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.
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.
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.