CHALONE WINE GROUP LTD
SUBORDINATION AGREEMENT BETWEEN SFI ...
<DOCUMENT>
<TYPE>EX-10.64
<SEQUENCE>14
<FILENAME>ex10-64.txt
<DESCRIPTION>SUBORDINATION AGREEMENT BETWEEN SFI ...
<TEXT>

                             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.

<PAGE>


                  (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.

<PAGE>

                  (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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

                  (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.

<PAGE>

                  (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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

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.

<PAGE>

                  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.


<PAGE>




                  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.

<PAGE>


                                    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.

<PAGE>


                                   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.





</TEXT>
</DOCUMENT>
