EXHIBIT B
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 21, 2002
FOR VALUE RECEIVED, The Chalone Wine Group, Ltd., a California corporation
("Maker") promises to pay to Les Domaines Xxxxx xx Xxxxxxxxxx (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.
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 proceedings provided, 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 Xxxxxx. 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 Xxxxxx'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 Xxxxxx 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
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 Xxxxxx in collecting the sums due
hereunder.
b. This Note may be modified only by a written agreement executed
by Maker and Xxxxxx.
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 Xxxxxx 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, Xxxxx 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: 000 Xxxxxxx Xxxx, Xxxx, Xxxxxxxxxx 00000 Attn: Xxxxxx Xxxxxxxxx
Facsimile: 000-000-0000
Holder: 00 xxx xx xx Xxxxx, 00000 Xxxxx, Xxxxxx, Attn: Xxxxxxxxxx Xxxxx
Xxxxxxxxx: 011-33-1-53-89-7801
