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$9M Financing and additional fundraising

Diamond Estates Wines & Spirits Announces Intention of a $9M Financing from a Related Party and an additional fundraising tranche

Niagara-on-the-Lake, Ontario--(Newsfile Corp. – August 17, 2023) - Diamond Estates Wines & Spirits Inc. (TSXV: DWS) ("Diamond Estates" or "the Company") announces today its intention to complete a financing (the “Financing”) with Lassonde Industries Inc. (or one of its affiliates) (“Lassonde”) following the Annual and Special Meeting (the “Meeting”) of the shareholders of the Company, being held on September 6, 2023 at 10:00 am. 

The Financing would consist of the issuance of 20 million Common Shares to Lassonde at an issuance price per share of $0.45.  Lassonde would subscribe for the shares by paying approximately $8.25 million in cash and converting the $750,000 principal amount (plus interest) owing under the advance agreement between the Corporation and Lassonde dated May 30, 2023 (the “Advance Agreement”).  The Company intends to use the net proceeds of the Financing for general working capital purposes.

Lassonde and its affiliates owns 5,964,330 Common Shares, representing 21.40% of the Corporation’s issued and outstanding voting securities. If Lassonde and its affiliates were to convert all of their convertible securities, they would own, directly or indirectly 11,818,543 Common Shares, representing approximately 35.06% of the Corporation’s issued and outstanding voting securities.  By reason of its security holdings of the Corporation, it is a related party of the Corporation.  Upon completion of the Financing, and assuming Lassonde and its affiliates were to convert all of their convertible securities, they would own, directly or indirectly 31,818,543 Common Shares, representing approximately 59.22% of the Corporation’s then issued and outstanding voting securities.

Since the Financing and the Settlement (as defined below) are related-party transactions under the rules of the TSXV and Multilateral Instrument 61-101 Protection of Minority Security Holders in Special Transactions (“MI 61-101”), they will need to be approved by a simple majority of the disinterested Shareholders voting at the Meeting in accordance with the requirements of MI 61-101, with the votes attached to the Common Shares beneficially held by Lassonde and its related parties excluded from the vote.

Accordingly, Shareholders will be asked at the Meeting to consider, and if deemed advisable, adopt the following resolution:

Be it resolved that the issuance of approximately 18,333,333 million common shares to Lassonde Industries Inc. or one of its affiliates at a price per share of $0.45 representing an aggregate cash consideration of $9.0 millions and gross proceeds to the Corporation of approximately $8.25 million, all as more particularly described and set forth in the Information Circular and in accordance with the terms and conditions of a purchase agreement between the Corporation and the subscriber(s) to be entered into, is hereby authorized and approved;
the settlement of the outstanding debt owed by the Corporation to Lassonde Industries Inc. under the Advance Agreement dated May 30, 2023, in an aggregate amount of the $750,000 principal amount owing, plus interest, through the issuance of approximately 1,666,667 common shares to Lassonde Industries Inc. as part of the Financing (the “Settlement”), is hereby authorized and approved;
not withstanding that these resolutions have been duly passed by the Shareholders, the board of directors of the Corporation may amend or decide not to proceed with the Financing or revoke these resolutions at any time prior to completion of the Financing without further approval of the Shareholders; and
any one director or officer of the Corporation is hereby authorized and directed for and on behalf of the Corporation to execute or cause to be executed, under the corporate seal of the Corporation or otherwise, and to deliver or cause to be delivered, all such other documents, applications, declarations and instruments and to perform or cause to be performed all such other acts and things as in such person’s opinion may be necessary or desirable to give full effect to the foregoing resolutions and the matters (including effecting any filings with any and all appropriate regulatory authorities) authorized thereby, such determination to be conclusively evidenced by the execution and delivery of such document, agreement or instrument or the doing of any such act or thing

Pursuant to the requirements of MI 61-101, the Financing and the Settlement must be approved by the affirmative vote of a majority of the votes cast by the Minority Shareholders present or represented by proxy at the Meeting. “Minority Shareholders” means Shareholders whose votes may be included in the determination of minority approval of the Financing, being Shareholders other than (a) any “interested party” to the Financing and the Settlement within the meaning of MI 61-101; (b) any related party to such interested party within the meaning of MI 61-101 (subject to the exceptions set out therein); and (c) any person that is a joint actor with any of the foregoing for the purposes of MI 61-101 (collectively, the “Excluded Parties”).

For the purposes of the Financing and the Settlement, Lassonde and its related parties are considered Excluded Parties. As noted above, Lassonde and its affiliates hold 5,964,330 Common Shares. Accordingly, votes attaching to an aggregate of 5,964,330 Common Shares will be excluded from determining whether or not the Financing Resolution is approved as an ordinary resolution of the disinterested Shareholders. For more details about Lassonde and its related parties’ holdings, please refer to “Voting Securities and Principal Holders”.

The independent members of the Board believe that the Financing Resolution is in the best interests of the Corporation and therefore recommend that Shareholders vote in favour of this resolution. Unless otherwise indicated, the Management Nominees intend to vote FOR the Financing Resolution.

Recommendation of the Board

The independent members of the Board, being Keith Harris, John De Sousa, John Hick, and Ron McEachern (the “Independent Members”) unanimously: (i) resolved that the Financing is in the best interests of the Corporation; and (ii) resolved to recommend that Shareholders vote in favour of the Financing at the Meeting. In making their decision, the independent members considered the following factors: (i) the pricing of the Financing; (ii) the current and historical price of the Common Shares; (iii) the financial needs of the Corporation; and (iv) alternative transactions and initiatives. 

The foregoing discussion of the information and factors reviewed by the Board is not, and is not intended to be, exhaustive. In view of the wide variety of factors considered by the Board, the Board did not find it practical to, and therefore did not, quantify or otherwise assign relative weight to specific factors in making its determination. The conclusions and recommendations of the Board were made after consideration of all of the above-noted factors in light of the collective knowledge of the members thereof of the operations, financial condition and prospects of the Corporation and was also based on the advice of its legal and financial advisors.

Shareholders should consider the Financing carefully and come to their own conclusions as to whether or not vote in favour of the Financing Resolution.

Financing Approvals:

Shareholder Approval

The Financing and the Settlement constitute “related-party transactions” under MI 61-101, which the Corporation is required to comply with pursuant to Policy 5.9 of the TSXV Corporate Finance Manual (the “Policy”). Pursuant to MI 61-101, the Corporation is required to obtain prior approval of the Financing and the Settlement by a majority of the Minority Shareholders.

TSXV Approval

The Corporation will require the conditional approval of the TSXV in order to close the Financing (including the Settlement).

Other Material Terms of the Financing:

Use of Proceeds. 

The net proceeds of the Financing shall be used to reduce the Corporation’s debt and accounts payable.

Conversion of Debentures. 3346625 Canada Inc., a related-party of the Corporation and Lassonde, also intends to convert at least $1.0 million of its $2.85 million principal amount 10.0% unsecured convertible debenture due November 2023 (together with accrued and unpaid interests thereon, if any, as applicable), the whole substantially in accordance with the terms of the subscription agreement between 3346625 Canada Inc. and the Corporation dated November 3, 2022.

Other Participants. 

The Company may seek additional participants, other than Lassonde, in the Financing, for additional gross proceeds.

Commercial Support Agreement.  The parties shall discuss the opportunity to enter into commercial support agreements pursuant to which Lassonde will provide services to the Corporation. The service areas under the agreements will be mutually agreed upon and may relate, without limitation, to (i) retail sales/ distribution/ logistics; (ii) marketing and brand management; and (iii) government affairs.

Voting Support Agreements. 

Directors, officers, and certain shareholders of the Corporation have entered into voting and support agreements with Lassonde in support of the Financing.

Governance.  Upon closing of the Financing, the Board shall consist of 7 members, and Lassonde shall have the right to nominate 4 directors to the Board, including the chairman, and at least a proportionate number of member(s) on each of the Board’s committees. A special committee will be formed to oversee the debt reduction program to be put in place, as well as the executives’ day-to-day management, notably by approving certain decisions of management.

Conditions to Closing.  The Financing has customary conditions to closing, including accuracy of each party’s representations and warranties, compliance with covenants, due diligence, and shareholder and regulatory approval.

Formal Valuation Exception

The Financing is a “related-party transaction” under MI 61-101, which, in the absence of a valuation exemption, would require the Corporation to obtain a formal valuation by independent qualified valuators. However, the Financing is exempt from the formal valuation requirements of Section 5.4 of MI 61-101 pursuant to Section 5.5(b) of such instrument, as none of the Corporation’s securities are listed or quoted on a “specified market”, namely, the Toronto Stock Exchange, the New York Stock Exchange, the American Stock Exchange, the NASDAQ Stock Market, or a stock exchange outside of Canada and the United States other than the Alternative Investment Market of the London Stock Exchange or the PLUS markets operated by PLUS Markets plc.

Prior Appraisals

There are no “prior valuations” (as defined in MI 61-101) in respect of the Corporation or the Common Shares that have been made in the 24 months prior to the date hereof and the existence of which is known, after reasonable inquiry, to the Corporation or to any directors or senior officers of the Corporation.

Expenses of the Transaction

The Corporation expects to incur expenses of approximately $100,000 in connection with the Financing and the Settlement, including financial advisory, underwriting, proxy solicitation, accounting and legal fees, the costs of preparation, printing and mailing of this Information Circular and other related documents and agreements, and stock exchange and regulatory filing fees. The Corporation will pay the expenses of the Financing out of cash-on-hand and the net proceeds of the Financing.

About Diamond Estates Wines and Spirits Inc.

Diamond Estates Wines and Spirits Inc. is a producer of high-quality wines and ciders as well as a sales agent for over 120 beverage alcohol brands across Canada. The Company operates five production facilities, four in Ontario and one in British Columbia, that produce predominantly VQA wines under such well-known brand names as 20 Bees, Creekside, EastDell, Lakeview Cellars, Mindful, Queenston Mile, Shiny Apple Cider, Fresh, Proud Pour, Red Tractor, Seasons, Serenity, Persona and Backyard Vineyards.

Through its commercial division, Trajectory Beverage Partners, the Company is the sales agent for many leading international brands in all regions of the country as well as being a distributor in the western provinces. These recognizable brands include Josh wines from California, Fat Bastard, Meffre, Pierre Chavin and Andre Lurton wines from France, Brimincourt Champagne from France, Merlet and Larsen Cognacs from France, Kaiken wines from Argentina, Blue Nun and Erben wines from Germany, Calabria Family Estate Wines and McWilliams Wines from Australia, Saint Clair Family Estate Wines and Yealands Family Wines from New Zealand, Redemption Bourbon and Rye whiskies from the U.S., Gray Whale Gin from California, Storywood and Cofradia Tequilas from Mexico, Magnum Cream Liqueur from Scotland, Talamonti and Cielo wines from Italy, Catedral and Cabeca de Toiro wines from Portugal, Waterloo Beer & Radlers from Canada, Landshark Lager from the USA, Edinburgh Gin, Tamdhu, Glengoyne and Smokehead single- malt Scotch whiskies from Scotland, Islay Mist, Grand MacNish and Waterproof whiskies from Scotland, C. Mondavi & Family wines including C.K Mondavi & Charles Krug from Napa, Wize Spirits, Hounds Vodka and Valley of Mother of God Gins from Canada, Bols Vodka from Amsterdam, Koyle Family Wines from Chile and Pearse Lyons whiskies and gins from Ireland.

For more information, please contact:

Andrew Howard                                               
President & CEO                                                   
Diamond Estates Wines & Spirits Inc.                          

Ryan Conte, CPA, CA, CBV 
Chief Financial Officer
Diamond Estates Wines & Spirits Inc.     

Forward Looking Statements

This press release contains forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects" or "does not expect", "is expected", "estimates", "intends", "anticipates" or "does not anticipate", or "believes", or variations of such words and phrases or state that certain actions, events or results "may", "could", "would", "might" or "will" be taken, occur or be achieved. Forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of Diamond Estates Wines and Spirits Inc. to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Actual results and developments are likely to differ, and may differ materially, from those expressed or implied by the forward-looking statements contained in this press release.  Forward-looking statements are based on a number of assumptions which may prove to be incorrect, including, but not limited to the economy generally; consumer interest in the services and products of the Company; financing; competition; and anticipated and unanticipated costs. While the Company acknowledges that subsequent events and developments may cause its views to change, the Company specifically disclaims any obligation to update these forward-looking statements. These forward-looking statements should not be relied upon as representing the views of the Company as of any date subsequent to the date of this press release. Although the Company has attempted to identify important factors that could cause actual actions, events or results to differ materially from those described in forward-looking statements, there may be other factors that cause actions, events or results not to be as anticipated, estimated or intended. There can be no assurance that forward-looking statements will prove to be accurate, as actual results and future events could differ materially from those anticipated in such statements. Accordingly, readers should not place undue reliance on forward-looking statements.

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.

Diamond Estates Wines & Spirits LTD

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