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From: lewis.perdue@wineindustryinsight.com

Subject: Creditors Charge IBG/New Vine Asset Sale Is Improper, IBG Looking For $24 to $29 Million

Date: 2009-07-09 01:02:37

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EMAIL EDITION - VOLUME I, NUMBER 105 - July 9, 2009

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THIS ISSUE SPONSORED BY:

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IN THIS ISSUE:

  • IBG Looking For $24 to $29 Million, “Do Or Die” To Acquire New Vine Assets

  • Creditors Charge IBG/New Vine Asset Sale Is Improper



THIS ISSUE SPONSORED BY:

Hinman & Carmichael,Alcoholic Beverage Law


Creditors Charge IBG/New Vine Asset Sale Is Improper

Inertia Beverage Group (IBG) has deliberately made the New Vine (NV) asset sale process confusing and misleading and has short-circuited proper notice  in order to discourage outside bidders and “buy everything themselves for next to nothing” say a group of creditors who stand to lose everything they have loaned to New Vine. Some have told Wine Industry Insight that they would get a better deal if NV were taken into bankruptcy and are mulling legal action to force that.

An IBG representative did not return Wine Industry Insight's phone call.

New Vine’s personal property assets are scheduled to be auctioned off beginning at 10 a.m., July 14, at the law offices of Cooley Godward Kronish LLP, 101 California Street, 5th Floor, San Francisco. (See WII coverage: New Vine Asset Auction Set For Bastille Day for more details.)

The creditors, who include:

  • Western Wine Services,
  • OFC Capital,
  • Wrap-It Transit,
  • Bank of America,
  • Vencore Solutions,
  • GKV Capital,
  • Wells Fargo,
  • Leaf Funding,
  • CIT Leasing

and many others made secured loans that to New Vine that are subordinate to the Senior Secured debt that IBG bought from Silicon Valley Bank on June 5.  Since buying Silicon Valley Bank’s note, IBG has put approximately $800,000 into propping up New Vine.

Silicon Valley Bank, however, made out far better than other creditors. While SVB reportedly lost more than $2 million by selling the $3.2 million note at a discount, the subordinated lenders have been offered next to nothing.

One outraged creditor told WII, “They (IBG) came to us and said ‘just sign away all your loan and your rights and we’ll give you a little bit of stock.’ The amount was so tiny, so insulting, that I’d rather take nothing at all for the sake of principle.”

CREDITORS CHARGE IBG IS RIGGING SALES PROCESS

“The biggest thing is the ridiculous list the auction house is passing around,” another major subordinated creditor said referring to the asset sales list prepared by Michael Hogan of Mountain View, CA-based Sherwood Partners. “It’s misleading, incomplete and I leaves out all the really valuable assets like the business name, contracts, licenses, trademarks and similar items. All they listed was a bunch of computer hardware and software.”

A bankruptcy attorney told WII that all assets other than real estate are classified as personal property. That would include contracts, intellectual property and other items the creditor mentioned.

A non-creditor who is exploring a bid on the assets said, “There is no way in hell for a potential bidder to get a handle on what is really for sale. They’re either incompetent or trying to discourage anyone from bidding. Why else have they sent around an incomplete list?”

“If Silicon Valley Bank was foreclosing, then they’d go all out to get the highest return,” the creditor said, “But IBG wants the assets on the cheap so they’re making the process as confusing as possible.”

“We’re exploring legal steps now to force the whole thing into bankruptcy,” a third creditor said. “At least with a court looking over things, there’s a better chance that we’ll be treated fairly.”

In addition, a major Bay Area venture capitalist told WII that he was considering the creation of a consortium of lenders who would provide Debtor-In-Possession financing to fund a reorganization of New Vine under Chapter 11. “That makes a lot more sense for all the creditors,” he said. “In fact, I’ve talked to some of the board members (of New Vine) and they seem receptive.”

PROPER FORECLOSURE NOTICE SHORT-CIRCUITED?

“By law in California, foreclosures must have 10 days notice,” a major creditor said. “So what does IBG do? They mail the notice on a Friday before the Fourth of July holiday which means that July 6 is the first day anyone actually sees the notice. That might be legal, but it stinks. They want this to fly under the wire so nobody else shows up to bid.”

IBG FRANTICALLY RAISING MONEY. IS IT IN TROUBLE WITHOUT NEW VINE?

“IBG’s biggest worry is that someone will show up and out-bid them,” said a financial source close to the process. “New Vine did almost $20 million last year; IBG only did a bit over $1 million. IBG has got to have the New Vine assets or they’re in serious trouble.”

That source sent Wine Industry Insight an offering statement currently being circulated by IBG intended to raise $15 to $20 million [$VIP] to fund the combined IBG/NV business.

In addition, other wine country sources said that IBG has been desperate for money since the end of 2008, and that they currently are trying to close a $9 million bridge loan they have scheduled to close on July 14: the same day as the New Vine asset auction.

See related WII article:“IBG Looking For $24 to $29 Million, “Do Or Die” To Acquire New Vine Assets.”


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IBG Looking For $24 to $29 Million, “Do Or Die” To Acquire New Vine Assets

IBG has been working since late 2008 to raise additional funds for its operations which, lost more than $5 million last year on revenues of $1.2 million, according to page 11 of the company’s current Series C offering circular [$VIP] which seeks to raise $15 to $25 million “to complete development of next generation marketplace platform and consummate strategic acquisitions. ” The same circular shows that New Vine, which IBG is trying to acquire by buying its assets on July 14, lost $3.3 million in 2008 on revenues of $19.8 million. The financials are broken out separately for both companies in the 14-page offering circular [$VIP] available to premium VIP Content subscribers in Wine Industry Insight’s Data Cellar.

ibg-nvl-combo-financials1

According to the financials in the Series C circular (one table of which is above) the IBG/NV combination would break even in 2011 and become a nearly $80 million company in 2012. Those projections, however, rely on revenue growth of 50%, 93% and 61% in fiscal years 2010, 2011 and 2012 respectively.

IBG BETTING THE FARM ON ACQUIRING NEW VINE ASSETS JULY 14

A close look inside the IBG Series C offering circular clearly shows that New Vine is the dominant entity in the IBG/New Vine merger.

“IBG’s biggest worry is that someone will show up and out-bid them,” said a financial source close to the process. “New Vine did almost $20 million last year; IBG only did a bit over $1 million. IBG has got to have the New Vine assets or they’re in serious trouble.”

KEY $9 MILLION BRIDGE LOAN SET TO CLOSE ON SAME DAY AS NEW VINE ASSET AUCTION

IBG documents and communications show that the company has been in the process of raising additional working capital since late 2008. That process accelerated when IBG became the surprise winner in early June’s hard-fought sweepstakes to acquire New Vine.

(See Wine Industry Insight’s round up of its coverage for more details.)

BRIDGE ROUND EXPANDED TO ACCOMMODATE PEI FUNDS & EXISTING STOCKHOLDERS

IBG documents show that on June 8, IBG’s two largest investors, Allegis Capital and Sid R. Bass Associates invested $4 million in the bridge funding round which had previously been on the table. Then, on June 12, The board increased the size of the bridge round to $$9,116,781 in order to accommodate a request from New-York-based Private Equity Investors, Inc. (PEI Funds) to invest $2 million. The board has also set aside $2,516,781 for current stockholders. The $9 million bridge loan is scheduled to close on July 14: the same day as the New Vine asset auction.

JULY 14 IS DO OR DIE FOR IBG

Because IBG bought New Vine’s  $3.2 million note from Silicon Valley Bank, they became the senior secured creditor, but did not acquire NV itself. While IBG has reportedly put $800,000 into New Vine to keep it afloat, that position falls short of ownership. Thus, IBG is counting upon being the high bidder when New Vine’s assets are auctioned on July 14.

SUCCESS WOULD MEAN GLOBAL REACH

Among many charts, flow diagrams and tables, the Series C Offering creates a road map for global reach by 2012 for the combined IBG/NV.

ibg-offering-seriesc-businessroadmap


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Email: lewis.perdue@wineindustryinsight.com