Amendment To Joint Venture Agreement

AMENDMENT TO


JOINT VENTURE AGREEMENT


OF


EDNA VALLEY VINEYARD


THIS AMENDMENT (the "Amendment") is made and entered into as of this 23rd day of December, 1996, by and between Paragon Vineyard Co., Inc., a Nevada corporation ("Paragon"), and 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, 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 1991 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. Amendments to Article I (Defined Terms)


The terms defined in Article I of the 1991 Joint Venture Agreement are hereby revised to read as follows:


"Amended Grape Purchase Agreement" refers to the Revised Grape Purchase Agreement by and between Paragon and the Joint Venture, dated January 1, 1991, as amended by that Amended and Restated Grape Purchase Agreement substantially in the form of Exhibit A hereto.


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"Amended Ground Lease" refers to the Ground Lease by and between Paragon and the Joint Venture, dated as of June 1, 1991, as amended by that Amendment to Ground Lease substantially in the form of Exhibit B hereto.


"Brand Name LLC" refers to Edna Valley Brand Name LLC, a California limited liability company, to be organized pursuant to the provisions of Section 6.1 of the Joint Venture Agreement.


"Chalone" refers to Chalone Wine Group, Ltd., a California corporation.


"Change in Control" refers to (i) the acquisition, directly or indirectly, by a single Person or a group of Affiliated Persons, even if such Person or group of Affiliated Persons is or are, as of the date of the 1991 Joint Venture Agreement, shareholders of Chalone, of more than fifty percent (50%) of the outstanding shares of voting capital stock of a Joint Venture Partner (or of securities convertible into more than fifty percent (50%) of the outstanding shares of voting capital stock of a Joint Venture Partner), or (ii) the consummation of any merger or reorganization of a Joint Venture Partner or any sale of or other disposition, in one transaction or in a series of related transactions, of all or substantially all of its assets, if, as a result of such merger, reorganization, or disposition of assets, the holders (excluding therefrom any holder or holders that, directly or through Affiliates, control the surviving, reorganized, or acquiring corporation or entity) of the shares of voting capital stock of the Joint Venture Partner, immediately before consummation of such transaction, own, immediately after consummation of such transaction, equity securities (other than options, warrants, or rights to acquire equity securities) possessing less than fifty percent (50%) of the voting power of the surviving, reorganized, or acquiring corporation (or any corporation in control of the surviving, reorganized, or acquiring corporation). "Change in Control" shall also refer to any acquisition of the outstanding shares of voting capital stock of a Joint Venture Partner or the consummation of any merger or reorganization of a Joint Venture Partner or any sale of or other disposition of all or substantially all of its assets that is part of a plan or scheme to avoid the precise definitions of the term "Change in Control" as specified in clauses (i) or (ii) above. Notwithstanding any of the foregoing, no Change in Control of Paragon shall be deemed to have occurred solely by reason of a sale by Paragon of the Vineyard or other assets pursuant to the provisions of Article XI hereof, and no change in control of Chalone shall be deemed to have occurred if one or any combination of W. Philip Woodward, Domaines Barons de Rothschild (Lafite) Summus Financial, Inc., Hook Financial, Inc., or Ojai Ranch and Investment Company, Inc., acquires control of Chalone, or controls a corporation or entity into which Chalone is merged or to which Chalone sells all or


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substantially all of its assets, or acquires control of Chalone as a result of any reorganization of Chalone. In addition, for purposes of this definition, there shall be disregarded transfers by a shareholder of a Joint Venture Partner to the shareholder's lineal descendants and ancestors, to the shareholder's brothers, sisters, nephews, nieces, spouses, former spouses, and issue of spouses or former spouses, and to trusts established for the shareholder or for any of the foregoing.


"Joint Venture" refers to the joint venture created under the Old Agreement and modified and continued by the 1991 Joint Venture Agreement, as amended by the Amendment.


"Option" is deleted as a definition of Article I.


"Revised License Agreement" refers to the License Agreement by and between Paragon and the Joint Venture, dated as of January 1, 1991, as amended by that Revised License Agreement substantially in the form of Exhibit C-1 hereto.


"Substantial Change in Management" is deleted as a definition of Article I.


2. Amendments to Article II of the 1991 Joint Venture Agreement
(Formation, Name, Place of Business, and Purpose)


Article II of the 1991 Joint Venture Agreement is hereby amended in its entirety to read as follows:


2.1 Formation


The parties entered into this Joint Venture on April 18, 1980, and by the 1991 Joint Venture Agreement, as amended by this Amendment, wish to define their rights and obligations. The Joint Venture shall be governed by the Uniform Partnership Act of the State of California, as from time to time amended, except as expressly provided herein to the contrary.


2.2 Name, Place of Business


The Joint Venture shall be conducted under the name "EDNA VALLEY VINEYARD." Unless and until changed by the Review Committee, the principal executive office of the Joint Venture shall be 621 Airpark Road, Napa, California 94558."


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3. Amendments to Article III of the 1991 Joint Venture Agreement (Term)


Article III of the 1991 Joint Venture Agreement is hereby amended in its entirety to read as follows:


3.1 Term


The Joint Venture commenced on April 18, 1980, and shall continue indefinitely until dissolution pursuant to the provisions hereof.


3.2 Chalone's Deposit and Application Thereof


Pursuant to Section 3.3 of the 1991 Joint Venture Agreement, Chalone has deposited with Paragon One Million Seventy Thousand Dollars ($1,070,000) (hereinafter, the "Deposit") for the purpose of ensuring Chalone's right to extend the term of the Joint Venture from December 31, 1999 to an indefinite term. Chalone shall apply one-third of the Deposit to reduce each of the payments required by Sections 3.4, 3.5, and 3.6 hereof.


3.3 Chalone's Purchase of a 14.1711% Vested Interest in the Joint
Venture


For the purpose of acquiring a 14.1711% vested interest in the Joint Venture, and subject to the provisions of Section 3.9 hereof, Chalone shall pay to Paragon, on or before November 15, 1996, One Million Five Hundred Ninety Thousand Dollars ($1,590,000). If the aforesaid payment is not paid on or before November 15, 1996, then the aforesaid amount shall be paid by Chalone to Paragon, within three (3) days after the date of execution of this Amendment, together with interest thereon at the Compound Rate from November 15, 1996.


3.4 Chalone's Purchase of An Additional 12.5371% Vested Interest
in the Joint Venture


For the purpose of acquiring an additional 12.5371% vested interest in the Joint Venture, and subject to the provisions of Section 3.9 hereof, Chalone shall pay to Paragon, on or before December 15, 1997, One Million Four Hundred Six Thousand Six Hundred Sixty-Seven Dollars ($1,406,667), $1,050,000 in cash and $356,667 by application of one-third of the Deposit.


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3.5 Chalone's Purchase of An Additional 12.5371% Vested Interest
in the Joint Venture


For the purpose of acquiring an additional 12.5371% vested interest in the Joint Venture, and subject to the provisions of Section 3.9 hereof, Chalone shall pay to Paragon, on or before December 15, 1999, One Million Four Hundred Six Thousand Six Hundred Sixty-Seven Dollars ($1,406,667), $1,050,000 in cash and $356,667 by application of one-third of the Deposit.


3.6 Chalone's Purchase of An Additional 10.7547% Vested Interest
in the Joint Venture


For the purpose of acquiring an additional 10.7547% vested interest in the Joint Venture, and subject to the provisions of Section 3.9 hereof, Chalone shall pay to Paragon, on or before December 15, 2001, One Million Two Hundred Six Thousand Six Hundred Sixty-Seven Dollars ($1,206,666), $850,000 in cash and $356,666 by application of one-third of the Deposit.


3.7 Chalone's Purchase of a 50% Interest in Brand Name LLC


Concurrently with its payment for an additional 10.7547% vested interest in the Joint Venture pursuant to Section 3.6 hereof, and subject to the provisions of Section 3.9 hereof, Chalone shall pay to Paragon Two Hundred Thousand Dollars ($200,000) for 50% of the issued and outstanding membership interests in Brand Name LLC, pursuant to an Option to Purchase Membership Interest substantially in the form of Exhibit C-5 hereto.


3.8 Grace Period for Payments Called For by Section 3.4, 3.5, 3.6,
and 3.7 Hereof


Chalone shall have a ten (10) day grace period beyond the due date of any payment called for by Sections 3.4, 3.5, 3.6, or 3.7 hereof or, if later, three (3) days after notice by Paragon to Chalone demanding any payment called for by Sections 3.4, 3.5, 3.6, or 3.7 hereof, during which it may make the payment called for thereunder, without interest.


3.9 Paragon's Rights in the Event that Chalone Fails to Make Any
Payment Called for by Section 3.4, 3.5, 3.6 or 3.7 Hereof


(a) In the event that Chalone elects not to make any payment called for by Section 3.4, 3.5, 3.6 or 3.7 hereof, and such failure continues beyond the grace period provided for by Section 3.8 hereof (hereinafter, a "No Payment Election"), then and in such event Chalone shall have no right to acquire an additional vested interest in the Joint Venture pursuant to the provisions of Section 3.4, 3.5, or 3.6 hereof, as the case may be,


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shall have no right to acquire an interest in Brand Name LLC pursuant to the provisions of Section 3.7 hereof, shall forfeit to Paragon the unallocated portion of the Deposit, shall have no right to receive any portion of the proceeds of sale of the Brand Name pursuant to the provisions of Section 6.2 of the Joint Venture Agreement, and, in addition, Paragon, by written notice to Chalone, may remove Chalone as Managing Joint Venture Partner of the Joint Venture and appoint one or more persons to act as Chalone's successor (which persons may include Paragon), which person(s) shall assume those duties and responsibilities and be entitled to those rights and benefits of the Managing Joint Venture Partner under the Joint Venture Agreement.


(b) In the event that Chalone makes a No Payment Election, then and in such event, from and after the effective date of the No Payment Election, the procedures of the Review Committee shall be modified in the following respects, and in the following respects only:


(i) All decisions made by the Review Committee shall
be by approval of a "majority in interest" of the members of the
Review Committee. For this purpose, the members of the Review
Committee appointed by Chalone shall have, in the aggregate, a
voting interest on matters subject to Review Committee decision or
approval equal to the vested interest in the Joint Venture
actually paid for by Chalone pursuant to the foregoing provisions
of this Article III of the Joint Venture Agreement (not taking
into account, in the amount considered paid for by Chalone, that
portion of the Deposit forfeited by Chalone pursuant to the
provisions of Section 3.9 hereof), and the members of the Review
Committee appointed by Paragon shall have, in the aggregate, a
voting interest on matters subject to the decision or approval of
the Review Committee equal to 100% minus the voting interest of
the members of the Review Committee appointed by Chalone,
determined as aforesaid.


(ii) Notice of regular and special meetings of the
Review Committee shall be provided as set forth in Section 8.2(d)
and (e) of the 1991 Joint Venture Agreement.


(iii) The attendance at a meeting of the Review
Committee of one or more members possessing a majority in interest
of the voting power of the Review Committee shall constitute a
quorum of the Committee for the transaction of business.


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(iv) The transaction of any meeting of the Committee,
however called and noticed and wherever held, shall be as valid as
though had at a meeting duly held after regular call or notice if
a quorum be present and if, either before or after the meeting,
the members possessing a majority in interest of the voting power
of the members of the Review Committee sign a written waiver of
notice, a consent to holding such a meeting, or an approval of the
minutes thereof. All such waivers, consents, or approvals shall be
filed with the records of the Committee and made part of the
minutes of the meeting.


(v) Any action required or permitted to be taken by
the Review Committee may be taken without a meeting and without
prior notice if all members of the Committee shall individually or
collectively consent in writing to such action. Such consent or
consents shall have the same effect as a unanimous vote of the
Committee and shall be filed with the minutes of the proceedings
of the Committee.


(vi) The members of the Committee may participate in
meetings of the Committee as permitted by Section 8.2(g) of the
1991 Joint Venture Agreement.


(vii) The Review Committee shall possess the power to
hire and discharge the winemaker of the Winery: the provisions of
Section 8.1(c) of the Joint Venture Agreement shall be of no
further force or effect, and Chalone shall no longer have the
power, granted by Section 8.1(c) of the Joint Venture Agreement,
to force a discharge of the general manager of the Winery or, if
there is no general manager of the Winery, the winemaker of the
Winery by an expression of 'no confidence.'


3.10 Revision of Article VII of Joint Venture Agreement


(a) In the event that Chalone makes a No Payment Election, then and in such event, from and after the effective date of the No Payment Election, all distributions of Available Cash made pursuant to Section 7.1 of the Joint Venture Agreement shall be allocated and distributed to Chalone in an amount equal to the vested interest in the Joint Venture actually paid for by Chalone pursuant to the foregoing provisions of this Article III of the Joint Venture Agreement (not taking into account, in the amount considered paid for by Chalone, that portion of the Deposit forfeited by Chalone pursuant to the provisions of Section 3.9 hereof), with the balance of the distributions of Available Cash allocated and distributed to Paragon. The relative percentages of distributions of Available Cash,


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determined as aforesaid, shall also be used in allocating any "remaining gain" to be allocated to the Joint Venture Partners pursuant to the provisions of Section 7.2(b) of the Joint Venture Agreement, and in allocating between the Partners all income, gains, losses, deductions, and credits, and each item thereof, to be allocated between the Joint Venture Partners pursuant to the provisions of Section 7.2(c) of the Joint Venture Agreement."


4. Amendments to Article IV of the 1991 Joint Venture Agreement (Chalone's
Purchase of a One-half Interest in the Winery and the Expansion
Thereof)


Article IV of the 1991 Joint Venture Agreement is hereby amended in the following respects and in the following respects only.


Section 4.7 is hereby added to Article IV to read in its entirety as follows:


4.7 Amended Ground Lease


The Joint Venture shall, concurrently with this Amendment, enter into an Amended Ground Lease with Paragon, substantially in the form of Exhibit B hereto. Pursuant to the Amended Ground Lease, the Joint Venture shall lease additional acreage from Paragon, and shall pay increased rent to Paragon under the Amended Ground Lease equal to the rent called for under the Ground Lease for any applicable period multiplied by a fraction, the numerator of which is the acreage included in the Amended Ground Lease and the denominator of which is the acreage included in the Ground Lease."


5. Amendments to Article V of the 1991 Joint Venture Agreement (Supply of
Grapes by Paragon to the Joint Venture)


Article V of the 1991 Joint Venture Agreement is hereby amended in its entirety to read as follows:


5.1 Revision of Grape Purchase Agreement


(a) Paragon and the Joint Venture shall, concurrently with the execution of this Amendment, enter into an Amended and Restated Grape Purchase Agreement, substantially in the form of Exhibit A hereto. The Joint Venture may, upon Review Committee approval, purchase and resell, or vint as bulk wine, a por ...