Apr. 1, 2010 (Filing Services Canada) -- Pounder Venture Capital Corp. ("Pounder") (TSX-V:PDR.P),a capital pool company listed on the TSX Venture Exchange (the "Exchange" or "TSX-V"), and Diamond Estates Wines & Spirits Ltd. ("Diamond") are pleased to announce that they have entered into a letter of intent dated March 31, 2010, pursuant to which Pounder shall acquire all of the issued and outstanding shares of Diamond pursuant to an amalgamation, arrangement, take-over bid, share purchase or share exchange or other form of transaction. Such transaction is intended to be the qualifying transaction (the "Qualifying Transaction") of Pounder as such term is defined in Policy 2.4 of the Exchange. Pounder anticipates filing an information circular or filing statement detailing the Qualifying Transaction and related matters in the near future.
About Diamond
Diamond is a private company existing under the laws of Ontario with its head office in Toronto, Ontario. Diamond's strategy includes consolidation in both the fragmented Canadian wine industry and the sales and distribution agency business. Diamond was founded in 2001 and has grown primarily in three different ways: (1) acquiring Ontario wineries; (2) developing its own wine brands; and (3) representing various wine, beer and spirit brands (its agency business).
Diamond currently owns three Ontario wineries (two in the Beamsville Bench and one in Niagara-on-the-Lake), owns nine Canadian wine brands and produces over 165,000 cases of domestic wine per year in its state of the art 43,000 square foot manufacturing facility located in Niagara-on-the-Lake, Ontario. The domestic wines are sold primarily to the Liquor Control Board of Ontario (LCBO) with sales also occurring at the on-site winery retail stores and directly to licensed restaurants. Diamond is making some small extra-provincial sales. Diamond has acquired six different wineries, and has sold the real estate assets of three of these wineries, keeping brand ownership of two - Lakeview Cellars and Birchwood Estates. Diamond is also a significant player in the agency business in Canada, representing more than 100 imported and domestic spirit, wine and beer brands across Canada.
Diamond continues to focus its efforts towards the consolidation of the Canadian wine industry, at the same time continuing to improve revenues and margins. As a consolidator, Diamond has been successful in merging the operations of multiple wineries and continues to identify and monetize synergies from these transactions. The result is a steady increase of revenue and EBITDA over the last several years supported by audited financial statements for the years ended 2006 through 2009. Diamond is also continuing to grow its agency business, attracting larger brands each year and investing in its sales force and marketing teams.
Diamond reported its audited financial results for the year ended March 31, 2009. Total revenue rose 28% to $25.6 million and net income increased to $3.5 million from $1.0 million in fiscal 2008. Diamond's owned wine brands had sales of approximately $10 million, while agency sales were approximately $16 million. As at March 31, 2009, Diamond had assets of approximately $60 million. A meaningful percentage (23.1%) of Diamond's assets is inventory. At $14.1 million, it rose 68.7% over fiscal 2008. There is no controlling shareholder of Diamond.
The Transaction
Pursuant to the Qualifying Transaction, Pounder will acquire all of the issued and outstanding shares of Diamond on the basis of Pounder issuing its common shares to Diamond shareholders at a deemed price of $4.00 per share on a post-transaction basis. There are currently 2,270,000 issued and outstanding common shares of Pounder. Concurrent with the closing of the Qualifying Transaction, the outstanding Pounder common shares, options and warrants will be consolidated on an 8 for 1 basis and each Diamond shareholder will be entitled to receive one post-consolidation Pounder common shares for each one Diamond common share, provided that in the event that the Diamond financing (as described below) is completed at a price less than $4.00 per share or less than the maximum proceeds are raised, the consolidation ratio will be adjusted proportionally such that the number of Pounder common shares would be increased or decreased to provide the current Pounder shareholders with a deemed value of $1,300,000 on a post-transaction basis. Concurrent with completion of the Qualifying Transaction, the outstanding 327,000 options exercisable at $0.20 to acquire Pounder common shares will be exercised by the holders thereof for aggregate consideration of $65,400 to Pounder. In addition, subject to regulatory approval and compliance with applicable securities laws and Exchange requirements, Pounder has agreed to issue up to 50,000 post-transaction Pounder common shares (the "Finder's Shares") immediately after the closing of the Qualifying Transaction to certain arm's length parties as a finder's fee. It is anticipated that upon completion of the Qualifying Transaction, assuming the maximum proceeds are raised under the Concurrent Financing (as defined below), the issuance of the Finder's Shares and the closing of the acquisition of the Target Winery (as defined below), there will be approximately 22,147,437 post-transaction Pounder common shares outstanding, with approximately 325,000 shares held by current Pounder shareholders and approximately 21,822,437 shares held by former Diamond shareholders.
All securities of Diamond that are convertible into Diamond common shares, and that are issued and outstanding on the effective date of the Qualifying Transaction, will be exchanged for convertible securities of Pounder that shall entitle the holder thereof to receive, for the same aggregate consideration, in lieu of the number of Diamond common shares to which such holder was theretofore entitled upon exercise of such convertible securities, the corresponding number of post-transaction Pounder common shares. There are currently 231,838 warrants exercisable for Diamond common shares at $2.10 per share until February 8, 2011 and 111,754 warrants exercisable for Diamond common shares at $3.80 per share until the first anniversary of the closing of the Qualifying Transaction outstanding.
The Transaction will constitute Pounder's "Qualifying Transaction" as such term is defined in Policy 2.4 of the Exchange, and upon completion, will result in the listing of Pounder as an Industrial Issuer on the Exchange. The Qualifying Transaction will be carried out by parties dealing at arm's length to one another and therefore will not be considered to be a Non-Arm's Length Qualifying Transaction, as such term is defined under the policies of the Exchange.
Concurrent Financing
Prior to completion of the Qualifying Transaction, it is anticipated that Diamond shall have completed one or more brokered or non-brokered private placements (the "Concurrent Financing") of its common shares or securities convertible into its common shares for aggregate gross proceeds of fifteen million to twenty million dollars ($15,000,000 - $20,000,000) at a price of $4.00 per share. The Diamond common shares to be issued as part of the Concurrent Financing are to be exchanged for Pounder common shares as part of the Qualifying Transaction using the above-mentioned conversion ratio. The proceeds of the Concurrent Financing will be used to fund strategic acquisitions, to fund the acquisition of additional plant and equipment, for working capital and for general corporate purposes.
Octagon Capital Corporation, Dundee Securities Corporation and D&D Securities Company (the "Agents") have been engaged on a "best efforts" agency basis to complete the Concurrent Financing. The Agents will receive an agency fee equal to 6.5% of the gross proceeds of the Concurrent Financing and broker warrants (the "Broker Warrants") entitling the Agents to purchase that number of Diamond common shares as is equal to 7.5% of the number of common shares sold under the Concurrent Financing exercisable for a period of two (2) years from the date of issuance or one (1) year after an initial public offering, whichever is later. The Concurrent Financing will close prior to the closing of the Qualifying Transaction.
Concurrent Acquisition
Diamond has a signed letter of intent to acquire an Ontario based winery. According to management of Diamond, the company is EBITDA and cash flow positive as supported by financial statements of the target winery (the "Target Winery"). The brands are to be distributed by the Diamond sales force with key additions to the Diamond sales team coming from the winery target sales team. The acquisition target winery has been in business since 1981 and produces annual sales volume of approximately 240,000 cases of wine per year. Once Diamond acquires the target winery, it would expect to sell off the real estate in due course, subject to manufacturing, licensing and market considerations. The assets include real estate with an appraised value of approximately $7 million, all located in Ontario, of which management plans to divest in 2011 and 2012. Purchase price for the target winery is payable in shares of Diamond and in cash. The target winery has a majority of its sales to the LCBO, but has a larger network of on-site retail stores than Diamond that will benefit from the addition of Diamond brands in the stores over time. Pounder will in the future provide further details regarding the proposed acquisition of the target winery when a definitive agreement is reached.
Conditions Precedent
The parties' obligations to complete the Qualifying Transaction are subject to the satisfaction of customary conditions precedent including:
(a) Diamond shall have concluded a private placement of its common shares to raise aggregate gross proceeds of a minimum of ten million dollars ($10,000,000);
(b) Subject to delivery by Diamond of all required business plans, reports, financial statements and personal information forms from each of the Principals (as such term is defined in the Corporate Finance Manual of the Exchange) within a reasonable time frame following execution of this letter agreement, Pounder conducting and completing to its satisfaction, acting reasonably, a financial and legal due diligence investigation of Diamond;
(c) Diamond conducting and completing to its satisfaction, acting reasonably, a due diligence investigation of Pounder;
(d) Diamond obtaining all requisite shareholder approvals and requisite regulatory approvals;
(e) Pounder obtaining all requisite shareholder approvals and requisite regulatory approvals from the Exchange and the applicable Canadian securities regulatory authorities such that the transaction proposed herein will constitute a Qualifying Transaction;
(f) no material adverse change in the business affairs, financial conditions or operations of Diamond shall occur between the date hereof, the date of its latest available financial statements, and the closing of the Qualifying Transaction;
(g) no material adverse change in the business affairs, financial conditions or operations of Pounder shall occur between the date hereof, the date of its latest available financial statements, and the closing of the Qualifying Transaction;
(h) immediately prior to completion of the Qualifying Transaction, Pounder will have no outstanding liabilities except for those shown on its financial statements;
(i) immediately prior to completion of the Qualifying Transaction, Diamond will have no outstanding liabilities except for those shown on its financial statements, plus other standard trade payables from such date, all of which are being paid in the normal course of business; and
(j) the issued and outstanding options of Pounder shall have been exercised by the holders thereof.
Board of Directors and Management
Upon completion of the proposed Transaction, the directors and senior officers of the resulting issuer are anticipated to be:
Murray Watson (Chairman): An entrepreneur, Murray has a 25-year history of investment success in many international industries, both in the private and public markets. As Chairman of Diamond Estates, Murray provides strategic leadership and extensive capital-raising experience to round out the operating team. In 1995, Mr. Watson became one of the early investors in Renwood, a premium producing winery in California. As a Director of Renwood, Murray helped develop and implement its business and branding strategy. Today, Renwood is recognized as one of the top Zinfandel producers in the world.
Murray Marshall (Director, President and Chief Executive Officer): Mr. Marshall's experience extends over the past 30 years with Joseph Seagram & Sons, Basil D. Hobbs Imported Wines & Spirits, T.G. Bright Company and Colio Estate Wines. In his positions with these companies, he was directly responsible for developing and implementing sales strategies to facilitate brand development and sales for both wines and spirits. As the Executive Vice-President of Corporate Development of Colio Wines, he was also responsible for developing new ventures (such as new brands, co-packing agreements for products, government grants for capital and vineyard acquisitions) in order to increase sales, production and cash flow for the winery and its vineyard operations. Mr. Marshall is also Chairman of the VQA Canada. Among other things, Murray is the former General Manager, Sales and Marketing of Export and Specialty Markets for Andres Wines.
Andrew Green (Director, Vice-President and Corporate Secretary): A co-founder of Diamond Estates Wines & Spirits Ltd., Mr. Green was the owner and founder of Boka Wines & Spirits Ltd. (Boka), which he created in September of 1997 as an imported wines, spirits and beer agency and later expanded to also represent domestic wines. Mr. Green had tremendous early success with Boka, which has continued since its acquisition by Diamond. Mr. Green has a proven ability to sell and negotiate with the LCBO and foreign and domestic producers, which he used to build a portfolio with sales to the LCBO (both to the large volume General List and the specialty Vintages and Classics Catalogue divisions), licensees and private customers. Prior to establishing Boka, Mr. Green was a corporate, banking and international trade lawyer practicing at the firm McMillan LLP (Barristers and Solicitors) where he amassed experience in mergers and acquisitions, private company asset and share sales, financing and international trade.
Austin Beutel (Director): Mr. Beutel is the Chairman and Co-founder of Beutel, Goodman & Company Ltd., an investment counseling firm. Mr. Beutel is also Chairman of Oakwest Corporation Limited.
Bruce Galloway (Director): Mr. Galloway is the former Vice-Chairman of Royal Bank Financial Group. Presently involved as both an investor and advisor with numerous emerging enterprises.
Pounder will in the future provide further details regarding the proposed directors and senior officers of the resulting issuer.
Name Change
Upon completion of the Qualifying Transaction, it is anticipated that the name of the resulting issuer shall be changed to "Diamond Estates Wines & Spirits Ltd."
Sponsorship
Sponsorship of a qualifying transaction of a capital pool company is required by the Exchange, unless exempt in accordance with Exchange policies. Pounder will apply to the Exchange for an exemption from the Exchange's sponsorship requirements. There is no guarantee that such exemption will be provided by the Exchange.
Trading Halt
Trading in Pounder's common shares on the Exchange is halted and will remain so until the documentation required by the Exchange has been reviewed and accepted by the Exchange.
Completion of the Qualifying Transaction is subject to a number of conditions, including but not limited to, Exchange acceptance. There can be no assurance that the Qualifying Transaction will be completed as proposed or at all.
Investors are cautioned that, except as disclosed in the management information circular or the filing statement to be prepared in connection with the Qualifying Transaction, any information released or received with respect to the Qualifying Transaction may not be accurate or complete and should not be relied upon. Trading in the securities of a capital pool company should be considered highly speculative.
The TSX Venture Exchange has in no way passed upon the merits of the proposed Qualifying Transaction and has neither approved nor disapproved the contents of this press release.
All information contained in this news release with respect to Pounder and Diamond was supplied by Pounder and Diamond, respectively, for inclusion herein. Pounder and its directors and officers have relied on Diamond for any information concerning Diamond. Diamond and its directors and officers have relied on Pounder for any information concerning Pounder.
ADVISORY: Certain information in this press release constitutes forward-looking statements under applicable securities law. Any statements that are contained in this press release that are not statements of historical fact may be deemed to be forward-looking statements. Forward-looking statements are often identified by terms such as "may", "should", "anticipate", "expects" and similar expressions. Forward-looking statements in this press release include, but are not limited to, statements with respect to the closing or completion of the Qualifying Transaction, the Concurrent Financing or the acquisition of the Target Winery. Forward-looking statements necessarily involve known and unknown risks, including, without limitation, risks associated with general economic conditions, adverse industry events, marketing and transportation costs, loss of markets, ability to make and integrate acquisitions, incorrect assessment of the value of acquisitions, failure to realize the anticipated benefits of acquisitions, inability to access sufficient capital from internal and external sources, industry and government regulation, changes in legislation, including but not limited to beverage alcohol regulations, income tax and regulatory matters as well as Pounder's ability to implement its business strategies, competition, currency fluctuations and other risks. Readers are cautioned that the foregoing list of factors is not exhaustive.
Readers are cautioned not to place undue reliance on forward-looking statements as there can be no assurance that the plans, intentions or expectations upon which they are placed will occur. Such information, although considered reasonable by management at the time of preparation, may prove to be incorrect and actual results may differ materially from those anticipated. Forward-looking statements contained in this press release are expressly qualified by this cautionary statement.
The forward-looking statements contained in this news release represent the expectations of Pounder as of the date of this news release and, accordingly, is subject to change after such date. However, Pounder expressly disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities law.
THIS PRESS RELEASE, REQUIRED BY APPLICABLE CANADIAN LAWS, IS NOT FOR DISTRIBUTION TO U.S. NEWS SERVICES OR FOR DISSEMINATION IN THE UNITED STATES, AND DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO SELL ANY OF THE SECURITIES DESCRIBED HEREIN IN THE UNITED STATES. THESE SECURITIES HAVE NOT BEEN, AND WILL NOT BE, REGISTERED UNDER THE UNITED STATES SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD IN THE UNITED STATES OR TO U.S. PERSONS UNLESS REGISTERED OR EXEMPT THEREFROM.
For further information, please contact:
Pounder Venture Capital Corp.
131 Bloor Street West
Suite 220/225 Toronto, Ontario
Telephone: 416 891-6500
Fax: 905 472-0139
Email: tpatt@sympatico.ca
Diamond Estates Wines & Spirits Ltd.
1067 Niagara Stone Road
Niagara-on-the-Lake, Ontario
Telephone: (905) 641-1042
Fax: (905) 641-9879
Email: agreen@diamondwines.com
Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.
Source: Pounder Venture Capital Corp. (CPC - PDR.P)
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