grapes. Each load of grapes delivered having more
7
than three percent (3%) MOG will be considered unacceptable and may be rejected
by Buyer subject to confirmation of rejection by State inspection unless Grower
acquiesces with Buyer's rejection.
(d) Any inspection by the State inspectors shall be made within six (6)
hours of the time of delivery of the load. The party seeking a determination of
excess Defects, Rot or MOG shall order and pay the cost of the State inspection.
Grower shall be notified immediately upon any determination by the
State inspector concluding that a grape delivery has Defects, Rot or MOG at a
level justifying rejection. Grower at its expense has the right to require the
State inspector to make a second determination. The average of the two
inspections shall control.
In the event a load of grapes is rejected by Buyer and the rejection is
upheld by the State inspector, Grower has the right at its sole option to
require Buyer to process the grapes into wine. The cost of processing shall be
borne by Grower. The price for such services shall be not greater than would be
the price from Courtside Cellars or if it is no longer in business as a
processor of third party grapes, then a similar type of winery mutually agreed
to by the parties. The wine shall at all times be owned by and subject to the
disposition of Grower.
If there is any determination by the Federal Food and Drug
Administration, the California Department of Public Health, or any other
governmental agencies that any lot or portion of any lot of grapes are not in
compliance with the law or the quality standards set forth in this Agreement,
Buyer shall have the right not to accept such grapes.
Rejection of grapes pursuant to this Section 5 shall not relieve Grower
from the obligation to deliver the tonnage required under this Agreement.
The results of field inspections or walkthroughs by Buyer shall not
bind Buyer to accept grapes.
6. TIME OF HARVEST:
Grower shall keep Buyer advised of sugar development and shall provide
grape samples so that Buyer can determine acid and sugar levels. Grower and
Buyer jointly shall determine the approximate time of harvest, taking into
8
consideration the condition of the fruit, weather forecasts, Grower's ability to
harvest the fruit, and Buyer's ability to receive the fruit.
The parties shall cooperate with each other in fixing the time and
quantity of grapes to be delivered.
Grower may request at any time, upon reasonable notice, the press crew
to provide press sugar levels based upon refractometer samples taken from press
loads. The exact manner and number of such tests shall be as reasonably agreed.
Such information shall be passed from the press crew to Grower as soon as
practicable. Nothing in this subparagraph is intended to prevent the parties
from establishing a fixed discipline which provides the Grower with information
about press run sugars.
7. DELIVERY:
(a) Grapes shall be delivered at Grower's expense to Buyer's crushing
platform in two (2) ton gondolas or such other conveyance as may from time to
time be mutually agreed. Daily delivery quantities and times of delivery shall
be agreed upon in advance by the parties. Risk of loss shall pass to the Buyer
upon delivery to Buyer's premises.
(b) The grapes from Edna Valley will be hand-harvested unless otherwise
agreed by the parties. The grapes from Paso Robles will be machine harvested
unless otherwise agreed by the parties. In considering the issue of machine
harvesting, the parties shall weigh issues of weather, available labor and
burdens on the Winery and the Grower.
8. METHOD OF DETERMINING WEIGHT:
The weight for each load of grapes shall be the weights recorded on
Grower's "Gondola Tickets." Grower shall have the crane scale and the truck
scale located at Orcutt Road Cellars which may be utilized to weigh the gondolas
inspected and sealed by the State of California Bureau of Weights and Measures
prior to each year's harvest.
9. PAYMENT AND REPORTING:
(a) Buyer will receive a summary from Grower of the total tonnage
delivered (by varietal) during the previous two-week time period of harvest.
Buyer will continue to receive a summary for every subsequent two-week period of
harvest until harvest is completed.
9
(b) Buyer will make estimated grape payments to Grower, for each
two-week summary received thirty (30) days after the last day of each two-week
period. Payments will be trued-up after the completion of the harvest.
10. VITICULTURAL PRACTICES:
Grower shall use viticultural practices intended to produce grapes of
the same or similar quality as heretofore delivered by Grower to Buyer, under
the previous grape purchase agreement between the parties. Representatives of
Buyer shall have the right to enter into and inspect Grower's vineyards at
reasonable times and may call Grower's attention to any conditions or practices
which in Buyer's representatives' judgment may prevent the grapes from reaching
maturity or proper quality. All responsibility for grape quality rests with
Grower and Grower retains final authority with respect to all cultural
practices.
11. GROWER'S RIGHT TO RECEIVE PROMOTIONAL WINE AND TO PURCHASE
WINE:
(a) For each harvest year, Grower shall have the right to receive one
hundred twelve (112) cases of promotional wine at no cost. The historic
breakdown by varietal is: Chardonnay 39 cases, Reserve Chardonnay 9 cases, Pinot
Noir 21 cases, Viognier 8 cases, Muscat 4 cases, Brut Sparkling 6 cases, Pinot
Gris 10 cases, Syrah 15 cases. In the event some or all of those varieties are
not produced or are in very short supply, the parties shall agree upon a mix of
112 cases.
(b) Grower shall have the right to purchase from Buyer up to one
percent (1%) of the vintage or one hundred fifty (150) cases of wine, whichever
is the lesser, at the inventory cost.
(c) Neither the promotional wine or the purchased wine shall be resold
by the Grower without the consent of the Joint Venture.
10
12. MEDIATION OR ARBITRATION OF DISPUTES.
All disputes between the parties arising under this Agreement shall be
resolved by first, nonbinding mediation and failing successful mediation,
binding arbitration as provided in Article 18 of the Joint Venture Agreement
between the parties, which Article is incorporated herein by reference.
13. CONTINUATION OF PERFORMANCE DURING DISPUTE:
Unless the nature of a breach or dispute physically precludes the sale
or vinting of grapes, the parties shall continue to provide and take grapes
under the terms of this Agreement during any dispute. The continuing obligation
to provide and take grapes shall, if appropriate and relevant to the
arbitration, be determined by the arbitration.
14. EVENTS OF DEFAULT:
(a) Breach of any material term of this Agreement, if such breach is
not cured within thirty (30) days after written notice has been given to the
breaching party.
(b) Breach of a term of the Joint Venture Agreement which has a
material effect on the parties' rights and obligations under this Agreement,
unless the breach is cured as provided in such Agreement. For purposes of
paragraph 15 hereof, the terms "non-defaulting party" and "defaulting party"
shall have the meanings ascribed to such terms in the Joint Venture Agreement.
(c) A rejection of a delivery or multiple deliveries of grapes because
of a failure to meet quality criteria as provided in Paragraph 5 shall not
constitute an event of default under this Agreement. An inability to complete
the order because of a rejection of a delivery or multiple deliveries is not an
event of default under this Agreement.
15. REMEDIES IN THE EVENT OF DEFAULT:
The parties shall have the following remedies in the event of default.
These remedies are not exclusive; they are cumulative, in addition to any
remedies now or later allowed by law or under contract.
11
(a) The non-defaulting party may elect to continue this Agreement in
full force and effect. Such an election does not constitute a waiver of any
future or continuing default.
(b) The non-defaulting party may terminate this Agreement and, if the
defaulting party is Grower, Buyer may thereafter purchase grapes for the Joint
Venture from other sources, free of further obligations under this Agreement and
any provision of any other agreement between the parties requiring the purchase
of grapes from Grower's vineyards.
(c) Either party may require a default to be the subject of mediation
and binding arbitration under the procedures provided for in paragraph 12.
16. FORCE MAJEURE:
(a) In the event the business of either party is interrupted or
interfered with by reason of any cause beyond its reasonable control including,
but not limited to, fire, flood, storm, earthquake, explosion, war, rebellion,
insurrection, quarantine, an act of God, disease, weather, lack of water,
boycott, embargo, strike, riot, or any governmental law, directive or regulation
affecting any part of such party's business, then that party shall at its option
be excused for the duration of the intervention or interference from its
performance under this Agreement with respect to any or all of the grapes which
are affected by such cause and which are thereby undelivered or unaccepted. The
foregoing option may be exercised by prompt written notice given to the other
party. Similar prompt written notice shall be given of the termination of the
event of force majeure.
17. ASSIGNMENT:
Neither party may assign this Agreement without the written consent of
the other party. However, Grower may assign its right to receive payments under
this Agreement and may grant a security interest in growing crops which include
grapes to be purchased by Buyer. Upon written request from Grower, Buyer shall
make specified payments directly to a secured
12
patty or assignee. In protection of Buyer's rights of supply under this
Agreement, Buyer or any Joint Venture partner may request and be entitled to be
named as an "also notify party" with respect to any security interest granted
pursuant to this paragraph 17, with the right to cure any default of Grower
thereunder to the extent necessary to protect Buyer's purchase rights hereunder,
for Grower's accont and at Grower's expense.
18. MODIFICATION OR AMENDMENT:
This Agreement may not be supplemented, modified, altered or amended
except by a written agreement executed by the patties hereto.
19. GOVERNING LAW:
This Agreement shall be construed in accordance with and governed by
the laws of the State of California.
20. TIME OF THE ESSENCE:
Time is of the essence to this Agreement and the time for performance
of any act as provided in this Agreement shall be strictly construed.
21. LEGISLATION:
This Agreement shall be deemed modified to the extent necessary to
comply with valid state and federal laws, rules and regulations and any valid
marketing order or agreement issued under authority of any state or federal law.
22. SUCCESSORS:
Subject to the limitation on assignment described in paragraph 17,
above, this Agreement shall be binding upon and shall inure to the benefit of
the successors and assigns of the respective parties hereto.
23. FINAL AGREEMENT:
This Second Amended and Restated Grape Purchase Agreement effective
June ___, 2002 amends and supersedes in its entirety the provisions of the
Existing Agreement.
13
Executed at San Francisco, California, on the date first written above.
GROWER BUYER
PARAGON VINEYARD CO., INC. EDNA VALLEY VINEYARD
By: THE CHALONE WINE GROUP, LTD.
By: By:_________________________
_______________________
James H. Niven Thomas B. Selfridge
President Chief Executive Officer
By: PARAGON VINEYARD CO., INC.
By:_________________________
James H. Niven
President
14
EXHIBIT A
ANNUAL TONNAGE BY VARIETAL
CROP YEAR
_________________________________________________________________________________________________
2002 2003 2004 2005 2006 2007 2008 AND
FOLLOWING
_________________________________________________________________________________________________
NUMBERS SHOWN IN TONS:
___________________________________________________________________________________________________________________________
Chardonnay - Paragon 1,900 2,150 2,150 2,150 2,150 2,150 2,150
_________________________________________________________________________________________________
Chardonnay - Scheibelhut 500 - - - - - - -
_________________________________________________________________________________________________
CHARDONNAY TOTAL 2,400 2,150 2,150 2,150 2,150 2,150 2,150
_________________________________________________________________________________________________
SAUVIGNON BLANC TOTAL - 100 100 100 100 100 100
_________________________________________________________________________________________________
OUTPUT
CONTRACT
PINOT GRIS TOTAL 70 85 ESTIMATED 100 100 100 100 100
TO BE 100
TONS
_________________________________________________________________________________________________
VIOGNIER TOTAL - - - 4 TONS 12 12 12
_________________________________________________________________________________________________
WHITES TOTAL 2,470 2,335 2,350 2354 2,362 2,362 2,362
=================================================================================================
PINOT NOIR TOTAL 269 310 310 310 360 360 410
_________________________________________________________________________________________________
Syrah - Catharine's 50 50 50 150 200 250 300
_________________________________________________________________________________________________
Syrah - Paragon 25 59 88 115 200 300 300
_________________________________________________________________________________________________
SYRAH TOTAL 75 109 138 265 400 550 600
_________________________________________________________________________________________________
REDS TOTAL 344 419 448 575 760 910 1,010
=================================================================================================
GRAND TOTAL 2,814 2,754 2,798 2,929 3,122 3,272 3,372
=================================================================================================
%Red 12% 15% 16% 20% 24% 28% 30%
___________________________________________________________________________________________________________________________
15
EXHIBIT B
Illustration of calculation of bonuses or penalties.
Calculation for delivery date ______________ (7:00 a.m. to 12:00
midnight).
PRESS LOAD TANK NUMBER DEGREES BRIX GALLONS
______________________ ____________ _______
1 23.5 10,000
2 24.6 15,000
Weighted average sugar content 24.16
for delivery day
16
EXECUTION COPY
FIRST AMENDMENT TO CREDIT AGREEMENT AND CONSENT
THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND CONSENT (this
"AMENDMENT"), dated as of August 23, 2002, is entered into by and among THE
CHALONE WINE GROUP LTD., a California corporation (the "BORROWER"), the Lenders
party to the Credit Agreement referenced below and COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEEN B.A., "RABOBANK INTERNATIONAL", NEW YORK BRANCH
("RABOBANK"), as letter of credit issuing bank, as swingline lender and as
administrative agent for the Lenders (in such capacity, the "Agent").
RECITALS
A. The Borrower, each Lender and the Agent are parties to that certain
Credit Agreement dated as of April 19, 2002 (the "CREDIT AGREEMENT") pursuant to
which the Lenders have extended certain credit facilities to the Borrower.
B. The Borrower has requested that the Majority Lenders (i) agree to
certain amendments to the Credit Agreement and (ii) consent to the Winery
Acquisition (as defined below).
C. The Majority Lenders are willing to amend the Credit Agreement and
to consent to the Winery Acquisition, subject to the terms and conditions of
this Amendment.
NOW, THEREFORE, for valuable consideration, the receipt and adequacy of
which are hereby acknowledged, the parties hereto hereby agree as FOLLOWS:
1. DEFINED TERMS. Unless otherwise defined herein, capitalized terms
used herein (including in the preamble and recitals hereof and in the Consent
and Agreement of Guarantors attached hereto) shall have the meanings assigned to
them in the Credit Agreement.
2. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement shall be
amended as FOLLOWS, effective as of the Effective Date:
(a) SECTION 1.01 of the Credit Agreement is amended as follows:
(i) A new defined term "SHAREHOLDER SUBORDINATED DEBT" is
inserted in proper alphabetical order as follows:
"SHAREHOLDER SUBORDINATED DEBT" means the Indebtedness of the
Borrower evidenced by (i) that certain Convertible
Subordinated Promissory Note dated August 27, 2002, made by
the Borrower in favor of Les Domaines Baron de Rothschild
(Lafite) ("DBR"), in the original principal amount of
$8,250,000 and (ii) that certain Convertible Subordinated
Promissory Note
1.
dated August 27, 2002, made by the Borrower in favor of SFI
Intermediate Limited ("SFr'), in the original principal amount
of $2,750,000, which convertible subordinated promissory notes
were issued by the Borrower pursuant to that certain
Convertible Note Purchase Agreement dated as of August 27,
2002, among the Borrower, DBR and SFI, and the proceeds of
which shall be used by the Borrower to complete the Winery
Acquisition and for capital expenditures permitted under this
Agreement."
(ii) A new defined term "WINERY ACQUISITION" is inserted in
proper alphabetical order as follows:
"WINERY ACQUISITION" means the acquisition by the Borrower of
all of the capital stock, or all or substantially all of the
assets, of Napa Beaucanon Company for a purchase price not to
exceed $9,500,000."
(b) Section 10.02 of the Credit Agreement is amended by inserting after
subsection (e) the following new sentence:
"The financial covenants set forth in subsections 10.02(a)
(captioned "Leverage Ratio"), 10.02(c) (captioned "Interest
Coverage Ratio") and 10.02(d) (captioned "Fixed Charge Ratio")
shall be calculated without giving effect to the principal
amount of the Shareholder Subordinated Debt or any interest
payable thereunder."
(c) Section 10.03 of the Credit Agreement is amended by (i)
re-designating subsection (m) as subsection "(n)" and (ii) inserting a new
subsection (m) as follows:
"(m) CONVERSION OF SHAREHOLDER SUBORDINATED DEBT TO EQUITY.
Not later than August 27, 2004, the Borrower shall cause the
outstanding principal amount of the Shareholder Subordinated
Debt and all interest accrued thereon to be converted into
common stock of the Borrower pursuant to a non-cash
transaction permitted under subsection 10.046)."
(d) Subsection 10.04(a)(xi) of the Credit Agreement is amended and
restated as follows;
"(xi) (A) until August 27, 2004, Indebtedness under the
Shareholder Subordinated Debt in an aggregate principal amount
not to exceed $11,000,000; and (B) other Indebtedness
subordinated to the Obligations on terms satisfactory to the
Majority Lenders in an aggregate principal amount not to
exceed $2,000,000 at any time outstanding; and"
(e) Subsection 11.01 (c) of the Credit Agreement is amended by deleting
the text "subsections (a), (c), (e) and 6) of Section 10.03" and substituting
therefor the following new text: "subsections (a), (c), (e), 6) and (m) of
Section 10.03".
2
(f) Annex I to the Credit Agreement (captioned "Pricing Grid") is
amended by inserting after the pricing grid the following new sentence:
"For purposes of this pricing grid, the Leverage Ratio shall
be calculated without giving effect to the principal amount of
the Shareholder Subordinated Debt or any interest payable
thereunder."
3. CONSENT TO WINERY ACQUISITION. Pursuant to clause (B) of subsection
10.04(f)(v) of the Credit Agreement, the Majority Lenders hereby consent to the
Winery Acquisition (as defined above); PROVIDED that (i) immediately prior to
and after giving effect to such acquisition, no Event of Default shall have
occurred and be continuing, (ii) after giving effect to such acquisition, the
Borrower shall be in full pro forma compliance with each of the financial
covenants set forth in subsections 10.02(a) through (e) (as amended by this
Amendment), measured as of the last day of the fiscal quarter then most recently
ended, and (iii) the prior, effective written consent or approval to such
acquisition of the board of directors or equivalent governing body of the
acquiree shall have been obtained.
4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants to the Agent and the Lenders as follows:
(a) No Default or Event of Default has occurred and is
continuing,
(b) The execution, delivery and performance by the Borrower of
this Amendment have been duly authorized by all necessary corporate and other
action and do not and will not require any registration with, consent or
approval of, notice to or action by, any Person (including any Governmental
Authority) in order to be effective and enforceable, other than the consent of
the Senior Noteholders which consent will be obtained on or prior to the
Effective Date. The Credit Agreement as amended by this Amendment constitutes
the legal, valid and binding obligation of the Borrower, enforceable against it
in accordance with its respective terms, without defense, counterclaim or
offset.
(c) All representations and warranties of the Borrower
contained in ARTICLE IX of the Credit Agreement are true and correct as of the
Effective Date, except to the extent such representations and warranties
specifically refer to an earlier date, in which case they shall be true and
correct as of such earlier date.
(d) The Borrower is entering into this Amendment on the basis
of its own investigation and for its own reasons, without reliance upon the
Agent and the Lenders or any other Person.
5. EFFECTIVE DATE. This Amendment will become effective on the date
when each of the conditions precedent set forth in this SECTION 5 has been
satisfied (the "EFFECTIVE DATE"):
(a) The Agent shall have received (i) from each of the
Borrower and the Majority Lenders a duly executed original (or, if elected by
the Agent, an executed facsimile copy) counterpart to this Amendment and (ii)
from each Guarantor a duly executed original (or, if
3.
elected by the Agent, an executed facsimile copy) of the Consent and Agreement
of Guarantors attached hereto.
(b) The Agent shall have received from the Borrower a
certificate executed by the secretary or assistant secretary of the Borrower
providing satisfactory evidence of the authorization of the execution, delivery
and performance by the Borrower of this Amendment.
(c) The Agent shall have received from the Borrower a
certificate executed by a Responsible Officer of the Borrower dated as of the
Effective Date and stating that all representations and warranties contained in
this Amendment are true and correct on and as of the Effective Date as though
made on and as of such date. .
(d) The Borrower shall have paid all attorney costs of the
Agent to the extent invoiced prior to the Effective Date (including any
previously invoiced and outstanding attorney costs that relate to services
previously provided), plus such additional amounts of attorney costs as shall
constitute the Agent's reasonable estimate of attorney costs incurred or to be
incurred by it through the closing proceedings related to this Amendment
(PROVIDEd that such estimate shall not thereafter preclude a final settling of
accounts between the Borrower and the Agent).
(e) The Agent shall have received from each of Les
Domaines Baron de Rothschild (Lafite) and SFI Intermediate Limited a duly
executed original (or, if elected by the Agent, an executed facsimile copy) of a
Subordination Agreement in substantially the form of EXHIBIT A attached hereto.
(f) The Agent shall have received an amendment to the Senior
Secured Note Documents in form and substance satisfactory to the Agent and the
Majority Lenders, and all conditions precedent to the effectiveness of such
amendment shall have been satisfied on or prior to the Effective Date.
(g) The Agent shall have received, in form and substance
satisfactory to it, such additional approvals, consents, opinions, documents and
other information as the Agent may request.
6. RESERVATION OF RIGHTS. The Borrower acknowledges and agrees
that the execution and delivery by the Agent and the Majority Lenders of this
Amendment shall not (a) be deemed to create a course of dealing or otherwise
obligate the Agent or the Lenders to execute similar amendments under the same
or similar circumstances in the future or (b) be deemed to create any implied
waiver of any right or remedy of the Agent or any Lender with respect to any
term or provision of any Loan Document.
7. MISCELLANEOUS.
(a) Except as herein expressly amended, all terms, covenants
and provisions of the Credit Agreement and the other Loan Documents are and
shall remain in full force and effect and all references therein to the Credit
Agreement shall henceforth refer to the Credit Agreement as amended by this
Amendment. This Amendment shall be deemed incorporated into, and a part of, the
Credit Agreement.
4.
(b) This Amendment shall be binding upon and inure to the
benefit of the parties to the Credit Agreement and their respective successors
and assigns. No third party beneficiaries are intended in connection with this
Amendment.
(c) THIS AMENDMENT IS SUBJECT TO THE PROVISIONS OF SECTIONS
13.10 AND 13.12 OF THE CREDIT AGREEMENT RELATING TO GOVERNING LAW AND WAIVER OF
RIGHT TO TRIAL BY JURY, THE PROVISIONS OF WHICH ARE BY THIS REFERENCE HEREBY
INCORPORATED HEREIN IN FULL.
(d) This Amendment may be executed in any number of
counterparts, each of which shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument. Each of
the parties hereto understands and agrees that this document (and any other
document required herein) may be delivered by any party thereto either in the
form of an executed original or an executed original sent by facsimile
transmission to be followed promptly by mailing of a hard copy original, and
that receipt by the Agent of a facsimile transmitted document purportedly
bearing the signature of a Lender or the Borrower shall bind such Lender or the
Borrower, respectively, with the same force and effect as the delivery of a hard
copy original. Any failure by the Agent to receive the hard copy executed
original of such document shall not diminish the binding effect of receipt of
the facsimile transmitted executed original of such document of the party whose
hard copy page was not received by the Agent.
(e) This Amendment, together with the Credit Agreement,
contains the entire and exclusive agreement of the parties hereto with reference
to the matters discussed herein and therein. This Amendment supersedes all prior
drafts and communications with respect thereto. This Amendment may not be
amended except in accordance with the provisions of SECTION 13.01 of the Credit
Agreement.
(f) If any term or provision of this Amendment shall be deemed
prohibited by or invalid under any applicable law, such provision shall be
invalidated without affecting the remaining provisions of this Amendment or the
Credit Agreement, respectively.
(g) The Borrower covenants to pay to or reimburse the Agent,
upon demand, for all out-of-pocket costs and expenses incurred in connection
with the development, preparation, negotiation, execution and delivery of this
Amendment.
(h) This Amendment shall constitute a "Loan Document" under
and as defined in the Credit Agreement.
[SIGNATURES FOLLOW.]
5.
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Amendment as of the date first above written.
THE CHALONE WINE GROUP, LTD.
By: /s/THOMAS B. SELFRIDGE
____________________________________
Name: Thomas Selfridge
__________________________________
Title: President/CEO
_________________________________
(SIGNATURE PAGE TO FIRST AMENDMENT AND CONSENT)
S-1
COOPERATIVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK INTERNATIONAL", NEW
YORK BRANCH, as Agent, Issuing Lender
Swingline Lender and as a Lender
By: /s/SUZANNE L. BAIRD
____________________________________
Name: Suzanne L. Baird
__________________________________
Title: Vice President
__________________________________
By: /s/W. PLETER C. KODDE
____________________________________
Name: W. Pleter C. Kodde
___________________________________
Title: Managing Director
_________________________________
(SIGNATURE PAGE TO FIRST AMENDMENT AND CONSENT)
S-2
FARM CREDIT WEST FLCA, as a Lender
By: /s/MARK LITTLEFIELD
____________________________________
Name: Mark Littlefield
__________________________________
Title: Sr. Vice President
_________________________________
(SIGNATURE PAGE TO FIRST AMENDMENT AND CONSENT)
S-3
U.S. BANK NATIONAL ASSOCIATION, as a Lender
By: /s/SANDRA A. SAWER
____________________________________
Name: Sandra A. Sawer
__________________________________
Title: Vice President
_________________________________
(SIGNATURE PAGE TO FIRST AMENDMENT AND CONSENT)
S-4
COMERICA BANK - CALIFORNIA, as a Lender
By: /s/MISAKO NODA
____________________________________
Name: Misako Noda
__________________________________
Title: Vice President
_________________________________
(SIGNATURE PAGE TO FIRST AMENDMENT AND CONSENT)
S-5
CONSENT AND AGREEMENT OF GUARANTORS
Each of the undersigned, in its capacity as a guarantor, acknowledges
that its consent to the foregoing First Amendment to Credit Agreement and
Consent (the "AMENDMENT") is not required, but each of the undersigned
nevertheless does hereby consent to the foregoing Amendment. Nothing herein
shall in any way limit any of the terms or provisions of the Guaranty of the
undersigned executed by the undersigned in favor of the Agent and the Lenders,
or any other Loan Document executed by the undersigned (as the same may be
amended from time to time), all of which are hereby rated and affirmed in all
respects.
GUARANTORS:
EDNA VALLEY VINEYARD, STATON HILLS WINERY COMPANY LIMITED,
as a guarantor as a guarantor
By: The Chalone Wine Group, Ltd.,
Managing Joint Venturer
By: /s/THOMAS SELFRIDGE By: /s/THOMAS SELFRIDGE
______________________________ _________________________________
Name: Thomas Selfridge Name: Thomas Selfridge
Title: President/CEO Title: President/CEO
CANOE RIDGE VINEYARD L.L.C.,
as a guarantor
By: /s/THOMAS SELFRIDGE
______________________________
Name: Thomas Selfridge
Title: President/CEO
CANOE RIDGE WINERY, INC.
as a guarantor
By: /s/THOMAS SELFRIDGE
______________________________
Name: Thomas Selfridge
Title: President/CEO
SHW EQUITY CO.,
as a guarantor
By: /s/THOMAS SELFRIDGE
______________________________
Name: Thomas Selfridge
Title: President/CEO
(SIGNATURE PAGE TO FIRST AMENDMENT AND CONSENT)
S-6
EXHIBIT A
TO FIRST AMENDMENT TO CREDIT AGREEMENT AND CONSENT
FORM OF SUBORDINATION AGREEMENT
[PLEASE SEE ATTACHED.]
6.
FORM OF SUBORDINATION AGREEMENT
THIS SUBORDINATION AGREEMENT (this "Agreement"), dated as of August__ ,
2002, is made by____________________________ (the "Creditor") in favor of each
of the "Senior Lenders" listed on Schedule 1 hereto (each a "Senior Lender" and,
collectively, the "Senior Lenders").
The Chalone Wine Group, Ltd., a California corporation (the
"Borrower"), certain Senior Lenders and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank International", New York Branch
("Rabobank"), as issuer of letters credit, as swingline lender and as
administrative agent, are parties to a Credit Agreement dated as of April 19,
2002 (as amended, restated, modified, supplemented, renewed or extended from
time to time, the "Credit Agreement") pursuant to which the Senior Lenders party
thereto have made available to the Borrower a revolving credit facility and term
loan facility, as provided therein.
The Borrower and certain other Senior Lenders are parties to an Amended
and Restated Note Purchase Agreement dated as of April 19, 2002 (as amended,
restated, modified, supplemented, renewed or extended from time to time, the
"Amended and Restated Note Purchase Agreement") relating to the Borrower's
$5,000,000 Adjustable Rate Senior Secured Notes, Series A, Due September 15,
2010, the Borrower's $10,000,000 Adjustable Rate Senior Secured Notes, Series B,
Due September 15, 2010, and the Borrower's $15,000,000 Adjustable Rate Senior
Secured Notes, Series C, Due September 15, 2010.
Rabobank, as collateral agent (in such capacity, the "Collateral
Agent"), and the other Senior Lenders are also parties to an Amended and
Restated Intercreditor and Collateral Agency Agreement dated as of April 19,
2002 (as amended, restated, modified, supplemented, renewed or extended from
time .to time, the "Intercreditor Agreement") pursuant to which, among other
things, the Senior Lenders have agreed to the allocation of certain payments
made in respect of the Senior Debt (as defined below).
Additionally, the Borrower is or will be indebted to the Creditor in
the principal amount of $8,250,000, pursuant to a Convertible Note Purchase
Agreement, dated as of August 23, 2002 (as amended, modified, renewed, extended
or replaced from time to time, the "Note Purchase Agreement") and the
Convertible Subordinated Promissory Note dated August 23, 2002 (the
"Subordinated Note") outstanding thereunder. It is a condition precedent to the
continued borrowings under the Credit Agreement and the issuance of letters of
credit thereunder and the continuance of the loans under the Amended and
Restated Note Purchase Agreement that the Creditor deliver this Agreement to the
Senior Lenders to provide for the subordination of the Borrower's indebtedness
to the Creditor to the Senior Debt. The Creditor has agreed to the subordination
of such indebtedness to it, upon the terms and subject to the conditions set
forth in this Agreement.
Accordingly, the parties hereto agree as follows
SECTION 1 DEFINITIONS; INTERPRETATION.
1.
(a) TERMS DEFINED IN CREDIT AGREEMENT. All capitalized terms used in
this Agreement and not otherwise defined herein shall have the meanings assigned
to them in the Credit Agreement.
(b) CERTAIN DEFINED TERMS. As used in this Agreement, the following
terms shall have the following meanings:
"COMMITMENTS" means, in respect of each Senior Lender, the commitment
of such Senior Lender to grant credit, make loans or otherwise extend financing
to the Borrower under the Senior Debt.
"INSOLVENCY EVENT" has the meaning set forth in Section 3
"REQUIRED SECURED PARTIES" shall have the meaning given to such term in
the Intercreditor Agreement.
"SENIOR DEBT" means (i) the indebtedness, liabilities and other
obligations of the Borrower to the Senior Lenders under or in connection with
the Credit Agreement and the other Loan Documents, including all unpaid
principal of the Loans, all unpaid drawings under the Letters of Credit, all
interest accrued thereon, all fees due thereunder AND ALL OTHER AMOUNTS payable
by the Borrower to the Senior Lenders thereunder or in connection therewith,
whether now existing or hereafter arising, and whether due or to become due,
absolute or contingent, liquidated or unliquidated, determined or undetermined;
and (ii) the indebtedness, liabilities and other obligations of the Borrower to
the Senior Lenders under or in connection with the Amended and Restated Note
Purchase Agreement and the other Senior Secured Note Documents, including all
unpaid principal of the Senior Secured Notes, all interest accrued thereon, all
premiums and Make-Whole Amounts (as defined in the Amended and Restated Note
Purchase Agreement) due thereunder, all fees due thereunder and all other
amounts payable by the Borrower to the Senior Lenders thereunder or in
connection therewith, whether now existing or hereafter arising, and whether due
or to become due, absolute or contingent, liquidated or unliquidated, determined
or undetermined.
"SUBORDINATED DEBT" means all indebtedness, liabilities and other
obligations of the Borrower to the Creditor under or in connection with the Note
Purchase Agreement and the Subordinated Note, including all principal on the
Subordinated Note, all premium and interest accrued thereon, all fees and all
other amounts payable by the Borrower to the Creditor under or in connection
with the Note Purchase Agreement, the Subordinated Note and any other documents
or instruments related thereto, whether now existing or hereafter arising, and
whether due or to become due, absolute or contingent, liquidated or
unliquidated, determined or undetermined.
"SUBORDINATED DEBT PAYMENT" means any payment or distribution by or on
behalf of the Borrower, directly or indirectly, of assets of the Borrower of any
kind or character, whether in cash, property or securities, including on account
of the purchase, redemption or other acquisition of Subordinated Debt, as a
result of any collection, sale or other disposition of collateral, or by setoff,
exchange or in any other manner, for or on account of the Subordinated Debt.
2.
(c) INTERPRETATION. In this Agreement, except to the extent the context
otherwise requires:
(i) Any reference in this Agreement to an Article, a Section, a
Schedule or an Exhibit is a reference to an article hereof, a section hereof, a
schedule hereto or an exhibit hereto, respectively, and to a subsection hereof
or a clause hereof is, unless otherwise stated, a reference to a subsection or a
clause of the Section or subsection in which the reference appears.
(ii) The words "hereof," "herein," "hereto," "hereunder" and the like
mean and refer to this Agreement as a whole and not merely to the specific
Article, Section, subsection, paragraph or clause in which the respective word
appear
(iii) The meaning of defined terms shall be equally applicable to both
the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include" shall be deemed to
be followed by the words "without limitation".
(v) References to agreements and other contractual instruments shall be
deemed to include all subsequent amendments and other modifications thereto.
(vi) References to statutes or regulations are to be construed as
including all statutory and regulatory provisions consolidating, amending or
replacing the statute or regulation referred to.
(vii) The captions and headings are for convenience of reference only
and shall not affect the construction of this Agreement.
SECTION 2 AGREEMENT OF SUBORDINATION. Until such time as this Agreement
is terminated in accordance with Section 30 below, the Subordinated Debt
(including all Subordinated Debt Payments) shall be subject, subordinate and
junior, in right of payment and exercise of remedies, to the extent and in the
manner set forth herein, to the prior payment in FULL in cash of the Senior
Debt.
SECTION 3 SUBORDINATION UPON ANY DISTRIBUTION OF ASSETS OF THE
BORROWER. In the event of any payment or distribution of assets of the Borrower
of any kind or character, whether in cash, property or securities, upon the
dissolution, winding up or total or partial liquidation or reorganization,
readjustment, arrangement or similar proceeding relating to the Borrower or its
property, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership, arrangement or similar proceedings or upon an assignment for the
benefit of creditors, or upon any other marshalling or composition of the assets
and liabilities of the Borrower, or otherwise (such events, collectively, the
"Insolvency Events"): (i) all amounts owing on account of the Senior Debt shall
first be paid in FULL in cash, or payment provided for in cash or in cash
equivalents, for application in accordance with the Intercreditor Agreement,
before any Subordinated Debt Payment is made; and (ii) to the extent permitted
by applicable law, any Subordinated Debt Payment to which the Creditor would be
entitled except for the provisions hereof shall be paid or delivered by the
trustee in bankruptcy, receiver, assignee for the benefit of creditors or other
liquidating agent making such payment or distribution, as
3.
applicable, directly to the Collateral Agent (on behalf of the Senior Lenders)
for application to the payment of the Senior Debt in accordance with clause (i),
after giving effect to any concurrent payment or distribution or provision
therefor to the Collateral Agent or the Senior Lenders in respect of such Senior
Debt.
SECTION 4 PAYMENTS ON SUBORDINATED DEBT. As long as any Senior Debt
shall remain outstanding and unpaid, the Borrower shall not make, directly or
indirectly, and the Creditor shall not accept or receive, any Subordinated Debt
Payment; PROVIDE , HOWEVER, that the Borrower and the Creditor may at any time
convert the Subordinated Debt, in whole or in part, into common stock of the
Borrower.
SECTION 5 SUBORDINATION OF REMEDIES. As long as any Senior Debt shall
remain outstanding and unpaid, the Creditor shall not, without the prior written
consent of the Collateral Agent (acting on instructions from the Required
Secured Parties):
(i) accelerate, make demand, declare a default or otherwise make due
and payable prior to the original stated maturity thereof any Subordinated Debt
or bring suit or institute any other actions or proceedings to enforce its
rights or interests under or in respect of the Note Purchase Agreement and the
Subordinated Note;
(ii) exercise any rights under or with respect to (A) any guaranties of
the Subordinated Debt, or (B) any collateral securing the Subordinated Debt,
including causing or compelling the pledge or delivery of any such collateral,
any attachment of, levy upon, execution against, foreclosure upon or the taking
of other action against or institution of other proceedings with respect to any
such collateral, notifying any account debtors of the Borrower or asserting any
claim or interest in any insurance with respect to collateral, or attempt to do
any of the foregoing;
(iii) exercise any rights to set-offs and counterclaims in respect of
any indebtedness, liabilities or obligations of the Creditor to the Borrower
against any of the Subordinated Debt; or
(iv) commence, or cause to be commenced, or join with any creditor
other than the Senior Lenders in commencing, any bankruptcy, insolvency or
receivership proceeding against the Borrower.
SECTION 6 PAYMENT OVER TO COLLATERAL AGENT. In the event that,
notwithstanding the provisions of Sections 3, 4 and 5, any Subordinated Debt
Payments shall be received in contravention of such Sections 3, 4 and 5 by the
Creditor before all Senior Debt is paid in full in cash or cash equivalents,
such Subordinated Debt Payments shall be held in trust for the benefit of the
Senior Lenders and shall be paid over or delivered to the Collateral Agent for
application to the payment in full in cash or cash equivalents of all Senior
Debt remaining unpaid to the extent necessary to give effect to such Sections 3,
4 and 5, after giving effect to any concurrent payments or distributions to the
Collateral Agent and the Senior Lenders in respect of the Senior Debt.
SECTION 7 AUTHORIZATION TO COLLATERAL AGENT. If, while any Subordinated
Debt is outstanding, any Insolvency Event shall occur relating to the Borrower
or its property: (i) the
4.
Collateral Agent, when so instructed by the Required Secured Parties, is hereby
irrevocably authorized and empowered (in the name of the Senior Lenders or in
the name of the Creditor or otherwise), but shall have no obligation, to demand,
sue for, collect and receive every payment or distribution in respect of the
Subordinated Debt and give acquittance therefor and to file claims and proofs of
claim and take such other action (including voting the Subordinated Debt) as it
may deem necessary or advisable for the exercise or enforcement of any of the
rights or interests of the Collateral Agent and the Senior Lenders; and (ii) the
Creditor shall promptly take such action as the Collateral Agent (on instruction
from the Required Secured Parties) may reasonably request (A) to collect the
Subordinated Debt for the account of the Senior Lenders and to file appropriate
claims or proofs of claim in respect of a Subordinated Debt, (B) to execute and
deliver to the Collateral Agent such powers of attorney, assignments and other
instruments as it may request to enable it to enforce any and all claims with
respect to the Subordinated Debt, and (C) to collect and receive any and all
Subordinated Debt Payments.
SECTION 8 REPRESENTATIONS AND WARRANTIES. The Creditor represents and
warrants to each Senior Lender that:
(a) ORGANIZATION AND POWERS. The Creditor is a corporation duly
organized, validly existing and in good standing under the law of the
jurisdiction of its incorporation and has all requisite power and authority to
own its assets and carry on its business and to execute, deliver and perform its
obligations under this Agreement.
(b) AUTHORIZATION: NO CONFLICT. The execution, delivery and performance
by the Creditor of this Agreement have been duly authorized by all necessary
corporate action of the Creditor, and do not and will not: (i) contravene the
terms of the certificate or articles, as the case may be, of incorporation and
the bylaws of the Creditor, (ii) result in a breach of or constitute a default
under any indenture or loan or credit agreement or any other agreement, lease or
instrument to which the Creditor is a party or by which it or its properties may
be bound or affected; or (iii) violate any provision of any law, rule,
regulation, order, writ, judgment, injunction, decree or the like binding on or
affecting the Creditor.
(c) BINDING OBLIGATION. This Agreement constitutes the legal, valid and
binding obligation of the Creditor, enforceable against the Creditor in
accordance with its terms.
(d) CONSENTS. No authorization, consent, approval, license, exemption
of, or filing or registration with, any Governmental Authority, or approval or
consent of any other Person, is required for the due execution, delivery or
performance by the Creditor of this Agreement.
(e) NO PRIOR ASSIGNMENT. The Creditor has not previously assigned any
interest in the Subordinated Debt, no Person other than the Creditor owns an
interest in the Subordinated Debt (whether as joint holders of the Subordinated
Debt, participants or otherwise), and the entire Subordinated Debt is owing only
to the Creditor.
(f) INDEPENDENT INVESTIGATION. The Creditor hereby acknowledges that it
has undertaken its own independent investigation of the financial condition of
the Borrower and all other matters pertaining to this Agreement and further
acknowledges that it is not relying in any
5
manner upon any representation or statement of the Collateral Agent or the
Senior Lenders with respect thereto. The Creditor represents and warrants that
it is aware of the terms of the Loan Documents and the Senior Secured Note
Documents and that it is in a position to obtain, and it hereby assumes full
responsibility for obtaining, any additional information concerning the
financial condition of the Borrower and any other matters pertinent hereto that
the Creditor may desire. The Creditor is not relying upon or expecting the
Collateral Agent or the Senior Lenders to furnish to the Creditor any
information now or hereafter in the Collateral Agent or the Senior Lenders'
possession concerning the financial condition of the Borrower or any other
matter.
SECTION 9 CERTAIN AGREEMENTS OF THE CREDITOR.
(a) NO BENEFITS: The Creditor understands that there may be various
agreements among the Collateral Agent, the Senior Lenders and the Borrower
evidencing and governing the Senior Debt, and the Creditor acknowledges and
agrees that such agreements are not intended to confer any benefits on the
Creditor and that the Collateral Agent and the Senior Lenders shall have no
obligation to the Creditor or any other Person to exercise any rights, enforce
any remedies, or take any actions which may be available to it under such
agreements.
(b) NO INTERFERENCE. The Creditor acknowledges that the Borrower has
granted the Collateral Agent and the Senior Lenders a security interest in
certain of the Borrower's assets and agrees not to interfere with or in any
manner oppose a disposition of any collateral by the Collateral Agent or the
Senior Lenders in accordance with applicable law.
(c) RELIANCE BY COLLATERAL AGENT AND SENIOR LENDERS. The Creditor
acknowledges and agrees that the Collateral Agent and the Senior Lenders will
have relied upon and will continue to rely upon the subordination provisions
provided for herein and the other provisions hereof in maintaining the loans and
other extensions of credit under the Loan Documents and the Senior Secured Note
Documents.
(d) WAIVERS. The Creditor waives any and all notice of the incurrence
of the Senior Debt or any part thereof and any right to require marshalling of
assets.
(e) OBLIGATIONS OF CREDITOR NOT AFFECTED. The Creditor agrees that at
any time and from time to time, without notice to or the consent of the
Creditor, without incurring responsibility to the Creditor, and without
impairing or releasing the subordination provided for herein or otherwise
impairing the rights of the Collateral Agent and the Senior Lenders hereunder:
(i) the time for the Borrower's performance of or compliance with any
of its agreements contained in the Loan Documents or the Senior Secured Note
Documents may be extended or such performance or compliance may be waived by the
applicable Senior Lenders;
(ii) the agreements of the Borrower with respect to the Loan Documents
and the Senior Secured Note Documents may from time to time be modified by the
Borrower and the applicable Senior Lenders for the purpose of adding any
requirements thereto or changing in any manner the rights and obligations of the
Borrower or the Senior Lenders thereunder;
6.
(iii) the manner, place or terms for payment of Senior Debt or any
portion thereof may be altered or the terms for payment extended, or the Senior
Debt may be renewed in whole or in part, or the principal amount of the Senior
Debt may from time to time be increased or decreased;
(iv) the maturity of the Senior Debt may be accelerated in accordance
with the terms of any present or future agreement by the Borrower and the
applicable Senior Lenders;
(v) any collateral securing Senior Debt may be sold, exchanged,
released or substituted and any Lien in favor of the Collateral Agent or the
Senior Lenders may be terminated, subordinated or fail to be perfected or become
unperfected;
(vi) any Person liable in any manner for Senior Debt may be discharged,
released or substituted; and
(vii) all other rights against the Borrower, any other Person or with
respect to any collateral may be exercised (or the Collateral Agent and the
Senior Lenders may waive or refrain from exercising such rights).
(f) RIGHTS OF COLLATERAL AGENT AND SENIOR LENDERS NOT TO BE IMPAIRED.
No right of the Collateral Agent or the Senior Lenders to enforce the
subordination provided for herein or to exercise their other rights hereunder
shall at any time in any way be prejudiced or impaired by any act or failure to
act by the Borrower, the Collateral Agent or the Senior Lenders hereunder or
under or in connection with the Loan Documents or the Senior Secured Note
Documents or by any noncompliance by the Borrower with the terms and provisions
and covenants herein or in any other Loan Document or Senior Secured Note
Document, regardless of any knowledge thereof the Collateral Agent or the Senior
Lenders may have or otherwise be charged with.
(g) FINANCIAL CONDITION OF BORROWER. The Creditor shall not have any
right to require the Collateral Agent or the Senior Lenders to obtain or
disclose any information with respect to: (i) the financial condition or
character of the Borrower or the ability of the Borrower to pay and perform
Senior Debt; (ii) the Senior Debt; (iii) any collateral for any or all of the
Senior Debt; (iv) the existence or nonexistence of any guarantees of, or any
other subordination agreements with respect to, all or any part of the Senior
Debt; (v) any action or inaction on the part of the Collateral Agent, the Senior
Lenders or any other Person; or (vi) any other matter, fact or occurrence
whatsoever.
(h) ACQUISITION OF LIENS OR GUARANTIES. The Creditor shall not, without
the prior written consent of the Collateral Agent and the Required Secured
Parties, acquire any right or interest in or to any collateral to secure the
Subordinated Debt or accept any guaranties for the Subordinated Debt. The
Borrower shall not, without the prior written consent of the Collateral Agent
and the Required Secured Parties, grant, or suffer or permit its Subsidiaries to
grant, to the Creditor any right or interest in or to any collateral to secure
the Subordinated Debt or suffer or permit any of its Subsidiaries to provide any
guaranties for the Subordinated Debt.
SECTION 10 SUBROGATION.
7.
(a) SUBROGATION. Until the payment in cash and performance in FULL of
all Senior Debt, the Creditor shall not have, and shall not directly or
indirectly exercise, any rights that it may acquire by way of subrogation under
this Agreement, by any payment or distribution to the Collateral Agent or the
Senior Lenders hereunder or otherwise. Upon the payment in cash and performance
in FULL of all Senior Debt, the Creditor shall be subrogated to the rights of
the Collateral Agent and the Senior Lenders to receive payments or distributions
applicable to the Senior Debt until the Subordinated Debt shall be paid in FULL.
For the purposes of the foregoing subrogation, no payments or distributions to
the Collateral Agent or the Senior Lenders of any cash, property or securities
to which the Creditor would be entitled except for the provisions of Section 3,
4 or 5 shall, as among the Borrower, its creditors (other than the Senior
Lenders and the Collateral Agent) and the Creditor, be deemed to be a payment by
the Borrower to or on account of the Senior Debt.
(b) PAYMENTS OVER TO CREDITOR. If any payment or distribution to which
the Creditor would otherwise have been entitled but for the provisions of
Section 3, 4 or 5 shall have been applied pursuant to the provisions of Section
3, 4 or 5 to the payment of all amounts payable under the Senior Debt, the
Creditor shall be entitled to receive from the Collateral Agent and the Senior
Lenders any payments or distributions received by the Collateral Agent and the
Senior Lenders in excess of the amount sufficient to pay in FULL all amounts
payable under or in respect of the Senior Debt. If any such excess payment is
made to the COLLATERAL AGENT and the Senior Lenders, the Collateral Agent and
the Senior Lenders shall promptly remit such excess to the Creditor and until so
remitted shall hold such excess payment for the benefit of the Creditor.
SECTION 11 CONTINUING AGREEMENT; REINSTATEMENT.
(a) CONTINUING AGREEMENT. This Agreement is a continuing agreement of
subordination and shall continue in effect and be binding upon the Creditor
until the FULL, final and indefeasible payment in cash, and the full and final
performance, of the Senior Debt and the termination of the Commitments. The
subordinations, agreements, and priorities set forth herein shall remain in FULL
force and effect regardless of whether any party hereto in the future seeks to
rescind, amend, terminate or reform, by litigation or otherwise, its respective
agreements with the Borrower.
(b) REINSTATEMENT. This Agreement shall continue to be effective or
shall be reinstated, as the case may be, if, for any reason, any payment of the
Senior Debt by or on behalf of the Borrower shall be rescinded or must otherwise
be restored by the Collateral Agent or any Lender, whether as a result of an
Insolvency Event or otherwise.
SECTION 12 PAYMENTS. The Creditor shall make each payment hereunder
unconditionally in full without set-off, counterclaim or other defense, on the
day when due to the Collateral Agent in Dollars and in same day or immediately
available funds, to the account from time to time specified by the Collateral
Agent.
SECTION 13 TRANSFER OF SUBORDINATED DEBT. The Creditor may not assign
or transfer its rights and obligations under the Note Purchase Agreement or the
Subordinated Note or any interest in the Subordinated Debt or any collateral
therefor without the prior written consent of the Required Secured Parties, and
any such transferee or assignee, as a condition to
8.
acquiring the Subordinated Note or interest in the Subordinated Debt or
collateral shall agree to be bound hereby, in form satisfactory to the
Collateral Agent and the Required Secured Parties. Any prohibited assignment
shall be absolutely void. The Senior Lenders (and each of them) may from time to
time assign or grant participations in all or part of their rights and
obligations under the Senior Debt, subject to the terms and provisions of the
Senior Debt held by such Senior Lender, and each such assignee of, or
participant in, the Senior Debt shall be entitled to all of the rights and
benefits afforded to the Senior Lenders under this Agreement.
SECTION 14 AMENDMENTS OF SUBORDINATED DEBT. Each of the Borrower and
the Creditor shall not, without the prior written consent of the Required
Secured Parties, agree to or permit any amendment, modification or waiver of any
material portions of the Note Purchase Agreement, the Subordinated Note or any
other agreement relating to any Subordinated Debt (including any amendment,
modification or waiver pursuant to an exchange of other securities or
instruments for outstanding Subordinated Debt) if the effect of such amendment,
modification or waiver is to: (i) increase the interest rate on the Subordinated
Debt or change (to earlier dates) the dates upon which principal and interest
are due thereon; (ii) alter the redemption, prepayment or subordination
provisions thereof; (iii) alter the covenants and events of default in a manner
which would make such provisions more onerous or restrictive to the Borrower or
any Subsidiary; or (iv) otherwise increase the obligations of the Borrower in
respect of the Subordinated Debt or confer additional rights upon the Creditor
which individually or in the aggregate would be adverse to the Borrower, its
Subsidiaries or the Senior Lenders.
SECTION 15 OBLIGATIONS OF BORROWER NOT AFFECTED. The provisions of this
Agreement are intended solely for the purpose of defining the relative rights
against the Borrower of the Creditor, on the one hand, and the Collateral Agent
and the Senior Lenders, on the other hand. Nothing contained in this Agreement
shall (i) impair, as between the Borrower and the Creditor, the obligation of
the Borrower to pay the principal of or interest on the Subordinated Note and
its other obligations with respect to the Subordinated Debt as and when the same
shall become due and payable in accordance with the terms thereof, or (ii)
otherwise affect the relative rights against the Borrower of the Creditor, on
the one hand, and the creditors of the Borrower (other than the Senior Lenders
and the Collateral Agent), on the other hand.
SECTION 16 ENDORSEMENT OF SUBORDINATED NOTES: FURTHER ASSURANCES AND
ADDITIONAL ACTS.
(a) ENDORSEMENT OF SUBORDINATED NOTE. At the request of the Collateral
Agent, the Subordinated Note and all other documents and instruments evidencing
any of the Subordinated Debt shall be endorsed with a legend noting that the
Subordinated Note and such other documents and instruments are subject to this
Agreement, and the Creditor shall promptly deliver to the Collateral Agent
evidence of the same.
(b) FURTHER ASSURANCES AND ADDITIONAL ACTS. Each of the Creditor and
the Borrower shall execute, acknowledge, deliver, file, notarize and register at
its own expense all such further agreements, instruments, certificates,
financing statements, documents and assurances, and perform such acts as the
Collateral Agent or the Required Secured Parties shall deem necessary or
appropriate to effectuate the purposes of this Agreement, and promptly
9.
provide the Collateral Agent with evidence of the foregoing satisfactory in form
and substance to THE COLLATERAL Agent and the Required Secured Parties.
SECTION 17 NOTICES. All notices and other communications provided for
hereunder shall, unless otherwise stated herein, be in writing (including by
facsimile transmission) and shall be mailed, sent or delivered at or to the
address or facsimile number of the respective party or parties set forth in the
Credit Agreement or the Amended and Restated Note Purchase Agreement, as the
case may be, or, in the case of the Creditor, at or to its address or facsimile
number set forth on the signature pages hereof, or at or to such other address
or facsimile number as such party or parties shall have designated i a written
notice to the other party or parties. All such notices and communications shall
be effective (i) if delivered by hand, when delivered; (ii) if sent by mail,
upon the earlier of the date of receipt or five Business Days after deposit in
the mail, first class (or air mail, with respect to communications to be sent to
or from the United States), postage prepaid; and (iii) if sent by facsimile
transmission, when sent.
SECTION 18 NO WAIVER; CUMULATIVE REMEDIES. No failure on the part of
the Collateral Agent or any Senior Lender to exercise, and no delay in
exercising, any right, remedy, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power or privilege preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights and remedies
under this Agreement are cumulative and not exclusive of any rights, remedies,
powers and privileges that may otherwise be available to the Collateral Agent or
any Senior Lender.
SECTION 19 COSTS AND EXPENSES.
(a) PAYMENTS BY BORROWER. The Borrower agrees to pay to the Collateral
Agent and the Senior Lenders on demand the reasonable out-of-pocket costs and
expenses of the Collateral Agent and the Senior Lenders, and the reasonable fees
and disbursements of counsel to the Collateral Agent and the Senior Lenders
(including allocated costs of internal counsel), in connection with the
negotiation, preparation, execution, delivery and administration of this
Agreement, and any amendments, modifications or waivers of the terms thereof.
(b) PAYMENTS BY BORROWER AND CREDITOR. Each of the Borrower and the
Creditor jointly and severally agrees to pay to the Collateral Agent on demand
all costs and expenses of the Collateral Agent and the Senior Lenders, and the
fees and disbursements of counsel (including allocated costs of internal
counsel), in connection with the enforcement or attempted enforcement of, and
preservation of rights or interests under, this Agreement, including any losses,
costs and expenses sustained by the Collateral Agent and any Senior Lender as a
result of any failure by the Creditor to perform or observe its obligations
contained in this Agreement.
SECTION 20 SURVIVAL. All covenants, agreements, representations and
warranties made in this Agreement shall, except to the extent otherwise provided
herein, survive the execution and delivery of this Agreement, and shall continue
in full force and effect so long as any Senior Debt remains unpaid or the Senior
Lenders have any Commitments. Without limiting the generality of the foregoing,
the obligations of the Borrower and the Creditor under
10.
Section 19 shall survive the satisfaction of the Senior Debt and the termination
of the Commitments.
SECTION 21 BENEFITS OF AGREEMENT. This Agreement is entered into for
the sole protection and benefit of the parties hereto and their successors and
assigns, and no other Person (other than any Person that becomes a Senior Lender
after the date hereof) shall be a direct or indirect beneficiary of, or shall
have any direct or indirect cause of action or claim in connection with, this
Agreement.
SECTION 22 BINDING EFFECT. This Agreement shall be binding upon, inure
to the benefit of and be enforceable by the Borrower, the Creditor, &.
Collateral Agent and each Senior Lender and their respective successors and
assigns.
SECTION 23 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
SECTION 24 SUBMISSION TO JURISDICTION.
(a) SUBMISSION TO JURISDICTION. The Creditor hereby (i) submits to the
nonexclusive jurisdiction of the courts of the State of New York and the Federal
courts of the United States sitting in the State of New York for the purpose of
any action or proceeding arising out of or relating to this Agreement, (ii)
agrees that all claims in respect of any such action or proceeding may be heard
and determined in such courts, (iii) irrevocably waives (to the extent permitted
by applicable law) any objection which it now or hereafter may have to the
laying of venue of any such action or proceeding brought in any of the foregoing
courts, and any objection on the ground that any such action or proceeding in
any such court has been brought in an inconvenient forum and (iv) agrees that a
final judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
permitted by law.
(b) APPOINTMENT OF PROCESS COLLATERAL AGENT. The Creditor hereby
irrevocably appoints the Borrower (the "Process Collateral Agent"), as its
authorized agent with all powers necessary to receive on its behalf service of
copies of the summons and complaint and any other process which may be served in
any action or proceeding arising out of or relating to this Agreement in any of
the courts in and of the State of New York. Such service may be made by mailing
or delivering a copy of such process to the Creditor in care of the Process
Collateral Agent at the Process Collateral Agent's address, and the Creditor
hereby irrevocably authorizes and directs the Process Collateral Agent to accept
such service on its behalf and agrees that the failure of the Process Collateral
Agent to give any notice of any such service to the Creditor shall not impair or
affect the validity of such service or of any judgment rendered in any action or
proceeding based thereon. As an alternative method of service, the Creditor also
irrevocably consents to the service of any and all process in any such action or
proceeding by the mailing of copies of such process to the Creditor at its
address specified in Section 17. If for any reason the Borrower shall cease to
act as Process Collateral Agent, the Creditor shall appoint forthwith, in the
manner provided for herein, a successor Process Collateral Agent qualified to
act as an
11
Collateral Agent for service of process with respect to all courts in and of the
State of New York and acceptable to the Collateral Agent.
(c) NO LIMITATION. Nothing in this Section 24 shall affect the right of
the Collateral Agent or the Senior Lenders to serve legal process in any other
MANNER PERMITTED BY law or limit the right of the Collateral Agent or the Senior
Lenders to bring any action or proceeding against the Creditor or its property
in the courts of other jurisdictions.
SECTION 25 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS,
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire agreement
of the Borrower, the Senior Lenders, the Collateral Agent and the Creditor with
respect to the matters set forth herein and supersedes any prior agreements,
commitments, drafts, communications, discussions and understandings, oral or
written, with respect thereto. There are no conditions to the full effectiveness
of this Agreement.
(b) AMENDMENTS AND WAIVERS. No amendment to any provision of this
Agreement shall in any event be effective unless the same shall be in writing
and signed by the Borrower, the Creditor, the Collateral Agent and the Required
Secured Parties (or the Collateral Agent with the written consent of the
Required Secured Parties); and no waiver of any provision of this Agreement, or
consent to any departure by the Borrower or the Creditor therefrom, shall in any
event be effective unless the same shall be in writing and signed by the
Collateral Agent and the Required Secured Parties (or the Collateral Agent with
the consent of the Required Secured Parties). Any such amendment, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 26 CONFLICTS. In case of any conflict or inconsistency between
any terms of this Agreement, on the one hand, and the Note Purchase Agreement,
the Subordinated Note or any other document or instrument relating to the
Subordinated Debt, on the other hand, then the terms of this Agreement shall
control.
SECTION 27 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 28 INTERPRETATION. This Agreement is the result of negotiations
between, and have been reviewed by counsel to, the Collateral Agent, the Senior
Lenders, the Creditor, the Borrower and other parties, and is the product of all
parties hereto. Accordingly, this Agreement shall not be construed against any
of the Senior Lenders or the Collateral Agent merely because of the Collateral
Agent's or any Senior Lender's involvement in the preparation thereof.
12.
SECTION 29 COUNTERPARTS. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which when so executed shall be deemed to be an original and all of which
taken together shall constitute but one and the same agreement.
SECTION 30 TERMINATION OF AGREEMENT. Upon payment in cash and
performance in full of the Senior Debt and the termination of the Commitments,
this Agreement shall terminate and the Collateral Agent and the Senior Lenders
shall promptly execute and deliver to the Borrower and the Creditor such
documents and instruments as shall be necessary to evidence such termination;
PROVIDED, HOWEVER, that the obligations of the Borrower and the Creditor under
Section 19 shall survive such termination.
[SIGNATURES FOLLOW.]
13.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
THE COLLATERAL AGENT
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK INTERNATIONAL",
NEW YORK BRANCH, as Collateral Agent
By____________________________________
Title:
By____________________________________
Title:
THE SENIOR LENDERS
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.
"RABOBANK INTERNATIONAL",
NEW YORK BRANCH
By____________________________________
Title:
By____________________________________
Title:
FARM CREDIT WEST FLCA
By ___________________________________
Title:
U.S. BANK NATIONAL ASSOCIATION
By ___________________________________
Title:
14.
COMERICA BANK-CALIFORNIA
By __________________________________
Title:
AGSTAR FINANCIAL SERVICES, PCA, D/B/A
FARM CREDIT SERVICES COMMERCIAL
FINANCE GROUP
By __________________________________
Title:
FARM CREDIT SERVICE OF AMERICA, PCA
By _________________________________
Title:
THE CREDITOR
By __________________________________
Title:
Address:
_____________________________________
_____________________________________
_____________________________________
Attn: _______________________________
Fax No.______________________________
THE BORROWER
THE CHALONE WINE GROUP, LTD.
By __________________________________
Title:
15.
Schedule 1
to Subordination Agreement
"SENIOR LENDERS"
A. Senior Lenders party to the Credit Agreement:
1. Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank International", New York Branch, as Issuing Lender,
as Swingline Lender, as a Lender and as Agent
2. Farm Credit West FLCA
3 U.S. Bank National Association
4. Comerica Bank - California
5. Each other Person from time to time party to the Credit
Agreement as a "Lender" thereunder.
B. Senior Lenders party to the Amended and Restated Note Purchase
Agreement.
1. Agstar Financial Services, PCA, d/b/a Farm Credit Services
Commercial Finance Group
2. Farm Credit Services of America, PCA
3 Each other Person from time to time party to the Amended and
Restated Note Purchase Agreement as a "Purchaser" thereunder.
C. Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
International", New York Branch, as Collateral Agent
16.
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THE CHALONE WINE GROUP, LTD.
FIRST AMENDMENT AND CONSENT
Dated as of August 23, 2002
To
AMENDED AND RESTATED NOTE PURCHASE AGREEMENT
Dated as of April 19, 2002
Re: $5,000,000 Adjustable Rate Senior Secured Notes, Series A, Due
September 15, 2010
$10,000,000 Adjustable Rate Senior Secured Notes, Series B, Due
September 15, 2010
$15,000,000 Adjustable Rate Senior Secured Notes, Series C, Due
September 15, 2010
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FIRST AMENDMENT AND CONSENT TO AMENDED AND RESTATED NOTE PURCHASE AGREEMENT
This First Amendment and Consent dated as of August 23, 2002
(the or this "FIRST AMENDMENT") to the Amended and Restated Note Purchase
Agreement dated as of April 19, 2002 is among The Chalone Wine Group, Ltd., a
California corporation ("COMPANY"), the Subsidiary Guarantors (as defined below)
and Farm Credit Services of America, PCA and AgStar Financial Services, PCA DBA
Farm Credit Services Commercial Finance Group (collectively, the "NOTEHOLDERS").
RECITALS:
A. The Company and the Noteholders have heretofore entered
into that certain Amended and Restated Note Purchase Agreement dated as of April
19, 2002 (the "NOTE AGREEMENT"). The Company has heretofore issued its
$5,000,000 Adjustable Rate Senior Secured Notes, Series A, Due September 15,
2010 bearing PPN 157639 B* 5 (the "SERIES A NOTES"), dated April 19, 2002, its
$10,000,000 Adjustable Rate Senior Secured Notes, Series B, Due September 15,
2010 bearing PPN 157639 B@ 3 (the "SERIES B NOTES"), dated April 19, 2002 and
its $15,000,000 Adjustable Rate Senior Secured Notes, Series C, Due September
15, 2010 bearing PPN 157639 B# 1 and dated April 19, 2002 (the "SERIES C NOTES";
the Series A Notes, the Series B Notes and the Series C Notes are hereinafter
collectively referred to as the "NOTES") pursuant to the Note Agreement. The
Noteholders are the holders of 100% of the principal amount of the Notes
presently outstanding.
B. Edna Valley Vineyard, a California general partnership
("EDNA VALLEY"), Canoe Ridge Vineyard L.L.C., a Washington limited liability
company ("CANOE RIDGE"), Staton Hills Winery Company Limited, a Washington
corporation ("STATON HILLS"), Canoe Ridge Winery, Inc., a Washington corporation
("CANOE RIDGE WINERY") and SHW Equity Co., a Washington corporation ("SHW")
(Edna Valley, Canoe Ridge, Staton Hills, Canoe Ridge Winery and SHW are
hereinafter collectively referred to as the "SUBSIDIARY Guarantors") have
heretofore entered into those certain Subsidiary Guarantee Agreements, each
dated as of April 19, 2002 (collectively, the "SUBSIDIARY GUARANTEE AGREEMENTS")
under and pursuant to which each of the Subsidiary Guarantors guaranteed the
payment of the Notes and the performance by the Company of its obligations under
the Note Agreement.
C. The Company desires to consummate the Winery Acquisition
(as defined herein) and in connection therewith issue its Convertible
Subordinated Promissory Notes dated August 23, 2002 (the "SUBORDINATED NOTES")
to the sellers, Les Domaines Baron de Rothschild (Lafite) ("DBR") and SFI
Intermediate Limited ("SFI", DBR and SFI are collectively referred to as the
"SELLERS") and the Company and the Noteholders now desire to consent to the
Winery Acquisition and to amend the Note Agreement as of August 23, 2002 (the
"EFFECTIVE DATE") in the respects, but only in the respects, hereinafter set
forth. The Subsidiary Guarantors now desire to affirm their respective
obligations under the Subsidiary Guarantee Agreements.
D. All requirements of law have been fully complied with and
all other acts and things necessary to make this First Amendment a valid, legal
and binding instrument according to its terms for the purposes herein expressed
have been done or performed.
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NOW, THEREFORE, upon the full and complete satisfaction of the
conditions precedent to the effectiveness of this First Amendment set forth in
SS.6 hereof, the Company, the Subsidiary Guarantors and the Noteholders, for
good and valuable consideration the receipt and sufficiency of which is hereby
acknowledged, do hereby agree as follows:
SECTION 1 DEFINITIONS; REFERENCES. Unless otherwise specifically defined
herein, each term used herein which is defined in the Note Agreement shall have
the meaning assigned to such term in the Note Agreement. Each reference to
"hereof", "hereunder", "herein" and "hereby" and each other similar reference
and each reference to "this Agreement" and each other similar reference
contained in the Note Agreement shall from and after the date hereof refer to
the Note Agreement as amended hereby.
SECTION 2 AMENDMENTS.
(a) Schedule B to the Note Agreement shall be and is hereby amended by the
following:
(i) A new defined term "SHAREHOLDER SUBORDINATED DEBT" is inserted in
proper alphabetical order as follows:
"SHAREHOLDER SUBORDINATED DEBT" means the Indebtedness of the
Company evidenced by (i) that certain Convertible Subordinated
Promissory Note dated August 23, 2002, made by the Company in
favor of Les Domaines Baron de Rothschild (Lafite) ("DBR"), in
the original principal amount of $8,250,000 and (ii) that
certain Convertible Subordinated Promissory Note dated August
23, 2002, made by the Company in favor of SFI Intermediate
Limited ("SFI"), in the original principal amount of
$2,750,000, which convertible subordinated promissory notes
were issued by the Company pursuant to that certain
Convertible Note Purchase Agreement dated as of August 23,
2002, among the Company, DBR and SFI, and the proceeds of
which shall be used by the Company to complete the Winery
Acquisition and for capital expenditures permitted under this
Agreement."
(ii) A new defined term "WINERY ACQUISITION" is inserted in proper
alphabetical order as follows:
""WINERY ACQUISITION" means the acquisition by the Company of
all of the capital stock, or all or substantially all of the
assets, of Napa Beaucanon Company for a purchase price not to
exceed $9,500,000."
(iii) The definition of "Subordinated Debt" is hereby amended by
deleting the reference to "Section 10.04(a)(viii)" and replacing it with
"Section 10.5(k)."
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(iv) The definition of "Subsidiary Guarantor" is hereby amended by
adding ", Canoe Ridge Winery, Inc." after the words "Staton Hills Winery
Company Ltd." therein.
(b) Section 9.8 of the Note Agreement is amended by deleting the reference
to "Section __" and replacing it with "Section 8.7(c)."
(c) Section 10.4 of the Note Agreement is amended by inserting after
subsection (e) the following new sentence:
"The financial covenants set forth in subsections 10.4(a)
(captioned "Leverage Ratio"), 10.4(c) (captioned "Interest
Coverage Ratio") and 10.4(d) (captioned "Fixed Charge Coverage
Ratio") shall be calculated without giving effect to the
principal amount of the Shareholder Subordinated Debt or any
interest payable thereunder."
(d) Subsection 10.5(k) of the Note Agreement is amended and restated as
follows:
"(k) (i) until August 23, 2004, Indebtedness under the
Shareholder Subordinated Debt in an aggregate principal amount
not to exceed $11,000,000; and (ii) other Indebtedness
subordinated to the Obligations on terms satisfactory to the
Required Holders in an aggregate principal amount not to
exceed $2,000,000 at any time outstanding; and"
(e) Section 11(n) of the Note Agreement is amended by deleting the words
"[intentionally omitted]" and replacing it with "the outstanding principal
amount and all accrued interest on the Shareholder Subordinated Debt shall not
have been extinguished and converted into shares of common stock of the Company
pursuant to a non-cash transaction on or before August 23, 2004."
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. To induce the
Noteholders to execute and deliver this First Amendment (which representations
shall survive the execution and delivery of this First Amendment), each of the
Company and the Subsidiary Guarantors represent and warrant to the Noteholders
that:
(a) since June 30, 2002, there has been no change in the condition,
financial or otherwise, of the Company and its Subsidiaries as shown on the
consolidated balance sheet as of such date except changes in the ordinary course
of business, none of which individually or in the aggregate has had, or
reasonably could be expected to have, a Material Adverse Effect;
(b) this First Amendment has been duly authorized, executed and delivered
by it and this First Amendment constitutes the legal, valid and binding
obligation, contract and agreement of the Company and Subsidiary Guarantors
enforceable against it in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors' rights generally and general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or in law);
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(c) the Note Agreement, as amended by this First Amendment, constitutes the
legal, valid and binding obligation, contract and agreement of the Company
enforceable against it in accordance with its terms, except as enforcement may
be limited by bankruptcy, insolvency, reorganization, moratorium or similar laws
relating to or limiting creditors' rights generally and general principles of
equity (regardless of whether such enforceability is considered in a proceeding
in equity or in law);
(d) the execution, delivery and performance by the Company and the
Subsidiary Guarantors of this First Amendment (i) has been duly authorized by
all requisite corporate action and, if required, shareholder action, (ii) does
not require the consent or approval of any governmental or regulatory body or
agency, and (iii) will not (A) violate (1) any provision of law, statute, rule
or regulation or its certificate of incorporation or bylaws, (2) any order of
any court or any rule, regulation or order of any other agency or government
binding upon it, or (3) any provision of any material indenture, agreement or
other instrument to which it is a party or by which its properties or assets are
or may be bound, including, without limitation, the Note Agreement (as amended
by this First Amendment), or (B) result in a breach or constitute (along or with
due notice or lapse of time or both) a default under any indenture, agreement or
other instrument referred to in clause (iii)(A)(3) of this SS.3(D);
(e) as of the date hereof and after giving effect to this First Amendment,
no Default or Event of Default has occurred which is continuing; and
(f) except as otherwise set forth in the Schedules to the Note Agreement or
on Schedule I hereto, all the representations and warranties contained in SS.5
of the Note Agreement are true and correct in all material respects with the
same force and effect as if made by the Company and Subsidiary Guarantors on and
as of the date hereof.
SECTION 4 AFFIRMATION OF SUBSIDIARY GUARANTEE AGREEMENTS. Each of the
Subsidiary Guarantors hereby affirm each of their obligations under their
respective Subsidiary Guarantee Agreements after giving effect to this First
Amendment.
SECTION 5 CONSENT TO WINERY ACQUISITION. Pursuant to Section 10.8(e) of
the Note Agreement, the Required Holders hereby consent to the Winery
Acquisition (as defined herein); PROVIDED that (a) immediately prior to and
after giving effect to such acquisition, no Event of Default shall have occurred
and be continuing, (b) after giving effect to such acquisition, the Company
shall be in full pro forma compliance with each of the financial covenants set
forth in Section 10.4 (as amended by this First Amendment), measured as of the
last day of the fiscal quarter then most recently ended, and (c) the prior
effective written consent or approval to such acquisition of the board of
directors or equivalent governing body of the acquiree shall have been obtained.
SECTION 6 CONDITIONS TO EFFECTIVENESS OF THIS AMENDMENT. This
First Amendment shall not become effective until, and shall become effective
when, each and every one of the following conditions shall have been satisfied:
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(a) executed counterparts of this First Amendment, duly executed by the
Company, the Subsidiary Guarantors and the holders of 100% of the outstanding
principal of the Notes, shall have been delivered to the Noteholders;
(b) the representations and warranties of the Company and the Subsidiary
Guarantors set forth inSS.3 hereof are true and correct on and with respect to
the date hereof;
(c) the Company shall have paid the reasonable fees and expenses of
McDermott, Will & Emery, counsel to the Noteholders, in connection with the
negotiation, preparation, approval, execution and delivery of this First
Amendment; and
(d) the Company shall have complied with the terms and provisions of
Section 9.9 of the Note Agreement.
SECTION 7 MISCELLANEOUS.
(a) This First Amendment shall be construed in connection with and as part
of the Note Agreement, and except as modified and expressly amended by this
First Amendment, all terms, conditions and covenants contained in the Note
Agreement, as amended on the date hereof, are hereby ratified and shall be and
remain in full force and effect.
(b) Any and all notices, requests, certificates and other instruments
executed and delivered after the execution and delivery of this First Amendment
may refer to the Note Agreement without making specific references to this First
Amendment but nevertheless all such references shall include this First
Amendment unless the context otherwise requires.
(c) The descriptive headings of the various Sections or parts of this First
Amendment are for convenience only and shall not affect the meaning or
construction of any of the provisions hereof.
(d) This First Amendment shall be governed by and construed in accordance
with New York law.
(e) The execution hereof by you shall constitute a contract between us for
the uses and purposes hereinabove set forth, and this first amendment may be
executed in any number of counterparts, each executed counterpart constituting
an original, but all together only one agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this First Amendment to be
duly executed by their respective authorized officers as of the day and year
first above written
THE CHALONE WINE GROUP, LTD.
By:
___________________________________________
Title
EDNA VALLEY VINEYARD
By: The Chalone Wine Group, Ltd.,
Managing General Partner
By:
___________________________________________
Title
SHW EQUITY CO.
By:
___________________________________________
Title
CANOE RIDGE VINEYARD, L.L.C.
By:
___________________________________________
Title
STATON HILLS WINERY COMPANY LIMITED
By:
___________________________________________
Title
CANOE RIDGE WINERY, INC.
By:
___________________________________________
Title
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Accepted and Agreed: FARM CREDIT SERVICES OF AMERICA,
PCA
By:
___________________________________________
Title
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Accepted and Agreed: AGSTAR FINANCIAL SERVICES, PCA,
DBA FARM CREDIT SERVICES
COMMERCIAL FINANCE GROUP
By:
___________________________________________
Title
EXHIBIT 10.60
THE CHALONE WINE GROUP, LTD.
CONVERTIBLE NOTE
PURCHASE AGREEMENT
THIS CONVERTIBLE NOTE PURCHASE AGREEMENT (this "AGREEMENT") is entered
into as of August 21, 2002 by and between The Chalone Wine Group, Ltd., a
California corporation (the "COMPANY") whose principal office is located at 621
Airpark Road, Napa, California 94558, and, severally and not jointly, SFI
Intermediate Limited, a Texas Limited Partnership ("SFI") whose principal office
is located at 5810 Skelly Drive, Suite 1650, Tulsa, Oklahoma 74135 and Les
Domaines Baron de Rothschild (Lafite), a French company ("DBR") whose principal
office is located at 33 rue de la Baume, Paris, France. DBR and SFI are
individually referred to herein as a "PURCHASER" and collectively as the
"PURCHASERS."
RECITALS
The Company desires to issue and sell to the Purchasers, and the
Purchasers desire to purchase, subordinated convertible promissory notes in the
aggregate principal amount of US$11,000,000 in consideration for DBR's and SFI's
respective investments of US$8,250,000 and US$2,750,000. The parties have agreed
that the foregoing notes will be convertible, under specified circumstances,
into shares of the Company's Common Stock. Simultaneously with the issuance and
delivery of the notes, the Purchasers and the Company are entering into a
registration rights agreement, pursuant to which the Company agrees, under
specified circumstances, to register the Company's Common Stock issuable upon
conversion of the notes.
NOW, THEREFORE, the parties agree as follows:
Section 1: SALE. Upon the terms and subject to the conditions hereof,
the Company shall issue to DBR, and DBR shall purchase from the Company, at the
Closing (as defined below), a subordinated convertible promissory note in the
form of EXHIBIT A ("CONVERTIBLE NOTE") for the principal amount of $8,250,000.
Upon the terms and subject to the conditions hereof, the Company shall issue to
SFI, and SFI shall purchase from the Company, at the Closing (as defined below),
a Convertible Note for the principal amount of $2,750,000. The Convertible Note
issued to DBR is referred to below as the "DBR NOTE" and the Convertible Note
issued to SFI is referred to below as the "SFI NOTE."
Section 2: CLOSING.
2.1 CLOSING DATE AND LOCATION. The closing of the issuance to and
purchase by each Purchaser of the Convertible Note (the "CLOSING") shall take
place at the principal office of the Company on August 21, 2002 at 10:00 a.m.
Pacific Time, or at such time and place as the Purchasers and the Company may
set by mutual agreement. The date of the Closing is referred to herein as the
"CLOSING DATE."
2.2 CLOSING. At the Closing, the Company shall deliver the DBR Note to
DBR and the SFI Note to SFI upon the Company's receipt of wire transfers of
$8,250,000 and $2,750,000, respectively. At the Closing, each Purchaser shall
deliver to the Company, and the Company shall deliver to each Purchaser, a duly
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executed copy of the Registration Rights Agreement in the form attached hereto
as EXHIBIT B.
Section 3: REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby represents and warrants to each Purchaser as follows:
3.1 ORGANIZATION AND GOOD STANDING. The Company is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of California.
3.2 AUTHORIZATION. The company has all requisite corporate power and
authority to enter into this Agreement and, subject to satisfaction of the
conditions set forth herein, to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of the Company.
3.3 ENFORCEABILITY. This Agreement and the Convertible Note, when each
is executed and delivered by the Company, shall constitute a valid and binding
obligation of the Company, enforceable in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium, and other similar
laws affecting creditors' rights generally and to general principles of equity.
3.4 RESERVE OF COMMON STOCK; VALID ISSUANCE. The Company has on the date
hereof and will, at all times while the Convertible Note is outstanding,
maintain an adequate reserve of duly authorized shares of Common Stock, reserved
for issuance to the Purchaser, to enable the Company to perform the conversion
of the Convertible Note. The Common Stock issuable upon conversion of the
Convertible Note, when issued in accordance with the terms of the Convertible
Note, will be duly and validly authorized and issued, fully paid and
nonassessable.
Section 4: REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS OF THE
PURCHASERS. Each Purchaser hereby represents, warrants, covenants and agrees
severally and not jointly that:
4.1 AUTHORIZATION. The Purchaser has all requisite power and authority
to enter into this Agreement and, subject to the satisfaction of the conditions
set forth herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
action by the Purchaser.
4.2 INVESTMENT REPRESENTATIONS. The Purchaser will acquire the
Convertible Note (and the Common Stock issuable thereunder) for investment for
the Purchaser's own account, not as a nominee or agent, and not with a view to
the sale or distribution of any part thereof, and the Purchaser has no present
intention of selling, granting participation in or otherwise distributing the
same. The Purchaser:
(a) represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person or to any third person with respect to any of the
Convertible Note or the Common Stock issuable on conversion thereof;
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(b) represents that it understands that the Convertible Note,
and the Common Stock issuable on the conversion of the Convertible Note, are not
registered under the Securities Act of 1933 (the "Securities Act") and
applicable state securities laws on the ground that the sale provided for in
this Agreement and the issuance of securities is exempt pursuant to Section 4(2)
of the Securities Act or Rule 506 of Regulation D promulgated under the
Securities Act, and state law exemptions relating to offers and sales in private
placements to accredited investors;
(c) agrees that it shall not make a disposition of the Convertible
Note (to the extent transfer is permitted by the Convertible Note), or the
Common Stock issuable upon conversion thereof (i) except pursuant to an
effective registration statement under the Securities Act and in compliance with
applicable state securities laws or (ii) unless and until it shall have (A)
notified the Company of the proposed disposition and shall have furnished the
Company with a statement of the circumstances surrounding the proposed
disposition, and (B) furnished the Company with an opinion of counsel
satisfactory to the Company and its counsel to the effect that appropriate
action necessary for compliance with the Securities Act and any applicable state
securities laws has been taken or an exemption from the registration or
qualification requirements of the Securities Act and such state laws is
available, and that the proposed transfer will not violate any of such laws;
(d) represents that (i) it is an accredited investor within the
meaning of Rule 501 of Regulation D promulgated under the Securities Act and
(ii) that it was not formed for the specific purpose of acquiring the
Convertible Note or the Common Stock issuable upon conversion thereof;
(e) represents that it is capable of evaluating an investment in
the Convertible Note and the Common Stock issuable upon conversion thereof by
reason of its own investment acumen or business experience;
(f) represents that, in relation to its income and/or net worth,
the Purchaser is able to bear the economic risks of an investment in the
Convertible Note and Common Stock issuable upon conversion thereof;
(g) agrees that the Common Stock issuable upon conversion of
the Convertible Note must be held until subsequently registered under the
Securities Act or an exemption from such registration is available;
(h) agrees that the Company shall have no obligation to issue
shares of Common Stock to the Purchasers upon conversion of the Convertible Note
unless the Company, after consultation with its counsel, is satisfied that the
issuance of the Common Stock may occur without registration under the Securities
Act and applicable state securities laws pursuant to exemptions from
registration and qualification therefrom and agrees to provide such additional
information, documentation and certifications as reasonably requested by the
Company to confirm the availability of such exemptions; and
(i) agrees that the Convertible Note and the certificates
evidencing the Common Stock issuable upon conversion of the Convertible Note may
bear a legend in substantially the following form:
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THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED ("SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE,
IN RELIANCE UPON CERTAIN EXEMPTIVE PROVISIONS OF SUCH LAWS. SUCH SECURITIES
CANNOT BE SOLD OR TRANSFERRED EXCEPT IF, IN THE OPINION OF COUNSEL TO THE
ISSUER, SUCH SALE OR TRANSFER WOULD BE: (1) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN EXEMPTION FROM
SUCH REGISTRATION; AND (2) IN A TRANSACTION WHICH IS EXEMPT UNDER APPLICABLE
STATE SECURITIES LAWS, OR PURSUANT TO EFFECTIVE REGISTRATION STATEMENTS UNDER
SUCH LAWS, OR IN A TRANSACTION WHICH IS OTHERWISE IN COMPLIANCE WITH SUCH LAWS.
Section 5: CONDITIONS TO THE PURCHASER'S OBLIGATIONS AT CLOSING. The
applicable obligations of each Purchaser under this Agreement are subject to the
fulfillment on or before the Closing Date of each of the following conditions:
5.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Company set forth in SECTION 3 shall be true and correct in all material
respects as of the date of this Agreement and as of the Closing Date.
5.2 PERFORMANCE. The Company shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or complied
with by the Company on or before the Closing Date.
5.3 SECURITIES LAWS. At the time of the Closing, the issuance, sale and
delivery of the Convertible Note by the Company to the Purchaser shall be
legally permitted by all securities laws and regulations to which the Company
and the Purchaser are subject.
5.4 ABSENCE OF LEGAL PROCEEDINGS. As of the Closing Date, (a) there
shall be no effective injunction, writ, preliminary restraining order or any
order of any nature issued by a court of competent directing that the
transactions contemplated by this Agreement or any of them not be consummated as
so provided or imposing any conditions on the consummation of the transactions
contemplated hereby, and (b) there shall not have been instituted or pending,
or, to the best of the Company's knowledge, threatened, any suit, action, or
other proceeding that seeks to restrain, prevent or change the transactions
contemplated by this Agreement or to otherwise question the validity or legality
of such transaction.
5.5 LAWFUL ISSUANCE. As of the Closing Date, the purchase of the
Convertible Note by the Purchaser, and the sale of the Convertible Note by the
Company, shall be legally permitted by all laws and regulations to which the
Company and the Purchaser are subject.
Section 6: CONDITIONS TO THE COMPANY'S OBLIGATIONS AT CLOSING. The
applicable obligations of the Company to each Purchaser under this Agreement are
subject to the fulfillment on or before the Closing Date of each of the
following conditions:
6.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
of the Purchaser set forth in SECTION 4 shall be true and correct in all
material respects as of the date of this Agreement and as of the Closing Date.
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6.2 PERFORMANCE. The Purchaser shall have performed and complied with
all agreements and conditions required by this Agreement to be performed or
complied with by the Purchaser on or before the Closing Date.
6.3 QUALIFICATION OF PURCHASER. The Company shall be reasonably
satisfied that the Purchaser is an investor fully qualified to make an
investment in the Convertible Note so as to permit the sale to occur without
registration under the Securities Act.
6.4 ABSENCE OF LEGAL PROCEEDINGS. As of the Closing Date, (a) there
shall be no effective injunction, writ, preliminary restraining order or any
order of any nature issued by a court of competent directing that the
transactions contemplated by this Agreement or any of them not be consummated as
so provided or imposing any conditions on the consummation of the transactions
contemplated hereby, and (b) there shall not have been instituted or pending,
or, to the best of the Purchaser's knowledge, threatened, any suit, action, or
other proceeding that seeks to restrain, prevent or change the transactions
contemplated by this Agreement or to otherwise question the validity or legality
of such transaction.
6.5 LAWFUL ISSUANCE. As of the Closing Date, the purchase of the
Convertible Note by the Purchaser, and the sale of the Convertible Note by the
Company, shall be legally permitted by all laws and regulations to which the
Company and the Purchaser are subject.
Section 7: REPAYMENT OF CONVERTIBLE NOTES. If the Company repays the out-
standing indebtedness under the Convertible Notes in cash in lieu of converting
the Convertible Notes into shares of the Company's Common Stock, the Company
shall not use the proceeds of an offering of its equity securities to pay any
part of the outstanding indebtedness under the Convertible Notes unless the
average closing price per share of the Company's Common Stock over the five
consecutive trading days immediately preceding the repayment date is at least
$15.00. The foregoing limitation on the Company's use of proceeds of an equity
financing to repay the Convertible Notes shall terminate upon a Change of
Control Transaction (as such term is defined in the Convertible Notes).
Section 8: INDEMNIFICATION.
8.1 INDEMNIFICATION BY THE COMPANY. Subject to the limitations contained
in this SECTION 8, the Company hereby agrees to indemnify, defend and hold
harmless each Purchaser, and its officers, directors, employees, attorneys and
agents, and successors in interest as to any and all claims, demands, losses,
costs, expenses, obligations, liabilities, damages, recoveries and deficiencies,
including interest, penalties and reasonable attorneys' fees and expenses that
any such person shall incur or suffer, that arise, result from or relate to any
breach of, or failure by the Company to perform, any of its representations,
warranties, covenants or agreements in this Agreement.
8.2 INDEMNIFICATION BY THE PURCHASERS. Subject to the limitations
contained in this SECTION 8, each Purchaser hereby agrees to indemnify, defend
and hold harmless the Company, and its officers, directors, employees, attorneys
and agents, and successors in interest as to any and all claims, demands,
losses, costs, expenses, obligations, liabilities, damages, recoveries and
deficiencies, including interest, penalties and reasonable attorneys' fees and
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expenses that any such person shall incur or suffer, that arise, result from or
relate to any breach of, or failure by the Purchaser to perform, any of its
representations, warranties, covenants or agreements in this Agreement.
8.3 SURVIVAL. The representations, warranties and covenants of the
parties contained in this Agreement shall survive the Closing.
Section 9: MISCELLANEOUS.
9.1 ENTIRE AGREEMENT. This Agreement, including the Exhibits,
constitutes the entire agreement among the parties, and no party shall be liable
or bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth herein.
9.2 AMENDMENTS AND WAIVERS. This Agreement may not be amended or
terminated, or any right or obligation hereunder waived, other than by a written
instrument signed by the party against whom enforcement of such amendment,
termination or waiver is sought.
9.3 SUCCESSORS AND ASSIGNS. The terms and conditions of this Agreement
shall inure to the benefit of and be binding upon the respective successors and
assigns of the parties. Except as expressly provided herein, this Agreement is
not intended to confer upon any other third party any rights, remedies,
obligations or liabilities.
9.4 GOVERNING LAW. Except for applicable federal securities laws this
Agreement shall be governed in all respects by the laws of the State of
California.
9.5 COUNTERPARTS. This Agreement may be signed in any number of
counterparts with the same effect as if the signatures to each counterpart were
upon a single instrument and is intended to be binding when all parties have
delivered their signatures to the other parties. Signatures may be delivered by
facsimile transmission. All counterparts shall be deemed an original of this
Agreement.
9.6 HEADINGS. The table of contents and headings used herein are used
for convenience only, are not part of this Agreement and shall not be considered
in construing or interpreting this Agreement.
9.7 NOTICES. All notices, requests, consents and other communications
required or permitted hereunder shall be in writing and will be effective (a)
immediately upon delivery in person or by messenger, (b) the next business day
after deposit with a commercial courier or delivery service for next day
delivery, (c) upon receipt by facsimile as established by evidence of successful
transmission or (d) three business days after deposit with the United States
Postal Service, certified mail, return receipt requested, postage prepaid. All
notices must be properly addressed as follows (or to such other address as a
party may specify by notice in pursuant to this SECTION 9.7):
6
(a) If to the Company:
The Chalone Wine Group, Ltd.
621 Airpark Road
Napa, CA 94558
Attention: Thomas Selfridge
Facsimile No.: (707) 254-4204
with a copy to:
Farella Braun + Martel LLP
235 Montgomery Street
San Francisco, CA 94104
Attention: Daniel E. Cohn, Esq.
Facsimile No.: (415) 954-4480
(b) If to DBR:
__________________________________
__________________________________
__________________________________
__________________________________
Facsimile No.:
with a copy to:
Piper Rudnick LLP
1251 Avenue of the Americas
New York, NY 10020
Attention: Michael A. Varet, Esq.
Facsimile No.: (212) 835-6001
(c) If to SFI:
__________________________________
__________________________________
__________________________________
__________________________________
__________________________________
with a copy to:
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, TX 77002
Attention: Gray Jennings, Esq.
Facsimile No.: (713) 229-1522
7
9.8 SEVERABILITY. If any one or more of the provisions of this Agreement
or of any amendment thereto is determined to be void or unenforceable, all other
provisions of this Agreement (and such amendment) shall be given effect
separately from the provision or provisions determined to be void or
unenforceable.
9.9 ATTORNEY'S FEES. In the event of any breach of this Agreement that
results in arbitration or litigation between the parties, the prevailing party
shall be entitled to its reasonable attorney's fees, expert witness fees and
costs of suit. The prevailing party shall be determined by the court or
arbitrator, as applicable, based upon an assessment of which party's major
arguments or positions taken in the proceedings could fairly be said to have
prevailed over the other party's major arguments or positions on major disputed
issues in the court's or arbitrator's decision.
IN WITNESS WHEREOF the parties hereto have signed or caused this
Agreement to be signed as of the date first written above.
COMPANY: THE CHALONE WINE GROUP, LTD.
By: __________________________________________
Name:
Title:
PURCHASERS: LES DOMAINES BARON DE ROTHSCHILD (LAFITE)
By:___________________________________________
Name:
Title:
SFI INTERMEDIATE LIMITED
By:___________________________________________
Name:
Title:
8
EXHIBIT A
CONVERTIBLE NOTE
EXHIBIT B
REGISTRATION RIGHTS AGREEMENT
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE, IN RELIANCE UPON CERTAIN EXEMPTIVE
PROVISIONS OF SUCH LAWS. SUCH SECURITIES CANNOT BE SOLD OR TRANSFERRED EXCEPT
IF, IN THE OPINION OF COUNSEL TO THE ISSUER, SUCH SALE OR TRANSFER WOULD BE: (1)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION; AND (2) IN A TRANSACTION WHICH
IS EXEMPT UNDER APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO EFFECTIVE
REGISTRATION STATEMENTS UNDER SUCH LAWS, OR IN A TRANSACTION WHICH IS OTHERWISE
IN COMPLIANCE WITH SUCH LAWS.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$8,250,000 August 19, 2002
FOR VALUE RECEIVED, The Chalone Wine Group, Ltd., a California
corporation ("MAKER") promises to pay to Les Domaines Baron de Rothschild
(Lafite), a French company ("HOLDER"), in lawful money of the United States, the
principal sum of Eight Million Two Hundred Fifty Thousand Dollars ($8,250,000)
together with interest thereon and other amounts specified herein, as specified
below. This Note is issued pursuant to a Convertible Note Purchase Agreement
dated August 21, 2002 among Maker, Holder and SFI Intermediate Limited ("NOTE
PURCHASE AGREEMENT").
1. INTEREST. Simple interest on the principal sum shall accrue
at a rate of nine percent (9%) per annum and shall be payable at the time
specified in Paragraph 2 of this Note. Interest shall be calculated on the basis
of a 365 day year and the actual number of days elapsed.
2. MATURITY. The entire principal sum and all accrued interest shall be
due and payable in full two years from the date of this Note (the "MATURITY
DATE"), except to the extent that such indebtedness is, pursuant to Paragraph 4,
5 or 8 hereof, converted into shares of Common Stock of Maker.
3. PREPAYMENT. This Note may be prepaid in whole or in part, at any
time, without penalty or premium, upon 20 days prior written notice to Holder of
Maker's intention to prepay this Note (a "PREPAYMENT NOTICE"), provided that (i)
if Maker gives a Prepayment Notice within 180 days after the date of this Note
or (ii) if the Board of Directors or any officer or agent of Maker has held
substantive discussions or negotiations with any third party regarding a
transaction or has authorized or entered into any agreement or formal indication
of interest with respect to a transaction, in any such case, which if
consummated would constitute a Change of Control Transaction (as such term is
defined in Section 5 below), then such prepayment shall be subject to Holder's
consent (which consent may, at the option of the Holder, be subject to Maker's
agreement to convert the indebtedness under this Note into shares of Common
Stock as provided below). Any partial prepayment shall be applied first to
accrued and unpaid interest on this Note and then to the outstanding principal
amount of this Note.
1
4. CONVERSION BY MAKER. At the Maturity Date (or, with the prior
written consent of Holder, at such date prior to the Maturity Date selected by
Maker), Maker may elect to pay the entire outstanding principal sum and all
accrued and unpaid interest or may elect to convert all or any part of the
outstanding principal balance of this Note and all or any part of the accrued
and unpaid interest into shares of Common Stock of Maker at a conversion price
of $9.4207 per share (the "CONVERSION PRICE"); provided, however, that: Maker
shall not be entitled to exercise this conversion right if, at the time of
conversion, Maker is insolvent or is in bankruptcy proceedingsprovided, further,
however, that, notwithstanding the foregoing proviso, if, as a result of the
provisions of the Subordination Agreement, dated even date herewith, among
Holder and certain senior lenders of Maker, or otherwise, on the Maturity Date
Maker is unable or otherwise fails to either pay the entire outstanding
principal sum and all accrued and unpaid interest on this Note or convert all
such amounts into shares of Common Stock of Maker as provided above, at the sole
election of Holder pursuant to written notice to Maker, all or any part of the
outstanding principal balance of this Note and all or any part of the interest
accrued and unpaid thereon shall be converted into shares of Common Stock of
Maker as provided above within the two business days following receipt by Maker
of such notice. For purposes of this Paragraph 4, Maker will be insolvent if the
fair value of Maker's assets does not exceed the reasonably estimated amount of
Maker's liabilities or if Maker is unable to pay its debts as they become due.
Maker acknowledges that its right to convert this Note into shares of Common
Stock is a contract for financial accommodation and to issue a security of Maker
within the meaning of 11 U.S.C. ss. 365(c)(2).
5. CONVERSION BY HOLDER. At the sole election of Holder pursuant to
written notice to Maker, all or any part of the outstanding principal balance of
this Note and all or any part of the interest accrued and unpaid thereon may be
converted within the two business days immediately prior to the Anticipated
Closing Date of a Change of Control Transaction (as defined below) into shares
of Common Stock of Maker at the Conversion Price. "CHANGE OF CONTROL
TRANSACTION" means the consummation of any transaction or series of related
transactions approved by Maker's Board of Directors that results in the holders
of record of Maker's capital stock immediately prior to the transaction or
transactions holding less than fifty percent (50%) of the voting power of Maker
immediately after the transaction or transactions, including the acquisition of
Maker by another entity and any reorganization, merger, consolidation or share
exchange, or which results in the sale of all or substantially all of the assets
of Maker. "ANTICIPATED CLOSING DATE" means the date that Maker's Board of
Directors determines to be the expected closing date of the Change of Control
Transaction. Notwithstanding the foregoing, any conversion pursuant to this
Section shall be conditioned upon the actual closing of a Change of Control
Transaction and shall not be deemed to have occurred if such Change of Control
Transaction is not consummated.
6. MECHANICS OF CONVERSION. Upon either Holder's or Maker's election
to convert this Note, the specified part of the outstanding principal and
accrued interest of the Note shall be converted without any further action by
Holder and whether or not the Note is surrendered to Maker or its transfer
agent. Maker shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon conversion unless the Note is either delivered to
Maker or its transfer agent. Maker shall, as soon as practicable after such
delivery, issue and deliver to Holder, a certificate or certificates with
appropriate restrictive legends for the number of shares of Common Stock to
which Holder shall be entitled. If a fractional share would otherwise be
2
issuable upon conversion of this Note, Maker will in lieu of such issuance pay
the cash value of that fractional share.
7. ADJUSTMENTS FOR STOCK SPLITS; REVERSE STOCK SPLITS. In case Maker's
Common Stock shall be subdivided into a greater number of shares, the Conversion
Price shall be proportionately reduced, and conversely, in case Maker's Common
Stock shall be combined into a smaller number of shares, the Conversion Price
shall be proportionately increased.
8. DEFAULT AND REMEDIES. Maker will be in default under this Note if
Maker fails to make the payment of principal and interest hereunder when due and
such failure has not been corrected within five days after written notice by
Holder to Maker at the address set forth below. Additionally, Maker will be
deemed in default under this Note if Maker has breached a provision of the Note
Purchase Agreement and such breach has not been cured within the applicable cure
period specified in the Note Purchase Agreement. Upon Maker's default, Holder
may exercise any and all of the remedies provided at law or, upon written notice
to Maker, may require the immediate conversion of this Note into Common Stock of
Maker at the Conversion Price.
9. WAIVERS. Maker, and any endorsers or guarantors hereof, severally
waive diligence, presentment, protest and demand and also notice of protest,
demand, dishonor, acceleration, intent to accelerate, and nonpayment of this
Note, and expressly agree that this Note, or any payment hereunder, may be
extended by mutual agreement of Maker and Holder from time to time without
notice without in any way affecting the liability of Maker or any endorsers or
guarantors hereof. No extension of time for the payment of this Note, or any
installment hereof, agreed to by Holder with any person now or hereafter liable
for the payment of this Note, shall affect the original liability of Maker under
this Note, even if Maker is not a party to such agreement.
10. MAXIMUM LEGAL RATE OF INTEREST. If Holder ever receives interest or
anything deemed interest in connection with this Note in excess of the maximum
lawful amount, an amount equal to the excessive interest shall be applied to the
reduction of the principal, and if it exceeds the unpaid balance of principal
hereof, such excess shall be refunded to Maker. If interest otherwise payable to
Holder would exceed the maximum lawful amount, the interest payable shall be
reduced to the maximum amount permitted under applicable law.
11. SUBORDINATION. This Note is subordinate to all other debt for
borrowed money of Maker. Upon the request of Maker, Holder shall promptly
execute such reasonable and customary documents that either Maker or its
creditors deem necessary or desirable to effectuate the foregoing subordination.
12. NO TRANSFER. Holder shall not sell, assign, transfer, pledge,
give or otherwise dispose of all or any part of its respective rights or
obligations under this Note.
13. MISCELLANEOUS.
a. Maker shall pay all costs, including, without
limitation, reasonable attorneys' fees incurred by Holder in collecting the sums
due hereunder.
3
b. This Note may be modified only by a written agreement
executed by Maker and Holder.
c. This Note shall be governed by California law.
d. The terms of this Note shall inure to the benefit of and
bind Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
e. If this Note is destroyed, lost or stolen, Maker will
deliver a new note to Holder on the same terms and conditions as this Note with
a notation of the unpaid principal and accrued and unpaid interest in
substitution of the prior Note. Holder shall furnish to Maker reasonable
evidence that the Note was destroyed, lost or stolen and any security or
indemnity that may be reasonably required by Maker in connection with the
replacement of this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the date and
year first above written.
MAKER
The Chalone Wine Group, Ltd.
By: _____________________________________
Name: ___________________________________
Title: __________________________________
Notice Addresses:
Maker: 621 AIRPARK ROAD, NAPA, CALIFORNIA 94558 Attn: THOMAS SELFRIDGE
Facsimile: 707-254-4204
Holder: 33 rue de la Baume, 75008 Paris, France, Attn: Christophe Salin
Facsimile: 011-33-1-53-89-7801
4
EXHIBIT 10.62
SUBORDINATION AGREEMENT
(Les Domaines Baron de Rothschild (Lafite))
THIS SUBORDINATION AGREEMENT (this "Agreement"), dated as of
August __, 2002, is made by Les Domaines Baron de Rothschild (Lafite) (the
"Creditor") in favor of each of the "Senior Lenders" listed on SCHEDULE 1 hereto
(each a "Senior Lender" and, collectively, the "Senior Lenders").
The Chalone Wine Group, Ltd., a California corporation (the
"Borrower"), certain Senior Lenders and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank International", New York Branch
("Rabobank"), as issuer of letters of credit, as swingline lender and as
administrative agent, are parties to a Credit Agreement dated as of April 19,
2002 (as amended, restated, modified, supplemented, renewed or extended from
time to time, the "Credit Agreement") pursuant to which the Senior Lenders party
thereto have made available to the Borrower a revolving credit facility and term
loan facility, as provided therein.
The Borrower and certain other Senior Lenders are parties to
an Amended and Restated Note Purchase Agreement dated as of April 19, 2002 (as
amended, restated, modified, supplemented, renewed or extended from time to
time, the "Amended and Restated Note Purchase Agreement") relating to the
Borrower's $5,000,000 Adjustable Rate Senior Secured Notes, Series A, Due
September 15, 2010, the Borrower's $10,000,000 Adjustable Rate Senior Secured
Notes, Series B, Due September 15, 2010, and the Borrower's $15,000,000
Adjustable Rate Senior Secured Notes, Series C, Due September 15, 2010.
Rabobank, as collateral agent (in such capacity, the
"Collateral Agent"), and the other Senior Lenders are also parties to an Amended
and Restated Intercreditor and Collateral Agency Agreement dated as of April 19,
2002 (as amended, restated, modified, supplemented, renewed or extended from
time to time, the "Intercreditor Agreement") pursuant to which, among other
things, the Senior Lenders have agreed to the allocation of certain payments
made in respect of the Senior Debt (as defined below).
Additionally, the Borrower is or will be indebted to the
Creditor in the principal amount of $2,750,000, pursuant to a Convertible Note
Purchase Agreement, dated as of August __, 2002 (as amended, modified, renewed,
extended or replaced from time to time, the "Note Purchase Agreement") and the
Convertible Subordinated Promissory Note dated August __, 2002 (the
"Subordinated Note") outstanding thereunder. It is a condition precedent to the
continued borrowings under the Credit Agreement and the issuance of letters of
credit thereunder and the continuance of the loans under the Amended and
Restated Note Purchase Agreement that the Creditor deliver this Agreement to the
Senior Lenders to provide for the subordination of the Borrower's indebtedness
to the Creditor to the Senior Debt. The Creditor has agreed to the subordination
of such indebtedness to it, upon the terms and subject to the conditions set
forth in this Agreement.
Accordingly, the parties hereto agree as follows:
SECTION 1 DEFINITIONS; INTERPRETATION.
1.
(a) TERMS DEFINED IN CREDIT AGREEMENT. All capitalized terms
used in this Agreement and not otherwise defined herein shall have the meanings
assigned to them in the Credit Agreement.
(b) CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"COMMITMENTS" means, in respect of each Senior Lender, the
commitment of such Senior Lender to grant credit, make loans or otherwise extend
financing to the Borrower under the Senior Debt.
"INSOLVENCY EVENT" has the meaning set forth in Section 3.
"REQUIRED SECURED PARTIES" shall have the meaning given to
such term in the Intercreditor Agreement.
"SENIOR DEBT" means (i) the indebtedness, liabilities and
other obligations of the Borrower to the Senior Lenders under or in connection
with the Credit Agreement and the other Loan Documents, including all unpaid
principal of the Loans, all unpaid drawings under the Letters of Credit, all
interest accrued thereon, all fees due thereunder and all other amounts payable
by the Borrower to the Senior Lenders thereunder or in connection therewith,
whether now existing or hereafter arising, and whether due or to become due,
absolute or contingent, liquidated or unliquidated, determined or undetermined;
and (ii) the indebtedness, liabilities and other obligations of the Borrower to
the Senior Lenders under or in connection with the Amended and Restated Note
Purchase Agreement and the other Senior Secured Note Documents, including all
unpaid principal of the Senior Secured Notes, all interest accrued thereon, all
premiums and Make-Whole Amounts (as defined in the Amended and Restated Note
Purchase Agreement) due thereunder, all fees due thereunder and all other
amounts payable by the Borrower to the Senior Lenders thereunder or in
connection therewith, whether now existing or hereafter arising, and whether due
or to become due, absolute or contingent, liquidated or unliquidated, determined
or undetermined.
"SUBORDINATED DEBT" means all indebtedness, liabilities and
other obligations of the Borrower to the Creditor under or in connection with
the Note Purchase Agreement and the Subordinated Note, including all principal
on the Subordinated Note, all premium and interest accrued thereon, all fees and
all other amounts payable by the Borrower to the Creditor under or in connection
with the Note Purchase Agreement, the Subordinated Note and any other documents
or instruments related thereto, whether now existing or hereafter arising, and
whether due or to become due, absolute or contingent, liquidated or
unliquidated, determined or undetermined.
"SUBORDINATED DEBT PAYMENT" means any payment or distribution
by or on behalf of the Borrower, directly or indirectly, of assets of the
Borrower of any kind or character, whether in cash, property or securities,
including on account of the purchase, redemption or other acquisition of
Subordinated Debt, as a result of any collection, sale or other disposition of
collateral, or by setoff, exchange or in any other manner, for or on account of
the Subordinated Debt.
2.
(c) INTERPRETATION. In this Agreement, except to the extent
the context otherwise requires:
(i) Any reference in this Agreement to an Article, a Section,
a Schedule or an Exhibit is a reference to an article hereof, a section hereof,
a schedule hereto or an exhibit hereto, respectively, and to a subsection hereof
or a clause hereof is, unless otherwise stated, a reference to a subsection or a
clause of the Section or subsection in which the reference appears.
(ii) The words "hereof," "herein," "hereto," "hereunder" and
the like mean and refer to this Agreement as a whole and not merely to the
specific Article, Section, subsection, paragraph or clause in which the
respective word appears.
(iii) The meaning of defined terms shall be equally applicable
to both the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include" shall be
deemed to be followed by the words "without limitation".
(v) References to agreements and other contractual instruments
shall be deemed to include all subsequent amendments and other modifications
thereto.
(vi) References to statutes or regulations are to be construed
as including all statutory and regulatory provisions consolidating, amending or
replacing the statute or regulation referred to.
(vii) The captions and headings are for convenience of
reference only and shall not affect the construction of this Agreement.
SECTION 2 AGREEMENT OF SUBORDINATION. Until such time as this
Agreement is terminated in accordance with Section 30 below, the Subordinated
Debt (including all Subordinated Debt Payments) shall be subject, subordinate
and junior, in right of payment and exercise of remedies, to the extent and in
the manner set forth herein, to the prior payment in full in cash of the Senior
Debt.
SECTION 3 SUBORDINATION UPON ANY DISTRIBUTION OF ASSETS OF THE
BORROWER. In the event of any payment or distribution of assets of the Borrower
of any kind or character, whether in cash, property or securities, upon the
dissolution, winding up or total or partial liquidation or reorganization,
readjustment, arrangement or similar proceeding relating to the Borrower or its
property, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership, arrangement or similar proceedings or upon an assignment for the
benefit of creditors, or upon any other marshalling or composition of the assets
and liabilities of the Borrower, or otherwise (such events, collectively, the
"Insolvency Events"): (i) all amounts owing on account of the Senior Debt shall
first be paid in full in cash, or payment provided for in cash or in cash
equivalents, for application in accordance with the Intercreditor Agreement,
before any Subordinated Debt Payment is made; and (ii) to the extent permitted
by applicable law, any Subordinated Debt Payment to which the Creditor would be
entitled except for the provisions hereof shall be paid or delivered by the
trustee in bankruptcy, receiver, assignee for the benefit of creditors or other
liquidating agent making such payment or distribution, as applicable, directly
3.
to the Collateral Agent (on behalf of the Senior Lenders) for application to the
payment of the Senior Debt in accordance with clause (i), after giving effect to
any concurrent payment or distribution or provision therefor to the Collateral
Agent or the Senior Lenders in respect of such Senior Debt.
SECTION 4 PAYMENTS ON SUBORDINATED DEBT. As long as any Senior
Debt shall remain outstanding and unpaid, the Borrower shall not make, directly
or indirectly, and the Creditor shall not accept or receive, any Subordinated
Debt Payment; PROVIDED, HOWEVER, that the Borrower and the Creditor may at any
time convert the Subordinated Debt, in whole or in part, into common stock of
the Borrower.
SECTION 5 SUBORDINATION OF REMEDIES. As long as any Senior
Debt shall remain outstanding and unpaid, the Creditor shall not, without the
prior written consent of the Collateral Agent (acting on instructions from the
Required Secured Parties):
(i) accelerate, make demand, declare a default or otherwise
make due and payable prior to the original stated maturity thereof any
Subordinated Debt or bring suit or institute any other actions or proceedings to
enforce its rights or interests under or in respect of the Note Purchase
Agreement and the Subordinated Note;
(ii) exercise any rights under or with respect to (A) any
guaranties of the Subordinated Debt, or (B) any collateral securing the
Subordinated Debt, including causing or compelling the pledge or delivery of any
such collateral, any attachment of, levy upon, execution against, foreclosure
upon or the taking of other action against or institution of other proceedings
with respect to any such collateral, notifying any account debtors of the
Borrower or asserting any claim or interest in any insurance with respect to
collateral, or attempt to do any of the foregoing;
(iii) exercise any rights to set-offs and counterclaims in
respect of any indebtedness, liabilities or obligations of the Creditor to the
Borrower against any of the Subordinated Debt; or
(iv) commence, or cause to be commenced, or join with any
creditor other than the Senior Lenders in commencing, any bankruptcy, insolvency
or receivership proceeding against the Borrower.
SECTION 6 PAYMENT OVER TO COLLATERAL AGENT. In the event that,
notwithstanding the provisions of Sections 3, 4 and 5, any Subordinated Debt
Payments shall be received in contravention of such Sections 3, 4 and 5 by the
Creditor before all Senior Debt is paid in full in cash or cash equivalents,
such Subordinated Debt Payments shall be held in trust for the benefit of the
Senior Lenders and shall be paid over or delivered to the Collateral Agent for
application to the payment in full in cash or cash equivalents of all Senior
Debt remaining unpaid to the extent necessary to give effect to such Sections 3,
4 and 5, after giving effect to any concurrent payments or distributions to the
Collateral Agent and the Senior Lenders in respect of the Senior Debt.
SECTION 7 AUTHORIZATION TO COLLATERAL AGENT. If, while any
Subordinated Debt is outstanding, any Insolvency Event shall occur relating to
the Borrower or its property: (i) the Collateral Agent, when so instructed by
4.
the Required Secured Parties, is hereby irrevocably authorized and empowered (in
the name of the Senior Lenders or in the name of the Creditor or otherwise), but
shall have no obligation, to demand, sue for, collect and receive every payment
or distribution in respect of the Subordinated Debt and give acquittance
therefor and to file claims and proofs of claim and take such other action
(including voting the Subordinated Debt) as it may deem necessary or advisable
for the exercise or enforcement of any of the rights or interests of the
Collateral Agent and the Senior Lenders; and (ii) the Creditor shall promptly
take such action as the Collateral Agent (on instruction from the Required
Secured Parties) may reasonably request (A) to collect the Subordinated Debt for
the account of the Senior Lenders and to file appropriate claims or proofs of
claim in respect of the Subordinated Debt, (B) to execute and deliver to the
Collateral Agent such powers of attorney, assignments and other instruments as
it may request to enable it to enforce any and all claims with respect to the
Subordinated Debt, and (C) to collect and receive any and all Subordinated Debt
Payments.
SECTION 8 REPRESENTATIONS AND WARRANTIES. The Creditor
represents and warrants to each Senior Lender that:
(a) ORGANIZATION AND POWERS. The Creditor is a corporation
duly organized, validly existing and in good standing under the law of the
jurisdiction of its incorporation and has all requisite power and authority to
own its assets and carry on its business and to execute, deliver and perform its
obligations under this Agreement.
(b) AUTHORIZATION; NO CONFLICT. The execution, delivery and
performance by the Creditor of this Agreement have been duly authorized by all
necessary corporate action of the Creditor, and do not and will not: (i)
contravene the terms of the certificate or articles, as the case may be, of
incorporation and the bylaws of the Creditor, (ii) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which the Creditor is a party or by
which it or its properties may be bound or affected; or (iii) violate any
provision of any law, rule, regulation, order, writ, judgment, injunction,
decree or the like binding on or affecting the Creditor.
(c) BINDING OBLIGATION. This Agreement constitutes the legal,
valid and binding obligation of the Creditor, enforceable against the Creditor
in accordance with its terms.
(d) CONSENTS. No authorization, consent, approval, license,
exemption of, or filing or registration with, any Governmental Authority, or
approval or consent of any other Person, is required for the due execution,
delivery or performance by the Creditor of this Agreement.
(e) NO PRIOR ASSIGNMENT. The Creditor has not previously
assigned any interest in the Subordinated Debt, no Person other than the
Creditor owns an interest in the Subordinated Debt (whether as joint holders of
the Subordinated Debt, participants or otherwise), and the entire Subordinated
Debt is owing only to the Creditor.
(f) INDEPENDENT INVESTIGATION. The Creditor hereby
acknowledges that it has undertaken its own independent investigation of the
financial condition of the Borrower and all other matters pertaining to this
Agreement and further acknowledges that it is not relying in any manner upon any
5.
representation or statement of the Collateral Agent or the Senior Lenders with
respect thereto. The Creditor represents and warrants that it is aware of the
terms of the Loan Documents and the Senior Secured Note Documents and that it is
in a position to obtain, and it hereby assumes full responsibility for
obtaining, any additional information concerning the financial condition of the
Borrower and any other matters pertinent hereto that the Creditor may desire.
The Creditor is not relying upon or expecting the Collateral Agent or the Senior
Lenders to furnish to the Creditor any information now or hereafter in the
Collateral Agent or the Senior Lenders' possession concerning the financial
condition of the Borrower or any other matter.
SECTION 9 CERTAIN AGREEMENTS OF THE CREDITOR.
(a) NO BENEFITS. The Creditor understands that there may be
various agreements among the Collateral Agent, the Senior Lenders and the
Borrower evidencing and governing the Senior Debt, and the Creditor acknowledges
and agrees that such agreements are not intended to confer any benefits on the
Creditor and that the Collateral Agent and the Senior Lenders shall have no
obligation to the Creditor or any other Person to exercise any rights, enforce
any remedies, or take any actions which may be available to it under such
agreements.
(b) NO INTERFERENCE. The Creditor acknowledges that the
Borrower has granted the Collateral Agent and the Senior Lenders a security
interest in certain of the Borrower's assets and agrees not to interfere with or
in any manner oppose a disposition of any collateral by the Collateral Agent or
the Senior Lenders in accordance with applicable law.
(c) RELIANCE BY COLLATERAL AGENT AND SENIOR LENDERS. The
Creditor acknowledges and agrees that the Collateral Agent and the Senior
Lenders will have relied upon and will continue to rely upon the subordination
provisions provided for herein and the other provisions hereof in maintaining
the loans and other extensions of credit under the Loan Documents and the Senior
Secured Note Documents.
(d) WAIVERS. The Creditor waives any and all notice of the
incurrence of the Senior Debt or any part thereof and any right to require
marshalling of assets.
(e) OBLIGATIONS OF CREDITOR NOT AFFECTED. The Creditor agrees
that at any time and from time to time, without notice to or the consent of the
Creditor, without incurring responsibility to the Creditor, and without
impairing or releasing the subordination provided for herein or otherwise
impairing the rights of the Collateral Agent and the Senior Lenders hereunder:
(i) the time for the Borrower's performance of or compliance
with any of its agreements contained in the Loan Documents or the Senior Secured
Note Documents may be extended or such performance or compliance may be waived
by the applicable Senior Lenders;
(ii) the agreements of the Borrower with respect to the Loan
Documents and the Senior Secured Note Documents may from time to time be
modified by the Borrower and the applicable Senior Lenders for the purpose of
adding any requirements thereto or changing in any manner the rights and
obligations of the Borrower or the Senior Lenders thereunder;
6.
(iii) the manner, place or terms for payment of Senior Debt or
any portion thereof may be altered or the terms for payment extended, or the
Senior Debt may be renewed in whole or in part, or the principal amount of the
Senior Debt may from time to time be increased or decreased;
(iv) the maturity of the Senior Debt may be accelerated in
accordance with the terms of any present or future agreement by the Borrower and
the applicable Senior Lenders;
(v) any collateral securing Senior Debt may be sold,
exchanged, released or substituted and any Lien in favor of the Collateral Agent
or the Senior Lenders may be terminated, subordinated or fail to be perfected or
become unperfected;
(vi) any Person liable in any manner for Senior Debt may be
discharged, released or substituted; and
(vii) all other rights against the Borrower, any other Person
or with respect to any collateral may be exercised (or the Collateral Agent and
the Senior Lenders may waive or refrain from exercising such rights).
(f) RIGHTS OF COLLATERAL AGENT AND SENIOR LENDERS NOT TO BE
IMPAIRED. No right of the Collateral Agent or the Senior Lenders to enforce the
subordination provided for herein or to exercise their other rights hereunder
shall at any time in any way be prejudiced or impaired by any act or failure to
act by the Borrower, the Collateral Agent or the Senior Lenders hereunder or
under or in connection with the Loan Documents or the Senior Secured Note
Documents or by any noncompliance by the Borrower with the terms and provisions
and covenants herein or in any other Loan Document or Senior Secured Note
Document, regardless of any knowledge thereof the Collateral Agent or the Senior
Lenders may have or otherwise be charged with.
(g) FINANCIAL CONDITION OF BORROWER. The Creditor shall not
have any right to require the Collateral Agent or the Senior Lenders to obtain
or disclose any information with respect to: (i) the financial condition or
character of the Borrower or the ability of the Borrower to pay and perform
Senior Debt; (ii) the Senior Debt; (iii) any collateral for any or all of the
Senior Debt; (iv) the existence or nonexistence of any guarantees of, or any
other subordination agreements with respect to, all or any part of the Senior
Debt; (v) any action or inaction on the part of the Collateral Agent, the Senior
Lenders or any other Person; or (vi) any other matter, fact or occurrence
whatsoever.
(h) ACQUISITION OF LIENS OR GUARANTIES. The Creditor shall
not, without the prior written consent of the Collateral Agent and the Required
Secured Parties, acquire any right or interest in or to any collateral to secure
the Subordinated Debt or accept any guaranties for the Subordinated Debt. The
Borrower shall not, without the prior written consent of the Collateral Agent
and the Required Secured Parties, grant, or suffer or permit its Subsidiaries to
grant, to the Creditor any right or interest in or to any collateral to secure
the Subordinated Debt or suffer or permit any of its Subsidiaries to provide any
guaranties for the Subordinated Debt.
SECTION 10 SUBROGATION.
7.
(a) SUBROGATION. Until the payment in cash and performance in
full of all Senior Debt, the Creditor shall not have, and shall not directly or
indirectly exercise, any rights that it may acquire by way of subrogation under
this Agreement, by any payment or distribution to the Collateral Agent or the
Senior Lenders hereunder or otherwise. Upon the payment in cash and performance
in full of all Senior Debt, the Creditor shall be subrogated to the rights of
the Collateral Agent and the Senior Lenders to receive payments or distributions
applicable to the Senior Debt until the Subordinated Debt shall be paid in full.
For the purposes of the foregoing subrogation, no payments or distributions to
the Collateral Agent or the Senior Lenders of any cash, property or securities
to which the Creditor would be entitled except for the provisions of Section 3,
4 or 5 shall, as among the Borrower, its creditors (other than the Senior
Lenders and the Collateral Agent) and the Creditor, be deemed to be a payment by
the Borrower to or on account of the Senior Debt.
(b) PAYMENTS OVER TO CREDITOR. If any payment or distribution
to which the Creditor would otherwise have been entitled but for the provisions
of Section 3, 4 or 5 shall have been applied pursuant to the provisions of
Section 3, 4 or 5 to the payment of all amounts payable under the Senior Debt,
the Creditor shall be entitled to receive from the Collateral Agent and the
Senior Lenders any payments or distributions received by the Collateral Agent
and the Senior Lenders in excess of the amount sufficient to pay in full all
amounts payable under or in respect of the Senior Debt. If any such excess
payment is made to the Collateral Agent and the Senior Lenders, the Collateral
Agent and the Senior Lenders shall promptly remit such excess to the Creditor
and until so remitted shall hold such excess payment for the benefit of the
Creditor.
SECTION 11 CONTINUING AGREEMENT; REINSTATEMENT.
(a) CONTINUING AGREEMENT. This Agreement is a continuing
agreement of subordination and shall continue in effect and be binding upon the
Creditor until the full, final and indefeasible payment in cash, and the full
and final performance, of the Senior Debt and the termination of the
Commitments. The subordinations, agreements, and priorities set forth herein
shall remain in full force and effect regardless of whether any party hereto in
the future seeks to rescind, amend, terminate or reform, by litigation or
otherwise, its respective agreements with the Borrower.
(b) REINSTATEMENT. This Agreement shall continue to be
effective or shall be reinstated, as the case may be, if, for any reason, any
payment of the Senior Debt by or on behalf of the Borrower shall be rescinded or
must otherwise be restored by the Collateral Agent or any Lender, whether as a
result of an Insolvency Event or otherwise.
SECTION 12 PAYMENTS. The Creditor shall make each payment
hereunder unconditionally in full without set-off, counterclaim or other
defense, on the day when due to the Collateral Agent in Dollars and in same day
or immediately available funds, to the account from time to time specified by
the Collateral Agent.
SECTION 13 TRANSFER OF SUBORDINATED DEBT. The Creditor may not
assign or transfer its rights and obligations under the Note Purchase Agreement
or the Subordinated Note or any interest in the Subordinated Debt or any
collateral therefor without the prior written consent of the Required Secured
Parties, and any such transferee or assignee, as a condition to acquiring the
8.
Subordinated Note or interest in the Subordinated Debt or collateral shall agree
to be bound hereby, in form satisfactory to the Collateral Agent and the
Required Secured Parties. Any prohibited assignment shall be absolutely void.
The Senior Lenders (and each of them) may from time to time assign or grant
participations in all or part of their rights and obligations under the Senior
Debt, subject to the terms and provisions of the Senior Debt held by such Senior
Lender, and each such assignee of, or participant in, the Senior Debt shall be
entitled to all of the rights and benefits afforded to the Senior Lenders under
this Agreement.
SECTION 14 AMENDMENTS OF SUBORDINATED DEBT. Each of the
Borrower and the Creditor shall not, without the prior written consent of the
Required Secured Parties, agree to or permit any amendment, modification or
waiver of any material provisions of the Note Purchase Agreement, the
Subordinated Note or any other agreement relating to any Subordinated Debt
(including any amendment, modification or waiver pursuant to an exchange of
other securities or instruments for outstanding Subordinated Debt) if the effect
of such amendment, modification or waiver is to: (i) increase the interest rate
on the Subordinated Debt or change (to earlier dates) the dates upon which
principal and interest are due thereon; (ii) alter the redemption, prepayment or
subordination provisions thereof; (iii) alter the covenants and events of
default in a manner which would make such provisions more onerous or restrictive
to the Borrower or any Subsidiary; or (iv) otherwise increase the obligations of
the Borrower in respect of the Subordinated Debt or confer additional rights
upon the Creditor which individually or in the aggregate would be adverse to the
Borrower, its Subsidiaries or the Senior Lenders.
SECTION 15 OBLIGATIONS OF BORROWER NOT AFFECTED. The
provisions of this Agreement are intended solely for the purpose of defining the
relative rights against the Borrower of the Creditor, on the one hand, and the
Collateral Agent and the Senior Lenders, on the other hand. Nothing contained in
this Agreement shall (i) impair, as between the Borrower and the Creditor, the
obligation of the Borrower to pay the principal of or interest on the
Subordinated Note and its other obligations with respect to the Subordinated
Debt as and when the same shall become due and payable in accordance with the
terms thereof, or (ii) otherwise affect the relative rights against the Borrower
of the Creditor, on the one hand, and the creditors of the Borrower (other than
the Senior Lenders and the Collateral Agent), on the other hand.
SECTION 16 ENDORSEMENT OF SUBORDINATED NOTES; FURTHER
ASSURANCES AND ADDITIONAL ACTS.
(a) ENDORSEMENT OF SUBORDINATED NOTE. At the request of the
Collateral Agent, the Subordinated Note and all other documents and instruments
evidencing any of the Subordinated Debt shall be endorsed with a legend noting
that the Subordinated Note and such other documents and instruments are subject
to this Agreement, and the Creditor shall promptly deliver to the Collateral
Agent evidence of the same.
(b) FURTHER ASSURANCES AND ADDITIONAL ACTS. Each of the
Creditor and the Borrower shall execute, acknowledge, deliver, file, notarize
and register at its own expense all such further agreements, instruments,
certificates, financing statements, documents and assurances, and perform such
acts as the Collateral Agent or the Required Secured Parties shall deem
necessary or appropriate to effectuate the purposes of this Agreement, and
9.
promptly provide the Collateral Agent with evidence of the foregoing
satisfactory in form and substance to the Collateral Agent and the Required
Secured Parties.
SECTION 17 NOTICES. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including by facsimile transmission) and shall be mailed, sent or delivered at
or to the address or facsimile number of the respective party or parties set
forth in the Credit Agreement or the Amended and Restated Note Purchase
Agreement, as the case may be, or, in the case of the Creditor, at or to its
address or facsimile number set forth on the signature pages hereof, or at or to
such other address or facsimile number as such party or parties shall have
designated in a written notice to the other party or parties. All such notices
and communications shall be effective (i) if delivered by hand, when delivered;
(ii) if sent by mail, upon the earlier of the date of receipt or five Business
Days after deposit in the mail, first class (or air mail, with respect to
communications to be sent to or from the United States), postage prepaid; and
(iii) if sent by facsimile transmission, when sent.
SECTION 18 NO WAIVER; CUMULATIVE REMEDIES. No failure on the
part of the Collateral Agent or any Senior Lender to exercise, and no delay in
exercising, any right, remedy, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power or privilege preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights and remedies
under this Agreement are cumulative and not exclusive of any rights, remedies,
powers and privileges that may otherwise be available to the Collateral Agent or
any Senior Lender.
SECTION 19 COSTS AND EXPENSES.
(a) PAYMENTS BY BORROWER. The Borrower agrees to pay to the
Collateral Agent and the Senior Lenders on demand the reasonable out-of-pocket
costs and expenses of the Collateral Agent and the Senior Lenders, and the
reasonable fees and disbursements of counsel to the Collateral Agent and the
Senior Lenders (including allocated costs of internal counsel), in connection
with the negotiation, preparation, execution, delivery and administration of
this Agreement, and any amendments, modifications or waivers of the terms
thereof.
(b) PAYMENTS BY BORROWER AND CREDITOR. Each of the Borrower
and the Creditor jointly and severally agrees to pay to the Collateral Agent on
demand all costs and expenses of the Collateral Agent and the Senior Lenders,
and the fees and disbursements of counsel (including allocated costs of internal
counsel), in connection with the enforcement or attempted enforcement of, and
preservation of rights or interests under, this Agreement, including any losses,
costs and expenses sustained by the Collateral Agent and any Senior Lender as a
result of any failure by the Creditor to perform or observe its obligations
contained in this Agreement.
SECTION 20 SURVIVAL. All covenants, agreements,
representations and warranties made in this Agreement shall, except to the
extent otherwise provided herein, survive the execution and delivery of this
Agreement, and shall continue in full force and effect so long as any Senior
Debt remains unpaid or the Senior Lenders have any Commitments. Without limiting
the generality of the foregoing, the obligations of the Borrower and the
10.
Creditor under Section 19 shall survive the satisfaction of the Senior Debt and
the termination of the Commitments.
SECTION 21 BENEFITS OF AGREEMENT. This Agreement is entered into for the sole
protection and benefit of the parties hereto and their successors and assigns,
and no other Person (other than any Person that becomes a Senior Lender after
the date hereof) shall be a direct or indirect beneficiary of, or shall have any
direct or indirect cause of action or claim in connection with, this Agreement.
SECTION 22 BINDING EFFECT. This Agreement shall be binding upon, inure to the
benefit of and be enforceable by the Borrower, the Creditor, the Collateral
Agent and each Senior Lender and their respective successors and assigns.
SECTION 23 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
SECTION 24 SUBMISSION TO JURISDICTION.
(a) SUBMISSION TO JURISDICTION. The Creditor hereby (i)
submits to the non-exclusive jurisdiction of the courts of the State of New York
and the Federal courts of the United States sitting in the State of New York for
the purpose of any action or proceeding arising out of or relating to this
Agreement, (ii) agrees that all claims in respect of any such action or
proceeding may be heard and determined in such courts, (iii) irrevocably waives
(to the extent permitted by applicable law) any objection which it now or
hereafter may have to the laying of venue of any such action or proceeding
brought in any of the foregoing courts, and any objection on the ground that any
such action or proceeding in any such court has been brought in an inconvenient
forum and (iv) agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner permitted by law.
(b) APPOINTMENT OF PROCESS COLLATERAL AGENT. The Creditor
hereby irrevocably appoints the Borrower (the "Process Collateral Agent"), as
its authorized agent with all powers necessary to receive on its behalf service
of copies of the summons and complaint and any other process which may be served
in any action or proceeding arising out of or relating to this Agreement in any
of the courts in and of the State of New York. Such service may be made by
mailing or delivering a copy of such process to the Creditor in care of the
Process Collateral Agent at the Process Collateral Agent's address, and the
Creditor hereby irrevocably authorizes and directs the Process Collateral Agent
to accept such service on its behalf and agrees that the failure of the Process
Collateral Agent to give any notice of any such service to the Creditor shall
not impair or affect the validity of such service or of any judgment rendered in
any action or proceeding based thereon. As an alternative method of service, the
Creditor also irrevocably consents to the service of any and all process in any
such action or proceeding by the mailing of copies of such process to the
Creditor at its address specified in Section 17. If for any reason the Borrower
shall cease to act as Process Collateral Agent, the Creditor shall appoint
forthwith, in the manner provided for herein, a successor Process Collateral
11.
Agent qualified to act as an Collateral Agent for service of process with
respect to all courts in and of the State of New York and acceptable to the
Collateral Agent.
(c) NO LIMITATION. Nothing in this Section 24 shall affect the
right of the Collateral Agent or the Senior Lenders to serve legal process in
any other manner permitted by law or limit the right of the Collateral Agent or
the Senior Lenders to bring any action or proceeding against the Creditor or its
property in the courts of other jurisdictions.
SECTION 25 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the Borrower, the Senior Lenders, the Collateral Agent and the
Creditor with respect to the matters set forth herein and supersedes any prior
agreements, commitments, drafts, communications, discussions and understandings,
oral or written, with respect thereto. There are no conditions to the full
effectiveness of this Agreement.
(b) AMENDMENTS AND WAIVERS. No amendment to any provision of
this Agreement shall in any event be effective unless the same shall be in
writing and signed by the Borrower, the Creditor, the Collateral Agent and the
Required Secured Parties (or the Collateral Agent with the written consent of
the Required Secured Parties); and no waiver of any provision of this Agreement,
or consent to any departure by the Borrower or the Creditor therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Collateral Agent and the Required Secured Parties (or the Collateral Agent with
the consent of the Required Secured Parties). Any such amendment, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 26 CONFLICTS. In case of any conflict or inconsistency
between any terms of this Agreement, on the one hand, and the Note Purchase
Agreement, the Subordinated Note or any other document or instrument relating to
the Subordinated Debt, on the other hand, then the terms of this Agreement shall
control.
SECTION 27 SEVERABILITY. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 28 INTERPRETATION. This Agreement is the result of
negotiations between, and have been reviewed by counsel to, the Collateral
Agent, the Senior Lenders, the Creditor, the Borrower and other parties, and is
the product of all parties hereto. Accordingly, this Agreement shall not be
construed against any of the Senior Lenders or the Collateral Agent merely
because of the Collateral Agent's or any Senior Lender's involvement in the
preparation thereof.
12.
SECTION 29 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute but one and the same agreement.
SECTION 30 TERMINATION OF AGREEMENT. Upon payment in cash and
performance in full of the Senior Debt and the termination of the Commitments,
this Agreement shall terminate and the Collateral Agent and the Senior Lenders
shall promptly execute and deliver to the Borrower and the Creditor such
documents and instruments as shall be necessary to evidence such termination;
PROVIDED, HOWEVER, that the obligations of the Borrower and the Creditor under
Section 19 shall survive such termination.
[SIGNATURES FOLLOW.]
13.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
THE COLLATERAL AGENT
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK INTERNATIONAL",
NEW YORK BRANCH, as Collateral Agent
By_________________________________________
Title:
By_________________________________________
Title:
THE SENIOR LENDERS
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK INTERNATIONAL",
NEW YORK BRANCH
By_________________________________________
Title:
By_________________________________________
Title:
FARM CREDIT WEST FLCA
By_________________________________________
Title:
U.S. BANK NATIONAL ASSOCIATION
By_________________________________________
Title:
14.
COMERICA BANK-CALIFORNIA
By ________________________________________
Title:
AGSTAR FINANCIAL SERVICES, PCA, D/B/A
FARM CREDIT SERVICES COMMERCIAL
FINANCE GROUP
By_________________________________________
Title:
FARM CREDIT SERVICE OF AMERICA, PCA
By_________________________________________
Title:
THE CREDITOR
LES DOMAINES BARON DE ROTHSCHILD (LAFITE)
By_________________________________________
Title:
Address:
___________________________________________
___________________________________________
___________________________________________
Attn: _____________________________________
Fax No.____________________________________
THE BORROWER
THE CHALONE WINE GROUP, LTD.
By_________________________________________
Title:
15.
Schedule 1
to Subordination Agreement
"SENIOR LENDERS"
A. Senior Lenders party to the Credit Agreement:
1. Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank International", New York Branch, as Issuing
Lender, as Swingline Lender, as a Lender and as Agent
2. Farm Credit West FLCA
3. U.S. Bank National Association
4. Comerica Bank - California
5. Each other Person from time to time party to the Credit
Agreement as a "Lender" thereunder.
B. Senior Lenders party to the Amended and Restated Note Purchase
Agreement.
1. Agstar Financial Services, PCA, d/b/a Farm Credit Services
Commercial Finance Group
2. Farm Credit Services of America, PCA
3. Each other Person from time to time party to the Amended
and Restated Note Purchase Agreement as a "Purchaser"
thereunder.
C. Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
International", New York Branch, as Collateral Agent
16.
THIS NOTE AND THE SHARES OF COMMON STOCK ISSUABLE UPON CONVERSION HEREOF HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES
ACT"), OR THE SECURITIES LAWS OF ANY STATE, IN RELIANCE UPON CERTAIN EXEMPTIVE
PROVISIONS OF SUCH LAWS. SUCH SECURITIES CANNOT BE SOLD OR TRANSFERRED EXCEPT
IF, IN THE OPINION OF COUNSEL TO THE ISSUER, SUCH SALE OR TRANSFER WOULD BE: (1)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR
PURSUANT TO AN EXEMPTION FROM SUCH REGISTRATION; AND (2) IN A TRANSACTION WHICH
IS EXEMPT UNDER APPLICABLE STATE SECURITIES LAWS, OR PURSUANT TO EFFECTIVE
REGISTRATION STATEMENTS UNDER SUCH LAWS, OR IN A TRANSACTION WHICH IS OTHERWISE
IN COMPLIANCE WITH SUCH LAWS.
CONVERTIBLE SUBORDINATED PROMISSORY NOTE
$2,750,000 August 21, 2002
FOR VALUE RECEIVED, The Chalone Wine Group, Ltd., a California
corporation ("Maker") promises to pay to SFI Intermediate Limited or its
affiliates ("Holder"), in lawful money of the United States, the principal sum
of Two Million Seven Hundred Fifty Thousand Dollars ($2,750,000) together with
interest thereon and other amounts specified herein, as specified below. This
Note is issued pursuant to a Convertible Note Purchase Agreement dated August
21, 2002 among Maker, Holder and Les Domaines Baron de Rothschild (Lafite)
("Note Purchase Agreement").
1. INTEREST. Simple interest on the principal sum shall accrue
at a rate of nine percent (9%) per annum and shall be payable at the time
specified in Paragraph 2 of this Note. Interest shall be calculated on the basis
of a 365 day year and the actual number of days elapsed.
2. MATURITY. The entire principal sum and all accrued interest shall be
due and payable in full two years from the date of this Note (the "Maturity
Date"), except to the extent that such indebtedness is, pursuant to Paragraph 4,
5 or 8 hereof, converted into shares of Common Stock of Maker.
3. PREPAYMENT. This Note may be prepaid in whole or in part, at any
time, without penalty or premium, upon 20 days prior written notice to Holder of
Maker's intention to prepay this Note (a "PREPAYMENT NOTICE"), provided that (i)
if Maker gives a Prepayment Notice within 180 days after the date of this Note
or (ii) if the Board of Directors or any officer or agent of Maker has held
substantive discussions or negotiations with any third party regarding a
transaction or has authorized or entered into any agreement or formal indication
of interest with respect to a transaction, in any such case, which if
consummated would constitute a Change of Control Transaction (as such term is
defined in Section 5 below), then such prepayment shall be subject to Holder's
consent (which consent may, at the option of the Holder, be subject to Maker's
agreement to convert the indebtedness under this Note into shares of Common
Stock as provided below). Any partial prepayment shall be applied first to
accrued and unpaid interest on this Note and then to the outstanding principal
amount of this Note.
4. CONVERSION BY MAKER. At the Maturity Date (or, with the prior
written consent of Holder, at such date prior to the Maturity Date selected by
Maker), Maker may elect to pay the entire outstanding principal sum and all
accrued and unpaid interest or may elect to convert all or any part of the
outstanding principal balance of this Note and all or any part of the accrued
and unpaid interest into shares of Common Stock of Maker at a conversion price
of $9.4207 per share (the "Conversion Price"); provided, however, that: Maker
shall not be entitled to exercise this conversion right if, at the time of
conversion, Maker is insolvent or is in bankruptcy proceedingsprovided, further,
however, that, notwithstanding the foregoing proviso, if, as a result of the
provisions of the Subordination Agreement, dated even date herewith, among
Holder and certain senior lenders of Maker, or otherwise, on the Maturity Date
Maker is unable or otherwise fails to either pay the entire outstanding
principal sum and all accrued and unpaid interest on this Note or convert all
such amounts into shares of Common Stock of Maker as provided above, at the sole
election of Holder pursuant to written notice to Maker, all or any part of the
outstanding principal balance of this Note and all or any part of the interest
accrued and unpaid thereon shall be converted into shares of Common Stock of
Maker as provided above within the two business days following receipt by Maker
of such notice. For purposes of this Paragraph 4, Maker will be insolvent if the
fair value of Maker's assets does not exceed the reasonably estimated amount of
Maker's liabilities or if Maker is unable to pay its debts as they become due.
Maker acknowledges that its right to convert this Note into shares of Common
Stock is a contract for financial accommodation and to issue a security of Maker
within the meaning of 11 U.S.C. ss. 365(c)(2).
5. CONVERSION BY HOLDER. At the sole election of Holder pursuant to
written notice to Maker, all or any part of the outstanding principal balance of
this Note and all or any part of the interest accrued and unpaid thereon may be
converted within the two business days immediately prior to the Anticipated
Closing Date of a Change of Control Transaction (as defined below) into shares
of Common Stock of Maker at the Conversion Price. "Change of Control
Transaction" means the consummation of any transaction or series of related
transactions approved by Maker's Board of Directors that results in the holders
of record of Maker's capital stock immediately prior to the transaction or
transactions holding less than fifty percent (50%) of the voting power of Maker
immediately after the transaction or transactions, including the acquisition of
Maker by another entity and any reorganization, merger, consolidation or share
exchange, or which results in the sale of all or substantially all of the assets
of Maker. "Anticipated Closing Date" means the date that Maker's Board of
Directors determines to be the expected closing date of the Change of Control
Transaction. Notwithstanding the foregoing, any conversion pursuant to this
Section shall be conditioned upon the actual closing of a Change of Control
Transaction and shall not be deemed to have occurred if such Change of Control
Transaction is not consummated.
6. MECHANICS OF CONVERSION. Upon either Holder's or Maker's election to
convert this Note, the specified part of the outstanding principal and accrued
interest of the Note shall be converted without any further action by Holder and
whether or not the Note is surrendered to Maker or its transfer agent. Maker
shall not be obligated to issue certificates evidencing the shares of Common
Stock issuable upon conversion unless the Note is either delivered to Maker
2
or its transfer agent. Maker shall, as soon as practicable after such delivery,
issue and deliver to Holder, a certificate or certificates with appropriate
restrictive legends for the number of shares of Common Stock to which Holder
shall be entitled. If a fractional share would otherwise be issuable upon
conversion of this Note, Maker will in lieu of such issuance pay the cash value
of that fractional share.
7. ADJUSTMENTS FOR STOCK SPLITS; REVERSE STOCK SPLITS. In case Maker's
Common Stock shall be subdivided into a greater number of shares, the Conversion
Price shall be proportionately reduced, and conversely, in case Maker's Common
Stock shall be combined into a smaller number of shares, the Conversion Price
shall be proportionately increased.
8. DEFAULT AND REMEDIES. Maker will be in default under this Note if
Maker fails to make the payment of principal and interest hereunder when due and
such failure has not been corrected within five days after written notice by
Holder to Maker at the address set forth below. Additionally, Maker will be
deemed in default under this Note if Maker has breached a provision of the Note
Purchase Agreement and such breach has not been cured within the applicable cure
period specified in the Note Purchase Agreement. Upon Maker's default, Holder
may exercise any and all of the remedies provided at law or, upon written notice
to Maker, may require the immediate conversion of this Note into Common Stock of
Maker at the Conversion Price.
9. WAIVERS. Maker, and any endorsers or guarantors hereof, severally
waive diligence, presentment, protest and demand and also notice of protest,
demand, dishonor, acceleration, intent to accelerate, and nonpayment of this
Note, and expressly agree that this Note, or any payment hereunder, may be
extended by mutual agreement of Maker and Holder from time to time without
notice without in any way affecting the liability of Maker or any endorsers or
guarantors hereof. No extension of time for the payment of this Note, or any
installment hereof, agreed to by Holder with any person now or hereafter liable
for the payment of this Note, shall affect the original liability of Maker under
this Note, even if Maker is not a party to such agreement.
10. MAXIMUM LEGAL RATE OF INTEREST. If Holder ever receives interest or
anything deemed interest in connection with this Note in excess of the maximum
lawful amount, an amount equal to the excessive interest shall be applied to the
reduction of the principal, and if it exceeds the unpaid balance of principal
hereof, such excess shall be refunded to Maker. If interest otherwise payable to
Holder would exceed the maximum lawful amount, the interest payable shall be
reduced to the maximum amount permitted under applicable law.
11. SUBORDINATION. This Note is subordinate to all other debt
for borrowed money of Maker. Upon the request of Maker, Holder shall promptly
execute such reasonable and customary documents that either Maker or its
creditors deem necessary or desirable to effectuate the foregoing subordination.
12. NO TRANSFER. Holder shall not sell, assign, transfer, pledge,
give or otherwise dispose of all or any part of its respective rights or
obligations under this Note.
3
13. MISCELLANEOUS.
a. Maker shall pay all costs, including, without
limitation, reasonable attorneys' fees incurred by Holder in collecting the sums
due hereunder.
b. This Note may be modified only by a written agreement
executed by Maker and Holder.
c. This Note shall be governed by California law.
d. The terms of this Note shall inure to the benefit of and
bind Maker and Holder and their respective heirs, legal representatives and
successors and assigns.
e. If this Note is destroyed, lost or stolen, Maker will
deliver a new note to Holder on the same terms and conditions as this Note with
a notation of the unpaid principal and accrued and unpaid interest in
substitution of the prior Note. Holder shall furnish to Maker reasonable
evidence that the Note was destroyed, lost or stolen and any security or
indemnity that may be reasonably required by Maker in connection with the
replacement of this Note.
IN WITNESS WHEREOF, Maker has executed this Note as of the date and
year first above written.
MAKER
The Chalone Wine Group, Ltd.
By: _________________________________
Name: _______________________________
Title: ______________________________
Notice Addresses:
Maker: 621 AIRPARK ROAD, NAPA, CALIFORNIA 94558 Attn: THOMAS SELFRIDGE
Facsimile: 707-254-4204
Holder: ________________________, Attn: _________________
Facsimile: ___________ E-mail: __________________
4
SUBORDINATION AGREEMENT
(SFI Intermediate Limited)
THIS SUBORDINATION AGREEMENT (this "Agreement"), dated as of
August __, 2002, is made by SFI Intermediate Limited (the "Creditor") in favor
of each of the "Senior Lenders" listed on SCHEDULE 1 hereto (each a "Senior
Lender" and, collectively, the "Senior Lenders").
The Chalone Wine Group, Ltd., a California corporation (the
"Borrower"), certain Senior Lenders and Cooperatieve Centrale
Raiffeisen-Boerenleenbank B.A., "Rabobank International", New York Branch
("Rabobank"), as issuer of letters of credit, as swingline lender and as
administrative agent, are parties to a Credit Agreement dated as of April 19,
2002 (as amended, restated, modified, supplemented, renewed or extended from
time to time, the "Credit Agreement") pursuant to which the Senior Lenders party
thereto have made available to the Borrower a revolving credit facility and term
loan facility, as provided therein.
The Borrower and certain other Senior Lenders are parties to
an Amended and Restated Note Purchase Agreement dated as of April 19, 2002 (as
amended, restated, modified, supplemented, renewed or extended from time to
time, the "Amended and Restated Note Purchase Agreement") relating to the
Borrower's $5,000,000 Adjustable Rate Senior Secured Notes, Series A, Due
September 15, 2010, the Borrower's $10,000,000 Adjustable Rate Senior Secured
Notes, Series B, Due September 15, 2010, and the Borrower's $15,000,000
Adjustable Rate Senior Secured Notes, Series C, Due September 15, 2010.
Rabobank, as collateral agent (in such capacity, the
"Collateral Agent"), and the other Senior Lenders are also parties to an Amended
and Restated Intercreditor and Collateral Agency Agreement dated as of April 19,
2002 (as amended, restated, modified, supplemented, renewed or extended from
time to time, the "Intercreditor Agreement") pursuant to which, among other
things, the Senior Lenders have agreed to the allocation of certain payments
made in respect of the Senior Debt (as defined below).
Additionally, the Borrower is or will be indebted to the
Creditor in the principal amount of $2,750,000, pursuant to a Convertible Note
Purchase Agreement, dated as of August __, 2002 (as amended, modified, renewed,
extended or replaced from time to time, the "Note Purchase Agreement") and the
Convertible Subordinated Promissory Note dated August __, 2002 (the
"Subordinated Note") outstanding thereunder. It is a condition precedent to the
continued borrowings under the Credit Agreement and the issuance of letters of
credit thereunder and the continuance of the loans under the Amended and
Restated Note Purchase Agreement that the Creditor deliver this Agreement to the
Senior Lenders to provide for the subordination of the Borrower's indebtedness
to the Creditor to the Senior Debt. The Creditor has agreed to the subordination
of such indebtedness to it, upon the terms and subject to the conditions set
forth in this Agreement.
Accordingly, the parties hereto agree as follows:
SECTION 1 DEFINITIONS; INTERPRETATION.
1.
(a) TERMS DEFINED IN CREDIT AGREEMENT. All capitalized terms
used in this Agreement and not otherwise defined herein shall have the meanings
assigned to them in the Credit Agreement.
(b) CERTAIN DEFINED TERMS. As used in this Agreement, the
following terms shall have the following meanings:
"COMMITMENTS" means, in respect of each Senior Lender, the
commitment of such Senior Lender to grant credit, make loans or otherwise extend
financing to the Borrower under the Senior Debt.
"INSOLVENCY EVENT" has the meaning set forth in Section 3.
"REQUIRED SECURED PARTIES" shall have the meaning given to
such term in the Intercreditor Agreement.
"SENIOR DEBT" means (i) the indebtedness, liabilities and
other obligations of the Borrower to the Senior Lenders under or in connection
with the Credit Agreement and the other Loan Documents, including all unpaid
principal of the Loans, all unpaid drawings under the Letters of Credit, all
interest accrued thereon, all fees due thereunder and all other amounts payable
by the Borrower to the Senior Lenders thereunder or in connection therewith,
whether now existing or hereafter arising, and whether due or to become due,
absolute or contingent, liquidated or unliquidated, determined or undetermined;
and (ii) the indebtedness, liabilities and other obligations of the Borrower to
the Senior Lenders under or in connection with the Amended and Restated Note
Purchase Agreement and the other Senior Secured Note Documents, including all
unpaid principal of the Senior Secured Notes, all interest accrued thereon, all
premiums and Make-Whole Amounts (as defined in the Amended and Restated Note
Purchase Agreement) due thereunder, all fees due thereunder and all other
amounts payable by the Borrower to the Senior Lenders thereunder or in
connection therewith, whether now existing or hereafter arising, and whether due
or to become due, absolute or contingent, liquidated or unliquidated, determined
or undetermined.
"SUBORDINATED DEBT" means all indebtedness, liabilities and
other obligations of the Borrower to the Creditor under or in connection with
the Note Purchase Agreement and the Subordinated Note, including all principal
on the Subordinated Note, all premium and interest accrued thereon, all fees and
all other amounts payable by the Borrower to the Creditor under or in connection
with the Note Purchase Agreement, the Subordinated Note and any other documents
or instruments related thereto, whether now existing or hereafter arising, and
whether due or to become due, absolute or contingent, liquidated or
unliquidated, determined or undetermined.
"SUBORDINATED DEBT PAYMENT" means any payment or distribution
by or on behalf of the Borrower, directly or indirectly, of assets of the
Borrower of any kind or character, whether in cash, property or securities,
including on account of the purchase, redemption or other acquisition of
Subordinated Debt, as a result of any collection, sale or other disposition of
collateral, or by setoff, exchange or in any other manner, for or on account of
the Subordinated Debt.
2.
(c) INTERPRETATION. In this Agreement, except to the extent
the context otherwise requires:
(i) Any reference in this Agreement to an Article, a Section,
a Schedule or an Exhibit is a reference to an article hereof, a section hereof,
a schedule hereto or an exhibit hereto, respectively, and to a subsection hereof
or a clause hereof is, unless otherwise stated, a reference to a subsection or a
clause of the Section or subsection in which the reference appears.
(ii) The words "hereof," "herein," "hereto," "hereunder" and
the like mean and refer to this Agreement as a whole and not merely to the
specific Article, Section, subsection, paragraph or clause in which the
respective word appears.
(iii) The meaning of defined terms shall be equally applicable
to both the singular and plural forms of the terms defined.
(iv) The words "including," "includes" and "include" shall be
deemed to be followed by the words "without limitation".
(v) References to agreements and other contractual instruments
shall be deemed to include all subsequent amendments and other modifications
thereto.
(vi) References to statutes or regulations are to be construed
as including all statutory and regulatory provisions consolidating, amending or
replacing the statute or regulation referred to.
(vii) The captions and headings are for convenience of
reference only and shall not affect the construction of this Agreement.
SECTION 2 AGREEMENT OF SUBORDINATION. Until such time as this
Agreement is terminated in accordance with Section 30 below, the Subordinated
Debt (including all Subordinated Debt Payments) shall be subject, subordinate
and junior, in right of payment and exercise of remedies, to the extent and in
the manner set forth herein, to the prior payment in full in cash of the Senior
Debt.
SECTION 3 SUBORDINATION UPON ANY DISTRIBUTION OF ASSETS OF THE
BORROWER. In the event of any payment or distribution of assets of the Borrower
of any kind or character, whether in cash, property or securities, upon the
dissolution, winding up or total or partial liquidation or reorganization,
readjustment, arrangement or similar proceeding relating to the Borrower or its
property, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership, arrangement or similar proceedings or upon an assignment for the
benefit of creditors, or upon any other marshalling or composition of the assets
and liabilities of the Borrower, or otherwise (such events, collectively, the
"Insolvency Events"): (i) all amounts owing on account of the Senior Debt shall
first be paid in full in cash, or payment provided for in cash or in cash
equivalents, for application in accordance with the Intercreditor Agreement,
before any Subordinated Debt Payment is made; and (ii) to the extent permitted
by applicable law, any Subordinated Debt Payment to which the Creditor would be
entitled except for the provisions hereof shall be paid or delivered by the
trustee in bankruptcy, receiver, assignee for the benefit of creditors or other
liquidating agent making such payment or distribution,
3.
as applicable, directly to the Collateral Agent (on behalf of the Senior
Lenders) for application to the payment of the Senior Debt in accordance with
clause (i), after giving effect to any concurrent payment or distribution or
provision therefor to the Collateral Agent or the Senior Lenders in respect of
such Senior Debt.
SECTION 4 PAYMENTS ON SUBORDINATED DEBT. As long as any Senior
Debt shall remain outstanding and unpaid, the Borrower shall not make, directly
or indirectly, and the Creditor shall not accept or receive, any Subordinated
Debt Payment; PROVIDED, HOWEVER, that the Borrower and the Creditor may at any
time convert the Subordinated Debt, in whole or in part, into common stock of
the Borrower.
SECTION 5 SUBORDINATION OF REMEDIES. As long as any Senior
Debt shall remain outstanding and unpaid, the Creditor shall not, without the
prior written consent of the Collateral Agent (acting on instructions from the
Required Secured Parties):
(i) accelerate, make demand, declare a default or otherwise
make due and payable prior to the original stated maturity thereof any
Subordinated Debt or bring suit or institute any other actions or proceedings to
enforce its rights or interests under or in respect of the Note Purchase
Agreement and the Subordinated Note;
(ii) exercise any rights under or with respect to (A) any
guaranties of the Subordinated Debt, or (B) any collateral securing the
Subordinated Debt, including causing or compelling the pledge or delivery of any
such collateral, any attachment of, levy upon, execution against, foreclosure
upon or the taking of other action against or institution of other proceedings
with respect to any such collateral, notifying any account debtors of the
Borrower or asserting any claim or interest in any insurance with respect to
collateral, or attempt to do any of the foregoing;
(iii) exercise any rights to set-offs and counterclaims in
respect of any indebtedness, liabilities or obligations of the Creditor to the
Borrower against any of the Subordinated Debt; or
(iv) commence, or cause to be commenced, or join with any
creditor other than the Senior Lenders in commencing, any bankruptcy, insolvency
or receivership proceeding against the Borrower.
SECTION 6 PAYMENT OVER TO COLLATERAL AGENT. In the event that,
notwithstanding the provisions of Sections 3, 4 and 5, any Subordinated Debt
Payments shall be received in contravention of such Sections 3, 4 and 5 by the
Creditor before all Senior Debt is paid in full in cash or cash equivalents,
such Subordinated Debt Payments shall be held in trust for the benefit of the
Senior Lenders and shall be paid over or delivered to the Collateral Agent for
application to the payment in full in cash or cash equivalents of all Senior
Debt remaining unpaid to the extent necessary to give effect to such Sections 3,
4 and 5, after giving effect to any concurrent payments or distributions to the
Collateral Agent and the Senior Lenders in respect of the Senior Debt.
SECTION 7 AUTHORIZATION TO COLLATERAL AGENT. If, while any
Subordinated Debt is outstanding, any Insolvency Event shall occur relating to
the Borrower or its property: (i) the
4.
Collateral Agent, when so instructed by the Required Secured Parties, is hereby
irrevocably authorized and empowered (in the name of the Senior Lenders or in
the name of the Creditor or otherwise), but shall have no obligation, to demand,
sue for, collect and receive every payment or distribution in respect of the
Subordinated Debt and give acquittance therefor and to file claims and proofs of
claim and take such other action (including voting the Subordinated Debt) as it
may deem necessary or advisable for the exercise or enforcement of any of the
rights or interests of the Collateral Agent and the Senior Lenders; and (ii) the
Creditor shall promptly take such action as the Collateral Agent (on instruction
from the Required Secured Parties) may reasonably request (A) to collect the
Subordinated Debt for the account of the Senior Lenders and to file appropriate
claims or proofs of claim in respect of the Subordinated Debt, (B) to execute
and deliver to the Collateral Agent such powers of attorney, assignments and
other instruments as it may request to enable it to enforce any and all claims
with respect to the Subordinated Debt, and (C) to collect and receive any and
all Subordinated Debt Payments.
SECTION 8 REPRESENTATIONS AND WARRANTIES. The Creditor
represents and warrants to each Senior Lender that:
(a) ORGANIZATION AND POWERS. The Creditor is a corporation
duly organized, validly existing and in good standing under the law of the
jurisdiction of its incorporation and has all requisite power and authority to
own its assets and carry on its business and to execute, deliver and perform its
obligations under this Agreement.
(b) AUTHORIZATION; NO CONFLICT. The execution, delivery and
performance by the Creditor of this Agreement have been duly authorized by all
necessary corporate action of the Creditor, and do not and will not: (i)
contravene the terms of the certificate or articles, as the case may be, of
incorporation and the bylaws of the Creditor, (ii) result in a breach of or
constitute a default under any indenture or loan or credit agreement or any
other agreement, lease or instrument to which the Creditor is a party or by
which it or its properties may be bound or affected; or (iii) violate any
provision of any law, rule, regulation, order, writ, judgment, injunction,
decree or the like binding on or affecting the Creditor.
(c) BINDING OBLIGATION. This Agreement constitutes the legal,
valid and binding obligation of the Creditor, enforceable against the Creditor
in accordance with its terms.
(d) CONSENTS. No authorization, consent, approval, license,
exemption of, or filing or registration with, any Governmental Authority, or
approval or consent of any other Person, is required for the due execution,
delivery or performance by the Creditor of this Agreement.
(e) NO PRIOR ASSIGNMENT. The Creditor has not previously
assigned any interest in the Subordinated Debt, no Person other than the
Creditor owns an interest in the Subordinated Debt (whether as joint holders of
the Subordinated Debt, participants or otherwise), and the entire Subordinated
Debt is owing only to the Creditor.
(f) INDEPENDENT INVESTIGATION. The Creditor hereby
acknowledges that it has undertaken its own independent investigation of the
financial condition of the Borrower and all other matters pertaining to this
Agreement and further acknowledges that it is not relying in any
5.
manner upon any representation or statement of the Collateral Agent or the
Senior Lenders with respect thereto. The Creditor represents and warrants that
it is aware of the terms of the Loan Documents and the Senior Secured Note
Documents and that it is in a position to obtain, and it hereby assumes full
responsibility for obtaining, any additional information concerning the
financial condition of the Borrower and any other matters pertinent hereto that
the Creditor may desire. The Creditor is not relying upon or expecting the
Collateral Agent or the Senior Lenders to furnish to the Creditor any
information now or hereafter in the Collateral Agent or the Senior Lenders'
possession concerning the financial condition of the Borrower or any other
matter.
SECTION 9 CERTAIN AGREEMENTS OF THE CREDITOR.
(a) NO BENEFITS. The Creditor understands that there may be
various agreements among the Collateral Agent, the Senior Lenders and the
Borrower evidencing and governing the Senior Debt, and the Creditor acknowledges
and agrees that such agreements are not intended to confer any benefits on the
Creditor and that the Collateral Agent and the Senior Lenders shall have no
obligation to the Creditor or any other Person to exercise any rights, enforce
any remedies, or take any actions which may be available to it under such
agreements.
(b) NO INTERFERENCE. The Creditor acknowledges that the
Borrower has granted the Collateral Agent and the Senior Lenders a security
interest in certain of the Borrower's assets and agrees not to interfere with or
in any manner oppose a disposition of any collateral by the Collateral Agent or
the Senior Lenders in accordance with applicable law.
(c) RELIANCE BY COLLATERAL AGENT AND SENIOR LENDERS. The
Creditor acknowledges and agrees that the Collateral Agent and the Senior
Lenders will have relied upon and will continue to rely upon the subordination
provisions provided for herein and the other provisions hereof in maintaining
the loans and other extensions of credit under the Loan Documents and the Senior
Secured Note Documents.
(d) WAIVERS. The Creditor waives any and all notice of the
incurrence of the Senior Debt or any part thereof and any right to require
marshalling of assets.
(e) OBLIGATIONS OF CREDITOR NOT AFFECTED. The Creditor agrees
that at any time and from time to time, without notice to or the consent of the
Creditor, without incurring responsibility to the Creditor, and without
impairing or releasing the subordination provided for herein or otherwise
impairing the rights of the Collateral Agent and the Senior Lenders hereunder:
(i) the time for the Borrower's performance of or compliance
with any of its agreements contained in the Loan Documents or the Senior Secured
Note Documents may be extended or such performance or compliance may be waived
by the applicable Senior Lenders;
(ii) the agreements of the Borrower with respect to the Loan
Documents and the Senior Secured Note Documents may from time to time be
modified by the Borrower and the applicable Senior Lenders for the purpose of
adding any requirements thereto or changing in any manner the rights and
obligations of the Borrower or the Senior Lenders thereunder;
6.
(iii) the manner, place or terms for payment of Senior Debt or
any portion thereof may be altered or the terms for payment extended, or the
Senior Debt may be renewed in whole or in part, or the principal amount of the
Senior Debt may from time to time be increased or decreased;
(iv) the maturity of the Senior Debt may be accelerated in
accordance with the terms of any present or future agreement by the Borrower and
the applicable Senior Lenders;
(v) any collateral securing Senior Debt may be sold,
exchanged, released or substituted and any Lien in favor of the Collateral Agent
or the Senior Lenders may be terminated, subordinated or fail to be perfected or
become unperfected;
(vi) any Person liable in any manner for Senior Debt may be
discharged, released or substituted; and
(vii) all other rights against the Borrower, any other Person
or with respect to any collateral may be exercised (or the Collateral Agent and
the Senior Lenders may waive or refrain from exercising such rights).
(f) RIGHTS OF COLLATERAL AGENT AND SENIOR LENDERS NOT TO BE
IMPAIRED. No right of the Collateral Agent or the Senior Lenders to enforce the
subordination provided for herein or to exercise their other rights hereunder
shall at any time in any way be prejudiced or impaired by any act or failure to
act by the Borrower, the Collateral Agent or the Senior Lenders hereunder or
under or in connection with the Loan Documents or the Senior Secured Note
Documents or by any noncompliance by the Borrower with the terms and provisions
and covenants herein or in any other Loan Document or Senior Secured Note
Document, regardless of any knowledge thereof the Collateral Agent or the Senior
Lenders may have or otherwise be charged with.
(g) FINANCIAL CONDITION OF BORROWER. The Creditor shall not
have any right to require the Collateral Agent or the Senior Lenders to obtain
or disclose any information with respect to: (i) the financial condition or
character of the Borrower or the ability of the Borrower to pay and perform
Senior Debt; (ii) the Senior Debt; (iii) any collateral for any or all of the
Senior Debt; (iv) the existence or nonexistence of any guarantees of, or any
other subordination agreements with respect to, all or any part of the Senior
Debt; (v) any action or inaction on the part of the Collateral Agent, the Senior
Lenders or any other Person; or (vi) any other matter, fact or occurrence
whatsoever.
(h) ACQUISITION OF LIENS OR GUARANTIES. The Creditor shall
not, without the prior written consent of the Collateral Agent and the Required
Secured Parties, acquire any right or interest in or to any collateral to secure
the Subordinated Debt or accept any guaranties for the Subordinated Debt. The
Borrower shall not, without the prior written consent of the Collateral Agent
and the Required Secured Parties, grant, or suffer or permit its Subsidiaries to
grant, to the Creditor any right or interest in or to any collateral to secure
the Subordinated Debt or suffer or permit any of its Subsidiaries to provide any
guaranties for the Subordinated Debt.
SECTION 10 SUBROGATION.
7.
(a) SUBROGATION. Until the payment in cash and performance in
full of all Senior Debt, the Creditor shall not have, and shall not directly or
indirectly exercise, any rights that it may acquire by way of subrogation under
this Agreement, by any payment or distribution to the Collateral Agent or the
Senior Lenders hereunder or otherwise. Upon the payment in cash and performance
in full of all Senior Debt, the Creditor shall be subrogated to the rights of
the Collateral Agent and the Senior Lenders to receive payments or distributions
applicable to the Senior Debt until the Subordinated Debt shall be paid in full.
For the purposes of the foregoing subrogation, no payments or distributions to
the Collateral Agent or the Senior Lenders of any cash, property or securities
to which the Creditor would be entitled except for the provisions of Section 3,
4 or 5 shall, as among the Borrower, its creditors (other than the Senior
Lenders and the Collateral Agent) and the Creditor, be deemed to be a payment by
the Borrower to or on account of the Senior Debt.
(b) PAYMENTS OVER TO CREDITOR. If any payment or distribution
to which the Creditor would otherwise have been entitled but for the provisions
of Section 3, 4 or 5 shall have been applied pursuant to the provisions of
Section 3, 4 or 5 to the payment of all amounts payable under the Senior Debt,
the Creditor shall be entitled to receive from the Collateral Agent and the
Senior Lenders any payments or distributions received by the Collateral Agent
and the Senior Lenders in excess of the amount sufficient to pay in full all
amounts payable under or in respect of the Senior Debt. If any such excess
payment is made to the Collateral Agent and the Senior Lenders, the Collateral
Agent and the Senior Lenders shall promptly remit such excess to the Creditor
and until so remitted shall hold such excess payment for the benefit of the
Creditor.
SECTION 11 CONTINUING AGREEMENT; REINSTATEMENT.
(a) CONTINUING AGREEMENT. This Agreement is a continuing
agreement of subordination and shall continue in effect and be binding upon the
Creditor until the full, final and indefeasible payment in cash, and the full
and final performance, of the Senior Debt and the termination of the
Commitments. The subordinations, agreements, and priorities set forth herein
shall remain in full force and effect regardless of whether any party hereto in
the future seeks to rescind, amend, terminate or reform, by litigation or
otherwise, its respective agreements with the Borrower.
(b) REINSTATEMENT. This Agreement shall continue to be
effective or shall be reinstated, as the case may be, if, for any reason, any
payment of the Senior Debt by or on behalf of the Borrower shall be rescinded or
must otherwise be restored by the Collateral Agent or any Lender, whether as a
result of an Insolvency Event or otherwise.
SECTION 12 PAYMENTS. The Creditor shall make each payment
hereunder unconditionally in full without set-off, counterclaim or other
defense, on the day when due to the Collateral Agent in Dollars and in same day
or immediately available funds, to the account from time to time specified by
the Collateral Agent.
SECTION 13 TRANSFER OF SUBORDINATED DEBT. The Creditor may not
assign or transfer its rights and obligations under the Note Purchase Agreement
or the Subordinated Note or any interest in the Subordinated Debt or any
collateral therefor without the prior written consent of the Required Secured
Parties, and any such transferee or assignee, as a condition to
8.
acquiring the Subordinated Note or interest in the Subordinated Debt or
collateral shall agree to be bound hereby, in form satisfactory to the
Collateral Agent and the Required Secured Parties. Any prohibited assignment
shall be absolutely void. The Senior Lenders (and each of them) may from time to
time assign or grant participations in all or part of their rights and
obligations under the Senior Debt, subject to the terms and provisions of the
Senior Debt held by such Senior Lender, and each such assignee of, or
participant in, the Senior Debt shall be entitled to all of the rights and
benefits afforded to the Senior Lenders under this Agreement.
SECTION 14 AMENDMENTS OF SUBORDINATED DEBT. Each of the
Borrower and the Creditor shall not, without the prior written consent of the
Required Secured Parties, agree to or permit any amendment, modification or
waiver of any material provisions of the Note Purchase Agreement, the
Subordinated Note or any other agreement relating to any Subordinated Debt
(including any amendment, modification or waiver pursuant to an exchange of
other securities or instruments for outstanding Subordinated Debt) if the effect
of such amendment, modification or waiver is to: (i) increase the interest rate
on the Subordinated Debt or change (to earlier dates) the dates upon which
principal and interest are due thereon; (ii) alter the redemption, prepayment or
subordination provisions thereof; (iii) alter the covenants and events of
default in a manner which would make such provisions more onerous or restrictive
to the Borrower or any Subsidiary; or (iv) otherwise increase the obligations of
the Borrower in respect of the Subordinated Debt or confer additional rights
upon the Creditor which individually or in the aggregate would be adverse to the
Borrower, its Subsidiaries or the Senior Lenders.
SECTION 15 OBLIGATIONS OF BORROWER NOT AFFECTED. The
provisions of this Agreement are intended solely for the purpose of defining the
relative rights against the Borrower of the Creditor, on the one hand, and the
Collateral Agent and the Senior Lenders, on the other hand. Nothing contained in
this Agreement shall (i) impair, as between the Borrower and the Creditor, the
obligation of the Borrower to pay the principal of or interest on the
Subordinated Note and its other obligations with respect to the Subordinated
Debt as and when the same shall become due and payable in accordance with the
terms thereof, or (ii) otherwise affect the relative rights against the Borrower
of the Creditor, on the one hand, and the creditors of the Borrower (other than
the Senior Lenders and the Collateral Agent), on the other hand.
SECTION 16 ENDORSEMENT OF SUBORDINATED NOTES; FURTHER
ASSURANCES AND ADDITIONAL ACTS.
(a) ENDORSEMENT OF SUBORDINATED NOTE. At the request of the
Collateral Agent, the Subordinated Note and all other documents and instruments
evidencing any of the Subordinated Debt shall be endorsed with a legend noting
that the Subordinated Note and such other documents and instruments are subject
to this Agreement, and the Creditor shall promptly deliver to the Collateral
Agent evidence of the same.
(b) FURTHER ASSURANCES AND ADDITIONAL ACTS. Each of the
Creditor and the Borrower shall execute, acknowledge, deliver, file, notarize
and register at its own expense all such further agreements, instruments,
certificates, financing statements, documents and assurances, and perform such
acts as the Collateral Agent or the Required Secured Parties shall deem
necessary or appropriate to effectuate the purposes of this Agreement, and
promptly
9.
provide the Collateral Agent with evidence of the foregoing satisfactory in form
and substance to the Collateral Agent and the Required Secured Parties.
SECTION 17 NOTICES. All notices and other communications
provided for hereunder shall, unless otherwise stated herein, be in writing
(including by facsimile transmission) and shall be mailed, sent or delivered at
or to the address or facsimile number of the respective party or parties set
forth in the Credit Agreement or the Amended and Restated Note Purchase
Agreement, as the case may be, or, in the case of the Creditor, at or to its
address or facsimile number set forth on the signature pages hereof, or at or to
such other address or facsimile number as such party or parties shall have
designated in a written notice to the other party or parties. All such notices
and communications shall be effective (i) if delivered by hand, when delivered;
(ii) if sent by mail, upon the earlier of the date of receipt or five Business
Days after deposit in the mail, first class (or air mail, with respect to
communications to be sent to or from the United States), postage prepaid; and
(iii) if sent by facsimile transmission, when sent.
SECTION 18 NO WAIVER; CUMULATIVE REMEDIES. No failure on the
part of the Collateral Agent or any Senior Lender to exercise, and no delay in
exercising, any right, remedy, power or privilege hereunder shall operate as a
waiver thereof, nor shall any single or partial exercise of any such right,
remedy, power or privilege preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights and remedies
under this Agreement are cumulative and not exclusive of any rights, remedies,
powers and privileges that may otherwise be available to the Collateral Agent or
any Senior Lender.
SECTION 19 COSTS AND EXPENSES.
(a) PAYMENTS BY BORROWER. The Borrower agrees to pay to the
Collateral Agent and the Senior Lenders on demand the reasonable out-of-pocket
costs and expenses of the Collateral Agent and the Senior Lenders, and the
reasonable fees and disbursements of counsel to the Collateral Agent and the
Senior Lenders (including allocated costs of internal counsel), in connection
with the negotiation, preparation, execution, delivery and administration of
this Agreement, and any amendments, modifications or waivers of the terms
thereof.
(b) PAYMENTS BY BORROWER AND CREDITOR. Each of the Borrower
and the Creditor jointly and severally agrees to pay to the Collateral Agent on
demand all costs and expenses of the Collateral Agent and the Senior Lenders,
and the fees and disbursements of counsel (including allocated costs of internal
counsel), in connection with the enforcement or attempted enforcement of, and
preservation of rights or interests under, this Agreement, including any losses,
costs and expenses sustained by the Collateral Agent and any Senior Lender as a
result of any failure by the Creditor to perform or observe its obligations
contained in this Agreement.
SECTION 20 SURVIVAL. All covenants, agreements,
representations and warranties made in this Agreement shall, except to the
extent otherwise provided herein, survive the execution and delivery of this
Agreement, and shall continue in full force and effect so long as any Senior
Debt remains unpaid or the Senior Lenders have any Commitments. Without limiting
the generality of the foregoing, the obligations of the Borrower and the
Creditor under
10.
Section 19 shall survive the satisfaction of the Senior Debt and the termination
of the Commitments.
SECTION 21 BENEFITS OF AGREEMENT. This Agreement is entered
into for the sole protection and benefit of the parties hereto and their
successors and assigns, and no other Person (other than any Person that becomes
a Senior Lender after the date hereof) shall be a direct or indirect beneficiary
of, or shall have any direct or indirect cause of action or claim in connection
with, this Agreement.
SECTION 22 BINDING EFFECT. This Agreement shall be binding
upon, inure to the benefit of and be enforceable by the Borrower, the Creditor,
the Collateral Agent and each Senior Lender and their respective successors and
assigns.
SECTION 23 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY,
AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.
SECTION 24 SUBMISSION TO JURISDICTION.
(a) SUBMISSION TO JURISDICTION. The Creditor hereby (i)
submits to the non-exclusive jurisdiction of the courts of the State of New York
and the Federal courts of the United States sitting in the State of New York for
the purpose of any action or proceeding arising out of or relating to this
Agreement, (ii) agrees that all claims in respect of any such action or
proceeding may be heard and determined in such courts, (iii) irrevocably waives
(to the extent permitted by applicable law) any objection which it now or
hereafter may have to the laying of venue of any such action or proceeding
brought in any of the foregoing courts, and any objection on the ground that any
such action or proceeding in any such court has been brought in an inconvenient
forum and (iv) agrees that a final judgment in any such action or proceeding
shall be conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner permitted by law.
(b) APPOINTMENT OF PROCESS COLLATERAL AGENT. The Creditor
hereby irrevocably appoints the Borrower (the "Process Collateral Agent"), as
its authorized agent with all powers necessary to receive on its behalf service
of copies of the summons and complaint and any other process which may be served
in any action or proceeding arising out of or relating to this Agreement in any
of the courts in and of the State of New York. Such service may be made by
mailing or delivering a copy of such process to the Creditor in care of the
Process Collateral Agent at the Process Collateral Agent's address, and the
Creditor hereby irrevocably authorizes and directs the Process Collateral Agent
to accept such service on its behalf and agrees that the failure of the Process
Collateral Agent to give any notice of any such service to the Creditor shall
not impair or affect the validity of such service or of any judgment rendered in
any action or proceeding based thereon. As an alternative method of service, the
Creditor also irrevocably consents to the service of any and all process in any
such action or proceeding by the mailing of copies of such process to the
Creditor at its address specified in Section 17. If for any reason the Borrower
shall cease to act as Process Collateral Agent, the Creditor shall appoint
forthwith, in the manner provided for herein, a successor Process Collateral
Agent qualified to act as an
11.
Collateral Agent for service of process with respect to all courts in and of the
State of New York and acceptable to the Collateral Agent.
(c) NO LIMITATION. Nothing in this Section 24 shall affect the
right of the Collateral Agent or the Senior Lenders to serve legal process in
any other manner permitted by law or limit the right of the Collateral Agent or
the Senior Lenders to bring any action or proceeding against the Creditor or its
property in the courts of other jurisdictions.
SECTION 25 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the Borrower, the Senior Lenders, the Collateral Agent and the
Creditor with respect to the matters set forth herein and supersedes any prior
agreements, commitments, drafts, communications, discussions and understandings,
oral or written, with respect thereto. There are no conditions to the full
effectiveness of this Agreement.
(b) AMENDMENTS AND WAIVERS. No amendment to any provision of
this Agreement shall in any event be effective unless the same shall be in
writing and signed by the Borrower, the Creditor, the Collateral Agent and the
Required Secured Parties (or the Collateral Agent with the written consent of
the Required Secured Parties); and no waiver of any provision of this Agreement,
or consent to any departure by the Borrower or the Creditor therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Collateral Agent and the Required Secured Parties (or the Collateral Agent with
the consent of the Required Secured Parties). Any such amendment, waiver or
consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 26 CONFLICTS. In case of any conflict or inconsistency
between any terms of this Agreement, on the one hand, and the Note Purchase
Agreement, the Subordinated Note or any other document or instrument relating to
the Subordinated Debt, on the other hand, then the terms of this Agreement shall
control.
SECTION 27 SEVERABILITY. Whenever possible, each provision of
this Agreement shall be interpreted in such manner as to be effective and valid
under all applicable laws and regulations. If, however, any provision of this
Agreement shall be prohibited by or invalid under any such law or regulation in
any jurisdiction, it shall, as to such jurisdiction, be deemed modified to
conform to the minimum requirements of such law or regulation, or, if for any
reason it is not deemed so modified, it shall be ineffective and invalid only to
the extent of such prohibition or invalidity without affecting the remaining
provisions of this Agreement or the validity or effectiveness of such provision
in any other jurisdiction.
SECTION 28 INTERPRETATION. This Agreement is the result of
negotiations between, and have been reviewed by counsel to, the Collateral
Agent, the Senior Lenders, the Creditor, the Borrower and other parties, and is
the product of all parties hereto. Accordingly, this Agreement shall not be
construed against any of the Senior Lenders or the Collateral Agent merely
because of the Collateral Agent's or any Senior Lender's involvement in the
preparation thereof.
12.
SECTION 29 COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute but one and the same agreement.
SECTION 30 TERMINATION OF AGREEMENT. Upon payment in cash and
performance in full of the Senior Debt and the termination of the Commitments,
this Agreement shall terminate and the Collateral Agent and the Senior Lenders
shall promptly execute and deliver to the Borrower and the Creditor such
documents and instruments as shall be necessary to evidence such termination;
PROVIDED, HOWEVER, that the obligations of the Borrower and the Creditor under
Section 19 shall survive such termination.
[SIGNATURES FOLLOW.]
13.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the date first above written.
THE COLLATERAL AGENT
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK INTERNATIONAL",
NEW YORK BRANCH, as Collateral Agent
By ___________________________________
Title:
By ___________________________________
Title:
THE SENIOR LENDERS
COOPERATIEVE CENTRALE
RAIFFEISEN-BOERENLEENBANK B.A.,
"RABOBANK INTERNATIONAL",
NEW YORK BRANCH
By ___________________________________
Title:
By ___________________________________
Title:
FARM CREDIT WEST FLCA
By ___________________________________
Title:
U.S. BANK NATIONAL ASSOCIATION
By ___________________________________
Title:
14.
COMERICA BANK-CALIFORNIA
By ___________________________________
Title:
AGSTAR FINANCIAL SERVICES, PCA, D/B/A
FARM CREDIT SERVICES COMMERCIAL
FINANCE GROUP
By ___________________________________
Title:
FARM CREDIT SERVICE OF AMERICA, PCA
By ___________________________________
Title:
THE CREDITOR
SFI Intermediate Limited
By ___________________________________
Title:
Address:
______________________________________
______________________________________
______________________________________
Attn: ________________________________
Fax No._______________________________
THE BORROWER
THE CHALONE WINE GROUP, LTD.
By ___________________________________
Title:
15.
Schedule 1
to Subordination Agreement
"SENIOR LENDERS"
A. Senior Lenders party to the Credit Agreement:
1. Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A.,
"Rabobank International", New York Branch, as Issuing
Lender, as Swingline Lender, as a Lender and as Agent
2. Farm Credit West FLCA
3. U.S. Bank National Association
4. Comerica Bank - California
5. Each other Person from time to time party to the Credit
Agreement as a "Lender" thereunder.
B. Senior Lenders party to the Amended and Restated Note Purchase
Agreement.
1. Agstar Financial Services, PCA, d/b/a Farm Credit
Services Commercial Finance Group
2. Farm Credit Services of America, PCA
3. Each other Person from time to time party to the
Amended and Restated Note Purchase Agreement as a
"Purchaser" thereunder.
C. Cooperatieve Centrale Raiffeisen-Boerenleenbank B.A., "Rabobank
International", New York Branch, as Collateral Agent
16.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT") is entered into
as of ____________, 2002 by and between The Chalone Wine Group, Ltd., a
California corporation (the "COMPANY"), and SFI Intermediate Limited, a
____________ ("SFI") and Les Domaines Baron de Rothschild (Lafite), a French
company ("DBR"). DBR and SFI are individually referred to herein as a
"PURCHASER" and collectively as the "PURCHASERS."
RECITALS
In order to induce the Purchasers to enter into the Convertible Note
Purchase Agreement of even date herewith between the Company and the Purchasers,
the Company has agreed to provide the registration rights provided for in this
Agreement. The execution of this Agreement is a condition to the closing of the
transactions contemplated by the Convertible Purchase Agreement.
NOW, THEREFORE, the parties agree as follows:
Section 1: CERTAIN DEFINITIONS. For purposes of this Agreement, the
following terms shall have the following respective meanings:
1.1 "APPLICABLE REGISTRATION STATEMENT" shall have the meaning
assigned thereto in SECTION 5.2 hereof.
1.2 "COMMISSION" shall mean the Securities and Exchange
Commission, or any other federal agency at the time administering the Exchange
Act or the Securities Act, whichever is the relevant statute for the particular
purpose.
1.3 "COMMON STOCK" shall mean the common stock of the Company,
no par value, or any other capital stock of the Company into which such stock is
reclassified or reconstituted.
1.4 "CONVERTIBLE NOTES" shall mean the subordinated convertible
notes of the Company to be issued and sold to the Purchasers pursuant to the
Purchase Agreement and any convertible notes issued in exchange therefor or in
lieu thereof.
1.5 "DEMAND MANAGING UNDERWRITER" shall have the meaning
assigned thereto in SECTION 5.4 hereof.
1.6 "DEMAND REGISTRABLE SECURITIES" shall have the meaning
assigned thereto in SECTION 2 hereof.
1.7 "DEMAND REGISTRATION STATEMENT" shall have the meaning
assigned thereto in SECTION 2 hereof.
1.8 "DEMAND REQUEST" shall have the meaning assigned thereto in
SECTION 2 hereof.
1.9 "EXCHANGE ACT" shall mean the Securities Exchange Act of
1934, or any successor thereto, as the same shall be amended from time to time.
1.
1.10 "PERSON" shall mean a corporation, association, partnership,
limited liability company, organization, business, individual, government or
political subdivision thereof or governmental agency.
1.11 "PIGGYBACK MARKET CUT-BACK" shall have the meaning assigned
thereto in SECTION 4.3 hereof.
1.12 "PIGGYBACK REGISTRABLE SECURITIES" shall have the meaning
assigned thereto in SECTION 4.1 hereof.
1.13 "PIGGYBACK REGISTRATION STATEMENT" shall have the meaning
assigned thereto in SECTION 4.1 hereof.
1.14 "PIGGYBACK REQUEST" shall have the meaning assigned thereto
in SECTION 4.1 hereof.
1.15 "PIGGYBACK UNDERWRITING AGREEMENT" shall have the meaning
assigned thereto in SECTION 4.2 hereof.
1.16 "PURCHASE AGREEMENT" means the Convertible Note Purchase
Agreement of even date herewith between the Company and the Purchasers.
1.17 "REGISTRABLE SECURITIES" means the Shares and any
securities issued in respect of the foregoing as a result of any stock split,
stock dividend, recapitalization or similar transaction.
1.18 "REGISTRATION EXPENSES" shall have the meaning assigned
thereto in SECTION 6 hereof.
1.19 "S-3 REGISTRATION STATEMENT" shall have the meaning
assigned thereto in SECTION 3 hereof.
1.20 "S-3 INITIATING HOLDERS" shall have the meaning assigned
thereto in SECTION 3 hereof.
1.21 "SECURITIES ACT" shall mean the Securities Act of 1933,
or any successor thereto, as the same shall be amended from time to time.
1.22 "SHARES" means the shares of Common Stock issued or issuable
upon conversion of the Convertible Notes.
1.23 "SUSPENSION CONDITION" shall have the meaning assigned
thereto in SECTION 5.5 hereof.
Section 2: DEMAND REGISTRATION. If at any time prior to the fifth
anniversary of the date of this Agreement the Company shall receive from a
Purchaser a written request (a "DEMAND REQUEST") that the Company register on
Form S-1, Form S-2 or any successor form of registration under the Securities
Act, or, if available, on Form S-3 or any successor form of registration under
the Securities Act (or if such form is not available, any registration statement
2
form then available to the Company) Registrable Securities, then the Company
shall (a) promptly given written notice to the other Purchaser of the Demand
request and (b) prepare and file with the Commission as soon as practicable, but
in no event later than forty-five (45) days after receipt of such Demand
Request, a registration statement (a "DEMAND REGISTRATION STATEMENT") to effect
such registration. The Company shall use its best efforts to cause the
Registrable Securities specified in such Demand Request, together with all of
such portion of the Registrable Securities of the other Purchaser joining in
such request as are specified in a written request within 10 days after receipt
of such written notice from the Company, (collectively, the "DEMAND REGISTRABLE
SECURITIES") to become or be declared effective as soon as practicable. The
Company shall provide copies of all correspondence to, and from, the Commission
within twenty-four (24) hours after receipt, or delivery, as the case may be, of
any such correspondence. Each such Demand Request shall: (a) include an initial
request to register Registrable Securities having an aggregate offering value of
not less than the lesser of all of the Registrable Securities then owned by the
Purchaser or $5 million (or Registrable Securities having an aggregate offering
value of not less than $5 million when combined with a concurrent Demand Request
from the other Purchaser); (b) specify the number of Demand Registrable
Securities intended to be offered and sold by the Purchaser pursuant thereto;
(c) express the present intention of the Purchaser to offer or cause the
offering of such Demand Registrable Securities pursuant to such Demand
Registration Statement, (d) describe the nature or method of distribution of
such Demand Registrable Securities pursuant to such Demand Registration
Statement (including, in particular, whether the Purchaser plans to effect such
distribution by means of an underwritten offering); (e) identify the proposed
Demand Managing Underwriter, if any; and (f) contain the undertaking of the
Purchaser to provide all such information and materials and take all such
actions as may be required in order to permit the Company to comply with all
applicable requirements of the Securities Act, the Exchange Act and the rules
and Regulations of the Commission thereunder, and to obtain any desired
acceleration of the effective date of such Demand Registration Statement.
Section 3: FORM S-3 REGISTRATION. If the Company is eligible to use
Form S-3 under the Securities Act (or any similar successor form) and shall
receive from a Purchaser and its permitted transferees (the "S-3 INITIATING
HOLDERS") a written request or requests that the Company effect a registration
on such Form S-3 pursuant to Rule 415 of the Securities Act and any related
qualification or compliance with respect to all or part of the Registrable
Securities owned by the S-3 Initiating Holders and its permitted transferees
(provided that the S-3 Initiating Holders registering Registrable Securities in
such registration together with all other holders of Registrable Securities to
be included in such registration propose to sell their Registrable Securities at
an aggregate price to the public (net of any underwriters' discounts or
commissions) of no less than $1,000,000), the Company shall then (a) promptly
given written notice to the other Purchaser of the proposed registration and (b)
prepare and file with the Commission as soon as practicable, but in no event
later than forty-five (45) days after receipt of such request, a registration
statement (a "S-3 REGISTRATION STATEMENT") to effect such registration. No
registration requested by any S-3 Initiating Holders pursuant to this SECTION 3
shall be deemed a registration pursuant to SECTION 2. Notwithstanding the
foregoing, the Company shall not be obligated to effect a registration on From
S-3 pursuant to this SECTION 3 within 180 days after the effective date of a
registration statement subject to SECTION 4 or if the Company has, within the 12
month period preceding a request already effected two registrations on Form S-3
pursuant to this SECTION 3
3
Section 4: PIGGYBACK REGISTRATION.
4.1 If at any time from and after the date hereof, the Company
shall determine to register any of its securities, whether for sale for its own
account or for the account of any other Person, other than registration
statements relating to (i) employee, consultant or distributor compensation or
incentive arrangements, including employee benefit plans, or (ii) acquisitions
or any transaction or transactions under Rule 145 under the Securities Act or
any successor rule with similar effect, then the Company will promptly give the
Purchasers written notice thereof and include in such registration statement (a
"PIGGYBACK REGISTRATION STATEMENT") and in any underwriting involved therein,
all Registrable Securities (the "PIGGYBACK REGISTRABLE SECURITIES") specified in
a written request made by each Purchaser (a "PIGGYBACK REQUEST") within 10 (ten)
business days (or such later time as the underwriters may allow in writing)
after receipt of such written notice from the Company.
4.2 If the Piggyback Registration Statement of which the Company
gives notice is for an underwritten offering or the Company proposes to do an
underwritten take down from an unallocated or universal shelf registration, the
Company shall so advise the Purchasers as a part of the written notice given
pursuant to SECTION 4.1. In such event, the right of a Purchaser to registration
pursuant to this SECTION 4 (or to participate in an underwritten take down in
the case of an unallocated or universal shelf registration) shall be conditioned
upon the agreement of the Purchaser to participate in such underwriting and in
the inclusion of such Piggyback Registrable Securities in the underwriting to
the extent provided herein. The Purchasers shall (together with the Company and
any other holders distributing securities in such Piggyback Registration
Statement, if any) enter into an underwriting agreement (the "PIGGYBACK
UNDERWRITING AGREEMENT") in customary form with the underwriter or underwriters
selected for such underwriting by the Company. If a Purchaser disapproves of the
terms of any such underwriting, it may elect to withdraw therefrom by written
notice to the Company and the managing underwriters. Any Piggyback Registrable
Securities excluded from such underwriting shall be excluded from such Piggyback
Registration Statement.
4.3 Notwithstanding any other provision of this Agreement,
if the managing underwriters of any underwritten offering pursuant to a
Piggyback Request determine, in their sole discretion that, after including all
the shares proposed to be offered by the Company and all the shares of any other
Persons entitled to registration rights with respect to such Piggyback
Registration Statement (pursuant to other agreements with the Company),
marketing factors require a limitation of the number of Piggyback Registrable
Securities to be underwritten (a "PIGGYBACK MARKET CUT-BACK"), the Company shall
include in the registration (i) in the event that such registration is on behalf
of shareholders of the Company having demand registration rights under other
agreements with the Company (A) first, the securities requested to be registered
by such other shareholders, and (B) second, the Piggyback Registrable Securities
requested to be included in the registration and securities, if any, requested
to be included by others having these rights, pro rata among the holders of
Piggyback Registrable Securities which are to be registered and sold pursuant to
the Piggyback Registration Statement and others exercising these rights, on the
basis of the number of securities requested to be included by the holders of
such Piggyback Registrable Securities and the others exercising these rights;
and (ii) in the event that such registration is on behalf of the Company, (A)
first, the securities that the Company proposes to sell, (B) second, the
Piggyback Registrable Securities requested to be
4
included in the registration and securities, if any, requested to be included by
others having these rights, pro rata among the holders of the Piggyback
Registrable Securities which are to be registered and sold pursuant to such
Piggyback Registration Statement and others exercising these rights, on the
basis of the number of the Piggyback Registrable Securities requested to be
included by holders of such Piggyback Registrable Securities, and others
exercising these rights; provided, however, in no event shall the amount of
Piggyback Registrable Securities of the Purchasers included in the underwriting
on behalf of the Company (together with any other securities of the Purchasers
being included in the underwriting pursuant to other agreements with the
Company) be reduced below thirty percent (30%) of the total amount of securities
included in such offering.
4.4 Except to the extent specifically provided in this SECTION 4
hereof, the procedures to be followed by the Company and the Purchasers, and the
respective rights and obligations of the Company and the Purchasers, with
respect to the distribution of any Piggyback Registrable Securities by the
Purchasers pursuant to any Piggyback Registration Statement filed by the Company
shall be as set forth in the Piggyback Underwriting Agreement, or any other
agreement or agreements governing the distribution of such Piggyback Registrable
Securities pursuant to such Piggyback Registration Statement.
4.5 Notwithstanding the foregoing, however, nothing in this
SECTION 4, or any other provision of this Agreement, shall be construed to limit
the absolute right of the Company, for any reason and in its sole discretion (i)
to delay, suspend or terminate the filing of any Piggyback Registration
Statement; (ii) to delay the effectiveness of any Piggyback Registration
Statement; or (iii) to withdraw such Piggyback Registration Statement.
Section 5: DEMAND REGISTRATION AND S-3 REGISTRATION PROCEDURES, RIGHTS
AND OBLIGATIONS. The procedures to be followed by the Company and the
Purchasers, and the respective rights and obligations of the Company and the
Purchasers, with respect to the preparation, filing and effectiveness of Demand
Registration Statements and S-3 Registration Statements, respectively, and the
distribution of Demand Registrable Securities and Registrable Securities,
respectively, pursuant thereto, are as follows:
5.1 A Purchaser shall not be entitled to make more than two (2)
Demand Requests; provided, however, that if any Demand Request: (i) does not
result in the corresponding Demand Registration Statement being declared
effective by the Commission; (ii) is withdrawn by the Purchaser following the
imposition of an order by the Commission with respect to the corresponding
Demand Registration Statement; (iii) is withdrawn by the Purchaser as a result
of the exercise by the Company of its suspension rights pursuant to this SECTION
5; or (iv) is withdrawn if the Purchaser shall have learned of a material
adverse change in the condition, business or prospects of the Company different
than that known to the Purchaser at the time the Purchaser shall have initiated
the Demand Request (other than a decline in the Company's stock price since such
time unless, however, the Purchaser agrees to pay, or otherwise reimburse the
Company, for all Registration Expenses) that makes the proposed offering
unreasonable in the good faith judgment of the Purchaser, then such Demand
Request in the event of any of (i) through (iv) shall not count as a Demand
Request for any purpose. A Purchaser shall not make more than one (1) Demand
Request within any 180-day period. Any Demand Request that is
5
withdrawn by a Purchaser for any reason other than as set forth in the previous
sentence shall count as a Demand Request.
5.2 The Company shall use its best efforts to maintain the
effectiveness of each Demand Registration Statement and S-3 Registration
Statement (each an "APPLICABLE REGISTRATION STATEMENT") until the earliest to
occur of: (i) the sale or other disposition of all of the Registrable Securities
registered on the Applicable Registration Statement and (ii) one hundred twenty
(120) days after the effective date of any such Applicable Registration
Statement.
5.3 The Company shall prepare and file with the Commission
such amendments and supplements to each Applicable Registration Statement and
each prospectus used in connection therewith as may be necessary to make and to
keep such Applicable Registration Statement effective and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all Registrable Securities proposed to be distributed pursuant to such
Applicable Registration Statement until the earliest to occur of: (i) the sale
or other disposition of all such Registrable Securities so registered and (ii)
one hundred twenty (120) days after the effective date of any such Applicable
Registration Statement.
5.4 In connection with any underwritten offering pursuant to a
Demand Registration Statement, the Purchaser holding a majority of the
Registrable Securities being registered by the Purchasers pursuant to the Demand
Request shall select one investment banking firm to serve as manager of such
offering which must be reasonably acceptable to the Company. The manager is
hereinafter referred to as the "DEMAND MANAGING UNDERWRITER." The Company shall,
together with the Purchasers, enter into an underwriting agreement with the
Demand Managing Underwriter, which agreement shall contain representations,
warranties, indemnities and agreements then customarily included by an issuer in
underwriting agreements with respect to secondary distributions under demand
registration statements or shelf registration statements, as the case may be,
and shall stipulate that the Demand Managing Underwriter will receive
commissions and fees and other remuneration in connection with the distribution
of any Demand Registrable Securities or Registrable Securities thereunder.
5.5 Notwithstanding any other provision of this Agreement, in the
event that the Company determines that: (i) non-public material information
regarding the Company exists, the immediate disclosure of which would be
significantly disadvantageous to the Company; (ii) the prospectus constituting a
part of any Applicable Registration Statement covering the distribution of any
Registrable Securities contains an untrue statement of a material fact or omits
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; or (iii) an offering of Registrable Securities would
materially interfere with any proposed material acquisition, disposition or
other similar corporate transaction or event involving the Company (each of the
events or conditions referred to in clauses (i), (ii) and (iii) of this sentence
is hereinafter referred to as a "SUSPENSION CONDITION"), then the Company shall
have the right to suspend the filing or effectiveness of any Applicable
Registration Statement or any distribution of Registrable Securities thereunder
for so long as such Suspension Condition exists; provided that the Company shall
have suspended the filing or effectiveness of all other registration statements
registering securities for the account of the Company or any other Person or
suspended the
6
distribution of any securities under such registration statements; provided,
further, that in the case of (ii) above, the Company shall be obligated to use
its best efforts to amend the Applicable Registration Statement to correct such
material misstatement or omission in such registration statement and related
prospectus as promptly as practicable; and, provided, further, that the Company
shall not have the right to suspend the filing or effectiveness of any
Applicable Registration Statement or any distribution of Registrable Securities
thereunder within six (6) months after the termination of a Purchaser Lockup as
provided in SECTION 5.15 below. The Company will as promptly as practicable
provide written notice to the Purchasers when a Suspension Condition arises and
when it ceases to exist. Upon receipt of notice from the Company of the
existence of any Suspension Condition, each Purchaser shall after receipt of
such notice discontinue efforts to: (i) file or cause any Applicable
Registration Statement to be declared effective by the Commission (in the event
that such Applicable Registration Statement has not been filed, or has been
filed but not declared effective, at the time the Purchaser receives notice that
a Suspension Condition has arisen); or (ii) offer or sell Registrable Securities
(in the event that such Applicable Registration Statement has been declared
effective at the time the Purchaser receives notice that a Suspension Condition
has arisen). In the event that a Purchaser had previously commenced or was about
to commence the distribution of Registrable Securities pursuant to a prospectus
under an effective Applicable Registration Statement, then the Company shall, as
promptly as practicable after the Suspension Condition ceases to exist, make
available to the Purchaser (and to each underwriter, if any, participating in
such distribution) an amendment or supplement to such prospectus.
5.6 Notwithstanding any other provision of this Agreement, the
Company shall not be permitted to postpone (i) the filing or effectiveness of
any Applicable Registration Statement or (ii) the distribution of any
Registrable Securities pursuant to an effective Demand Registration more than
two (2) times in any 360 day period, and the aggregate of such suspensions may
not exceed a total of sixty (60) days in any 360 day period.
5.7 The Company shall promptly notify the Purchasers of any stop
order issued or, to the Company's knowledge, threatened, to be issued by the
Commission with respect to any Applicable Registration Statement and will use
its best efforts to prevent the entry of such stop order or to remove it if
entered at the earliest possible date.
5.8 The Company shall furnish to the Purchasers (and any
underwriter in connection with any underwritten offering) such number of copies
of any prospectus (including any preliminary prospectus and any amended or
supplemented prospectus), in conformity with the requirements of the Securities
Act, as the Purchasers (and such underwriters) shall reasonably request in order
to effect the offering and sale of any or the Registrable Securities to be
offered and sold, but only while the Company shall be required under the
provisions hereof to cause the Applicable Registration Statement pursuant to
which such Registrable Securities are intended to be distributed to remain
current.
5.9 The Company shall use its best efforts to register or qualify
the Registrable Securities covered by each Applicable Registration Statement
under the state securities or "blue sky" laws of such states as the Purchasers
shall reasonably request and to maintain any such registration or qualification
current, until the earliest to occur of: (i) the sale of all such Registrable
Securities so registered and (ii) one hundred twenty (120) days after the
effective
7
date of any such Applicable Registration Statement; provided, however, that the
Company shall not be required to take any action that would subject it to the
general jurisdiction of the courts of any jurisdiction in which it is not so
subject or to qualify as a foreign corporation in any jurisdiction where the
Company is not so qualified.
5.10 The Company shall furnish to each Purchaser and to each
underwriter engaged in an underwritten offering of Registrable Securities a
signed counterpart, addressed to such Purchaser or such underwriter, of (i) an
opinion or opinions of counsel to the Company (with respect to the Company and
securities law compliance by the Company) and (ii) a comfort letter or comfort
letters from the Company's independent public accountants, each in customary
form and covering such matters of the type customarily covered by opinions or
comfort letters, as the case may be, as the Purchasers or the managing
underwriters may reasonably request.
5.11 The Company shall use its best efforts to make appropriate
members of its management reasonably available for due diligence purposes, "road
show" presentations and analyst presentations in connection with any
distributions of Demand Registrable Securities pursuant to a Demand Registration
Statement.
5.12 The Company shall use its best efforts to cause all
Registrable Securities to be listed on each securities exchange on which similar
securities of the Company are then listed, or, if the Company does not have a
class of equity securities listed on a national securities exchange, apply for
qualification and use its best efforts to qualify the Registrable Securities
being registered for inclusion on the Nasdaq Stock Market.
5.13 The Company shall provide, in connection with the filing of
a registration statement pursuant to this Agreement, a transfer agent and
registrar for all Registrable Securities registered thereunder and a CUSIP
number for all such Registrable Securities not later than the effective date of
such registration.
5.14 The Company shall take all such other actions either
reasonably necessary or desirable to permit the Registrable Securities held by
the Purchasers to be registered and disposed of in accordance with the methods
of disposition described herein.
5.15 A Purchaser shall not effect any public sale or distribution
(including sales pursuant to Rule 144) of equity securities of the Company, or
any securities convertible into or exchangeable or exercisable for equity
securities of the Company, during the five (5) days prior to, and the sixty
(60)-day period beginning on the effective date of any registration statement
covering the offer and sale of Common Stock for the Company's account having
aggregate proceeds to the Company of not less than $20,000,000 in which the
Purchaser was able to register 50% of the Registrable Securities proposed by the
Purchaser to be included in such registration, unless the underwriters managing
the public offering otherwise agree to allow such sales or distributions (such
restriction on the Purchaser, the "PURCHASER LOCKUP").
Section 6: REGISTRATION EXPENSES.The Company agrees to bear and to pay or
cause to be paid promptly upon request being made therefor all expenses incident
to the Company's performance of or compliance with this Agreement, including,
without limitation, (i) all Commission and any NASD registration and filing fees
and expenses, (ii) all fees and expenses
8
in connection with the qualification of the Registrable Securities for offering
and sale under any state securities and blue sky laws, including reasonable fees
and disbursements of counsel for the placement or sales agent or underwriters in
connection with such qualifications, (iii) all fees and expenses in connection
with the approval for trading of the Shares or other shares of Common Stock on
the Nasdaq National Market or other appropriate exchange, (iv) all expenses
relating to the preparation, printing, distribution and reproduction of each
registration statement required to be filed hereunder, each prospectus included
therein or prepared for distribution pursuant hereto, each amendment or
supplement to the foregoing, the certificates representing the Registrable
Securities and all other documents relating hereto, (v) internal expenses
(including, without limitation, all salaries and expenses of the Company's
officers and employees performing legal or accounting duties), and (vi) fees,
disbursements and expenses of counsel and independent certified public
accountants of the Company (including the expenses of any opinions or "cold
comfort" letters required by or incident to such performance and compliance)
(collectively, the "REGISTRATION EXPENSES"). Notwithstanding the foregoing, the
Purchasers shall pay all underwriting discounts and commissions attributable to
the sale of the Registrable Securities and the fees and disbursements of any
counsel or other advisors or experts retained by the Purchasers.
Section 7: REPRESENTATIONS AND WARRANTIES. The Company represents and
warrants to, and agrees with, each Purchaser that:
7.1 Each registration statement covering Registrable Securities
and each prospectus (including any preliminary or summary prospectus) contained
therein and any further amendments or supplements to any such registration
statement or prospectus, when it becomes effective or is filed with the
Commission, as the case may be, and, in the case of an underwritten offering of
Registrable Securities, at the time of the closing under the underwriting
agreement relating thereto will conform in all material respects to the
requirements of the Securities Act, and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in light of the
circumstances in which they were made; and at all times subsequent to the
Effective Time when a prospectus would be required to be delivered under the
Securities Act, other than from (i) such time as a notice has been given to the
Purchaser pursuant to SECTION 5.5 hereof until (ii) such time as the Company
furnishes an amended or supplemented prospectus pursuant to SECTION 5.5 hereof,
each such registration statement, and each prospectus (including any summary
prospectus) contained therein or furnished pursuant to SECTION 5.5 hereof, as
then amended or supplemented, will conform in all material respects to the
requirements of the Securities Act, and will not contain an untrue statement of
a material fact or omit to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing; provided, however, that this representation and
warranty shall not apply to any statements or omissions made in reliance upon
and in conformity with information furnished in writing to the Company by the
Purchaser expressly for use therein.
7.2 Any documents incorporated by reference in any prospectus
prepared pursuant to this Agreement, when they become or became effective or are
or were filed with the Commission, or if amended, when amended, as the case may
be, will conform or conformed in all material respects to the requirements of
the Exchange Act, and none of such documents will contain or contained an untrue
statement of a material fact or will omit or omitted to state a
9
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were made;
provided, however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with information
furnished in writing to the Company by the Purchaser expressly for use therein.
Section 8: INDEMNIFICATION.
8.1 INDEMNIFICATION BY THE COMPANY. Upon the registration of
Registrable Securities pursuant to this Agreement, and in consideration of the
agreements of each Purchaser contained herein, and as an inducement to each
Purchaser to purchase the Convertible Notes, the Company shall, and it hereby
agrees to, indemnify and hold harmless each Purchaser and its officers,
directors, partners, employees, representatives, underwriters and agents and
each control person (as defined in Section 15 of the Exchange Act) against any
losses, claims, damages or liabilities, joint or several, to which the Purchaser
or any of its officers, directors, partners, employees, representatives,
underwriters and agents and each control person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon an
untrue statement or alleged untrue statement of a material fact contained in any
registration statement under which such Registrable Securities were registered
under the Securities Act pursuant to this Agreement, or any preliminary, final
or summary prospectus contained therein or furnished by the Company to the
Purchaser, any officer, director, partner, employee, representative, underwriter
or agent or control person, or any amendment or supplement thereto, or arise out
of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were made,
and the Company shall, and it hereby agrees to, reimburse the Purchaser, any
officer, director, partner, employee, representative, underwriter or agent or
control person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such action or claim as such
expenses are incurred; provided, however, that the Company shall not be liable
to any such person in any such case to the extent that any such loss, claim,
damage or liability arises out of or is based upon an untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement, or preliminary, final or summary prospectus, or
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by such person expressly for use therein or
is caused by the Purchaser's failure to deliver a copy of the registration
statement or prospectus, or any supplement or amendment of which it is aware.
8.2 INDEMNIFICATION BY THE PURCHASERS. In connection with any
registration statement pursuant to which a Purchaser sold or offered for sale
Registrable Securities, the Purchaser agrees to (i) indemnify and hold harmless
the Company and its officers, directors, employees, representatives, underwriter
and agents and each control person against any losses, claims, damages or
liabilities to which the Company may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such registration statement, or
any preliminary, final or summary prospectus contained therein or furnished by
the Company to the Purchaser, any officer, director, partner, employee,
representative, underwriter or agent or control person, or any amendment or
10
supplement thereto, or arise out of or are based upon the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in light of the
circumstances in which they were made, in each case to the extent, but only to
the extent, that such untrue statement or alleged untrue statement or omission
or alleged omission was made in reliance upon and in conformity with written
information furnished to the Company by the Purchaser or its officers,
directors, partners, employees representatives, or agents expressly for use
therein, and (ii) reimburse the Company for any legal or other expenses
reasonably incurred by the Company in connection with investigating or defending
any such action or claim as such expenses are incurred; provided that in no
event shall any indemnity under this subsection exceed the gross proceeds from
such offering received by the Purchaser.
8.3 NOTICES OF CLAIMS, ETC. Promptly after receipt by an
indemnified party under SECTION 8.1 or SECTION 8.2 above of written notice of
the commencement of any action, such indemnified party shall, if a claim in
respect thereof is to be made against an indemnifying party pursuant to the
indemnification provisions of or contemplated by this SECTION 8, notify such
indemnifying party in writing of the commencement of such action; but the
failure so to notify the indemnifying party shall not relieve it from any
liability which it may have to any indemnified party other than under the
indemnification provisions of or contemplated by SECTION 8.1 or SECTION 8.2
hereof and only to the extent of prejudice caused by such failure. In case any
such action shall be brought against any indemnified party and it shall notify
an indemnifying party of the commencement thereof, such indemnifying party shall
be entitled to participate therein and, to the extent that it shall wish,
jointly with any other indemnifying party similarly notified, to assume the
defense thereof, with counsel satisfactory to such indemnified party and, after
notice from the indemnifying party to such indemnified party of its election so
to assume the defense and costs of investigation thereof, such indemnifying
party shall not be liable to such indemnified party for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by such
indemnified party, in connection with the defense thereof.
8.4 CONTRIBUTION. If the indemnification provided for in this
SECTION 8 is held by a court of competent jurisdiction to be unavailable to or
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is appropriate
to reflect the relative fault of the indemnifying party and the indemnified
party in connection with the statements or omissions which resulted in such
losses, claims, damages or liabilities (or actions in respect thereof), as well
as any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether the untrue or alleged untrue statement of a material
fact or omission or alleged omission to state a material fact relates to
information supplied by such indemnifying party or by such indemnified party,
and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission. The parties hereto
agree that it would not be just and equitable if contributions pursuant to this
SECTION 8.4 were determined by pro rata allocation (even if the Purchasers or
any agents or underwriters or all of them were treated as one entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to in this SECTION 8.4. The amount paid or
payable by an indemnified
11
party as a result of the losses, claims, damages, or liabilities (or actions in
respect thereof) referred to above shall be deemed to include any legal or other
fees or expenses reasonably incurred by such indemnified party in connection
with investigating or defending any such action or claim. Notwithstanding the
provisions of this SECTION 8.4, a Purchaser shall not be required to contribute
any amount in excess of the amount by which the dollar amount of the proceeds
received by the Purchaser from the sale of any Registrable Securities (after
deducting any fees, discounts and commissions applicable thereto) exceeds the
amount of any damages which the Purchaser may have otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission, and no underwriter shall be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities underwritten by it and distributed to the public were offered to the
public exceeds the amount of any damages which such underwriter has otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission or alleged omission. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Purchasers and any underwriters in
this SECTION 8.4 to contribute shall be several in proportion to the principal
amount of Registrable Securities registered or underwritten, as the case may be,
by them and not joint.
8.5 The obligations of the Company under this SECTION 8 shall
be in addition to any liability which the Company may otherwise have; and the
obligations of the Purchasers and any agents and underwriters contemplated by
this SECTION 8 shall be in addition to any liability which the Purchasers may
otherwise have.
8.6 Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in an underwriting
agreement entered into by the Purchasers are in conflict with the foregoing
provisions, the provisions of such underwriting agreement shall control.
Section 9: MISCELLANEOUS.
9.1 ENTIRE AGREEMENT. This Agreement and the other writings
referred to herein or delivered pursuant hereto which form a part hereof contain
the entire understanding of the parties with respect to its subject matter. This
Agreement supersedes all prior agreements and understandings between the parties
with respect to its subject matter.
9.2 NO INCONSISTENT AGREEMENTS. The Company represents,
warrants, covenants and agrees that it has not granted, and shall not grant,
registration rights with respect to shares of Common Stock or any other
securities which would be inconsistent with the terms contained in this
Agreement.
9.3 SPECIFIC PERFORMANCE.The parties hereto acknowledge that there
may be no adequate remedy at law if any party fails to perform any of its
obligations hereunder and that each party may be irreparably harmed by any such
failure, and accordingly agree that each party, in addition to any other remedy
to which it may be entitled at law or in equity, shall be entitled to compel
specific performance of the obligations of any other party under this Agreement
12
in accordance with the terms and conditions of this Agreement, in any court of
the United States or any State thereof having jurisdiction.
9.4 AMENDMENTS AND WAIVERS. This Agreement may not be amended or
terminated, or any right or obligation hereunder waived, other than by a written
instrument signed by the party against whom enforcement of such amendment,
termination or waiver is sought.
9.5 GOVERNING LAW. Except for applicable federal securities laws
this Agreement shall be governed in all respects by the laws of the State of
California.
9.6 COUNTERPARTS. This Agreement may be signed in any number
of counterparts with the same effect as if the signatures to each counterpart
were upon a single instrument and is intended to be binding when all parties
have delivered their signatures to the other parties. Signatures may be
delivered by facsimile transmission. All counterparts shall be deemed an
original of this Agreement.
9.7 HEADINGS. The table of contents and headings used herein are
used for convenience only, are not part of this Agreement and shall not be
considered in construing or interpreting this Agreement.
9.8 NOTICES. All notices, requests, consents and other
communications required or permitted hereunder shall be in writing and will be
effective (a) immediately upon delivery in person or by messenger, (b) the next
business day after deposit with a commercial courier or delivery service for
next day delivery, (c) upon receipt by facsimile as established by evidence of
successful transmission or (d) three business days after deposit with the United
States Postal Service, certified mail, return receipt requested, postage
prepaid. All notices must be properly addressed as follows (or to such other
address as a party may specify by notice in pursuant to this SECTION 8.8.
(a) If to the Company:
The Chalone Wine Group, Ltd.
621 Airpark Road
Napa, CA 94558
Attention: Thomas Selfridge
Facsimile No.: (707) 254-4204
with a copy to:
Farella Braun + Martel LLP
235 Montgomery Street
San Francisco, CA 94104
Attention: Daniel E. Cohn, Esq.
Facsimile No.: (415) 954-4480
13
If to DBR:
_______________________________
_______________________________
_______________________________
_______________________________
Facsimile No.:
with a copy to:
Piper Rudnick LLP
1251 Avenue of the Americas
New York, NY 10020
Attention: Michael A. Varet, Esq.
Facsimile No.: (212) 835-6001
(b) If to SFI:
_______________________________
_______________________________
_______________________________
_______________________________
with a copy to:
Baker & Botts, L.L.P.
One Shell Plaza
910 Louisiana
Houston, TX 77002
Attention: Gray Jennings, Esq.
Facsimile No.: (713) 229-1522
9.9 SURVIVAL. The respective indemnities, agreements,
representations, warranties and each other provision set forth in this Agreement
or made pursuant hereto shall remain in full force and effect regardless of any
investigation (or statement as to the results thereof) made by or on behalf of
the Purchasers or any of its officers, directors, partners, employees,
representatives, or agents, or any controlling person of any of the foregoing.
9.10 ASSIGNMENT. In connection with any permitted transfer of
Shares, a Purchaser may assign its rights hereunder in respect of such Shares to
the transferee. Upon such assignment the transferee shall, insofar as the
transferred Shares are concerned, be entitled to all of the rights, and be
subject to all of the obligations, of the Purchaser under this Agreement, and
all references to the "PURCHASER" herein shall thereafter be deemed to include
the transferring Purchaser, or such transferee, or both, as the circumstances
warrant.
[Signature page follows]
14
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date referred to above.
COMPANY: THE CHALONE WINE GROUP, LTD.
By:
_________________________________________
Name:
Title:
PURCHASERS: LES DOMAINES BARON DE ROTHSCHILD (LAFITE)
By:
_________________________________________
Name:
Title:
By:
_________________________________________
Name:
Title:
SIGNATURE PAGE TO REGISTRATION RIGHTS AGREEMENT
15
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in Registration Statement Nos.
33-38070, 33-38037,33-46966,33-77086 and 333-80209 on Form S-8 and Registration
Statement Nos. 33-89030 and 333-71287 on Form S-3 of The Chalone Wine Group,
Ltd., of our report dated May 11, 2001 appearing in the Annual Report on Form
10-K of The Chalone Wine Group, Ltd. for the year ended December 31,2002.
San Francisco, California
March 31, 2003
Exhibit 23.3
CONSENT OF INDEPENDENT AUDITOR
We consent to the incorporation by reference in The Chalone Group Ltd.'s
Registration Statement on Form S-8 (Nos. 33-38070, 33-38038, 33-38037, 33-46966,
33-77086 and 333-80209) and Form S-3 (Nos. 33-89030 and 333-71287) of our report
on the audit of the consolidated financial statements of The Chalone Wine Group
Ltd., as of December 31, 2002 and 2001, and for the year ended December 31,
2002, and the nine months ended December 31, 2001. Our report which is dated
February 21, 2003, appears in The Chalone Wine Group Ltd.'s Annual Report on
Form 10-K for the year ended December 31, 2002. Our report refers to a change in
the method of accounting for goodwill in 2002.
/s/ MOSS ADAMS LLP
Santa Rosa, California
March 27, 2003
EXHIBIT 99.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of The Chalone Wine Group, Ltd. (the
"Company") on Form 10-K for the year ended December 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Thomas
B. Selfridge, Chief Executive Officer of the Company, certify, pursuant to 18
U.S.C. ss. 1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
/s/ THOMAS B. SELFRIDGE
_____________________________________
Thomas B. Selfridge
President and Chief Executive Officer
March 31, 2003
EXHIBIT 99.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of The Chalone Wine Group, Ltd. (the
"Company") on Form 10-K for the year ended December 31, 2002 as filed with the
Securities and Exchange Commission on the date hereof (the "Report"), I, Shawn
M. Conroy Blom, Chief Financial Officer of the Company, certify, pursuant to 18
U.S.C. ss.1350, as adopted pursuant to ss. 906 of the Sarbanes-Oxley Act of
2002, that to the best of my knowledge:
(1) The Report fully complies with the requirements of section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and result of operations of
the Company.
/s/ SHAWN M. CONROY BLOM
__________________________________________
Shawn M. Conroy Blom
Vice President and Chief Financial Officer
March 31, 2003