Diamond Estates Wines & Spirits has completed the sale and leaseback of its De Sousa Estates Winery in Beamsville, Ontario to Oakwest Corporation, a corporation that owns approximately 31% of the issued and outstanding common shares of the Company.
The Company received $1,800,000 in net proceeds for all of the common shares in De Sousa Wine Cellars Corporation ("DSWCC"), the entity that owns the winery property. Of the net proceeds, approximately $800,000 has been directed towards the retirement of the outstanding mortgage on the property, while the remaining proceeds will support working capital requirements. The Company will lease the winery from Oakwest for a period of five years with the option to extend for another five years. Minimum lease payments due over the first five year term are $500,000 with profit sharing for amounts greater than $25,000 in any given year being split 2/3rds in favour of the Company and 1/3rd for Oakwest. The Company will continue to operate the winery as De Sousa Estates. The winery is well known for its brands: Dois Amigos, Seasons, and De Sousa ice-wine. The Company will retain ownership and all rights to these brands. If Oakwest sells the property during the initial lease term, they will transfer to the Company's benefit all net proceeds in excess of $1,800,000.
The De Sousa winery assets were reclassified to current assets on the Company's balance sheet as at December 31, 2013 when the property was listed with a realtor and an active real estate marketing plan was undertaken. The net book value of the assets at the time of the sale was $1,880,916.
Concurrent with the leasing of the winery, the Company has executed an agreement with Oakwest to provide financial and operational consulting services over the lease term. In consideration of these services, the Company will pay $1 per year and has issued 1,400,000 stock options to Oakwest at a strike price of $0.12 and standard vesting terms under its stock option plan. The Company has also issued 600,000 stock options under the same terms to David Beutel, Chair of its Board of Directors and a Vice President at Oakwest, in consideration of his guidance and expertise in leading the Company through a transformative period. Mr. Beutel will continue to serve in this capacity for the foreseeable future.
J. Murray Souter, President and CEO of the Company stated that, "This sale and leaseback transaction is a win-win for Diamond Estates. It provides additional liquidity for the Company as working capital needs have increased with expansion of the business. Leasing back the winery from a trusted partner ensures continued access to the De Sousa vineyards, a source of some of our highest quality VQA grapes and an important retail outlet for the Company. The five-year lease term allows the Company a long term horizon to plan and invest in the growth of its Estate brands."
The sale of DSWCC to Oakwest is considered to be a related party transaction as defined under Multilateral Instrument 61-101 ("MI 61-101") because Oakwest has ownership and control over more than 10% of the Company's issued and outstanding commons shares. However, the sale is exempt from the formal valuation and minority shareholder approval requirements of MI 61-101 as neither the fair market value of the subject matter of, nor the fair market value of the consideration for, the transaction, in so far as it involves interested parties, exceeds 25% of the Company's market capitalization. The Company has not filed a material change report prior to the closing of the transaction as details of participation of the insiders had not been finalized prior to today.
