Filed Pursuant to Rule 424(b)(3)
Registration No. 333-260530

 

VINTAGE WINE ESTATES, INC.

10,000,000 Shares of Common Stock

 

 

This prospectus relates to the offer and sale from time to time by the selling securityholders named in this prospectus (each a “Selling Stockholder” and collectively, the “Selling Stockholders”), or their permitted transferees, of up to 10,000,000 shares of common stock.

The Selling Stockholders may offer, sell or distribute all or a portion of the securities hereby registered publicly or through private transactions at prevailing market prices or at negotiated prices. We will not receive any of the proceeds from such sales of the shares of our common stock. We will bear all costs, expenses and fees in connection with the registration of our common stock. The Selling Stockholders will bear all commissions, discounts and certain other limited expenses, if any, attributable to their respective sales of our common stock.

Our registration of the securities covered by this prospectus does not necessarily mean that the Selling Stockholders will offer or sell any of the securities. The Selling Stockholders may offer and sell the securities covered by this prospectus in a number of different ways and at varying prices. We provide more information about how the Selling Stockholders may sell the shares in the section entitled “Plan of Distribution.”

Our common stock is listed on the Nasdaq Global Market (“Nasdaq”) under the symbol “VWE.” On November 3, 2021, the last reported sales price of our common stock on Nasdaq was $10.40 per share.

 

 

We are an “emerging growth company” as defined under the U.S. federal securities laws and, as such, have elected to comply with certain reduced public company reporting requirements.

 

 

Investing in our common stock is highly speculative and involves a high degree of risk. See “Risk Factors ” beginning on page 7.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.

The date of this prospectus is November 4, 2021

TABLE OF CONTENTS

 

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ABOUT THIS PROSPECTUS			ii
SELECTED DEFINED TERMS			iv
FORWARD-LOOKING STATEMENTS			vi
MARKET, RANKING AND OTHER INDUSTRY DATA			vii
NON-GAAP FINANCIAL MEASURES			vii
TRADEMARKS, SERVICE MARKS AND TRADE NAMES			vii
SUMMARY			1
THE OFFERING			3
SUMMARY SELECTED HISTORICAL FINANCIAL DATA			4
RISK FACTORS			7
USE OF PROCEEDS			21
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			22
DESCRIPTION OF BUSINESS			43
MANAGEMENT			56
EXECUTIVE COMPENSATION			60
DIRECTOR COMPENSATION			65
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS			66
DESCRIPTION OF SECURITIES TO BE REGISTERED			72
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL HOLDERS AND MANAGEMENT			77
SELLING STOCKHOLDERS			79
SHARES ELIGIBLE FOR FUTURE SALE			80
PLAN OF DISTRIBUTION			82
EXPERTS			84
LEGAL MATTERS			85
WHERE YOU CAN FIND MORE INFORMATION			85
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS			F-1

 

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ABOUT THIS PROSPECTUS

This prospectus is part of a registration statement on Form S-1 that we filed with the Securities and Exchange Commission (the “SEC”) using the “shelf” registration process. Under this shelf registration process, the Selling Stockholders may, from time to time, offer and sell any combination of the securities described in this prospectus in one or more offerings. The Selling Stockholders may use the shelf registration statement to sell up to an aggregate of up to 10,000,000 shares of common stock from time to time through any means described in the section entitled “Plan of Distribution.” More specific terms of any securities that the Selling Stockholders offer and sell may be provided in a prospectus supplement that describes, among other things, the specific amounts and prices of the shares of common stock being offered and the terms of the offering.

We will not receive any proceeds from the sale by the Selling Stockholders of the securities offered by them described in this prospectus. A prospectus supplement may also add, update or change information included in this prospectus. Any statement contained in this prospectus will be deemed to be modified or superseded for purposes of this prospectus to the extent that a statement contained in such prospectus supplement modifies or supersedes such statement. Any statement so modified will be deemed to constitute a part of this prospectus only as so modified, and any statement so superseded will be deemed not to constitute a part of this prospectus. You should rely only on the information contained in this prospectus, any applicable prospectus supplement or any related free writing prospectus. See “Where You Can Find More Information.”

We and the Selling Stockholders have not authorized anyone to provide any information or to make any representations other than those contained in this prospectus, any applicable prospectus supplement or any free writing prospectus we have prepared. We and the Selling Stockholders take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby and only under circumstances and in jurisdictions where it is lawful to do so. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus, any applicable prospectus supplement or any related free writing prospectus. This prospectus is not an offer to sell securities, and it is not soliciting an offer to buy securities, in any jurisdiction where the offer or sale is not permitted. You should assume that the information appearing in this prospectus is accurate only as of the date on the front cover, regardless of the time of delivery of this prospectus or any sale of a security. Our business, financial condition, results of operations and prospects may have changed since those dates.

This prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents. Copies of some of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below under “Where You Can Find More Information.”

On February 3, 2021, Bespoke Capital Acquisition Corp. (“BCAC”), VWE Acquisition Sub Inc., a wholly owned subsidiary of BCAC (“merger sub”), Vintage Wine Estates, Inc., a California corporation (“Legacy VWE”), Bespoke Sponsor Capital LP (the “Sponsor”), and Darrell D. Swank as the Seller Representative, entered into a transaction agreement (as amended, the “transaction agreement”). Following approval by the shareholders of BCAC and Legacy VWE and the satisfaction or waiver of other closing conditions, the transactions contemplated by the transaction agreement were consummated and closed on June 7, 2021 (the “Closing Date”).

Pursuant to the transaction agreement, on or prior to the Closing Date: (1) BCAC changed its jurisdiction of incorporation from the Province of British Columbia to the State of Nevada (the “domestication”); (2) merger sub merged with and into Legacy VWE (the “merger”) with Legacy VWE surviving the merger as a wholly owned subsidiary of BCAC; and (3) BCAC changed its name to Vintage Wine Estates, Inc. (“VWE,” “we,” “us,”

 

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“our” or the “Company”). The domestication, the merger and the other transactions contemplated by the transaction agreement are collectively referred to herein as the “transactions.”

VWE’s common stock is listed on The Nasdaq Stock Market LLC (“Nasdaq”) under the symbol “VWE”. VWE’s common stock and warrants are listed on the Toronto Stock Exchange (“TSX”) under the symbols “VWE.U” and “VWE.WT.U”, respectively.

On February 3, 2021, prior to the execution of the transaction agreement, Wasatch (as defined below) acquired 956,618 shares of Legacy VWE Series A stock from former Legacy VWE stockholders for an aggregate price of $28 million, which converted into shares of common stock upon closing of the transactions. In addition, in connection with the transactions, BCAC, the Selling Stockholders (collectively with Casing & Co. f/b/o Wasatch Microcap Fund or any of them individually as the context may require, “Wasatch”) entered into subscription agreements for the sale and purchase, respectively, of 10.0 million shares of the Company’s common stock at $10.00 per share at the closing of the transactions for an aggregate amount of $100 million (the “PIPE Investment”). Such PIPE Investment shares were issued and sold to Wasatch on the Closing Date. Following the consummation of the transactions, Wasatch beneficially owned 14,558,244 shares of common stock.

Former Legacy VWE shareholders will be issued up to 5,726,864 additional shares of VWE’s common stock if certain conditions are met (the “Earnout Shares”). If, at any point after the Closing Date until the second anniversary of the Closing Date, the closing price of our common stock is greater than or equal to $15.00 per share but below $20.00 per share over any 20 trading days within any 30-trading day period (the “First Target Price”), the former Legacy VWE shareholders will be entitled to 2,863,432 shares. If, at any point after the Closing Date until the second anniversary of the Closing Date, the closing price of our common stock is greater than or equal to $20.00 per share over any 20 trading days within any 30-trading day period, the former Legacy VWE shareholders will be entitled to either an additional 2,863,432 shares, to the extent that the First Target Price has previously occurred, or 5,726,864 shares, to the extent that the First Target Price has not previously occurred. In no event will the former Legacy VWE shareholders be entitled to receive more than 5,726,864 Earnout Shares.

References to a fiscal year refer to our fiscal year ended June 30 of the specified year.

 

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SELECTED DEFINED TERMS

As used in this prospectus, unless otherwise noted or the context otherwise requires:

 

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“BCAC” means Bespoke Capital Acquisition Corp., a British Columbia corporation and predecessor to VWE;

 

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“CARES Act” means the Coronavirus Aid, Relief, and Economic Security Act of 2020, Pub. L. 116-136;

 

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“common stock” means the common stock, no par value per share, of Vintage Wine Estates, Inc., a Nevada corporation;

 

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“domestication” means the change of jurisdiction of incorporation of BCAC from the Province of British Columbia to the State of Nevada under Section 92A.270 of the NRS;

 

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“Earnout Shares” means 5,726,864 shares of common stock (as may be adjusted pursuant to the transaction agreement);

 

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“effective time” means the time at which the merger became effective;

 

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“GAAP” means accounting principles generally accepted in the United States of America;

 

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“Legacy VWE” means Vintage Wine Estates, Inc., a California corporation;

 

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“Major Investors” means the Sponsor, the Roney Investors, the Rudd Investors and the Sebastiani Investors;

 

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“Nasdaq” means The Nasdaq Stock Market LLC;

 

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“NRS” means the Nevada Revised Statutes;

 

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“qualifying acquisition” means the acquisition, directly or indirectly, of one or more businesses or assets, by way of a merger, amalgamation, arrangement, share exchange, asset acquisition, share purchase, reorganization, or any other similar business combination involving BCAC;

 

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“Roney Investors” means the Roney Trust and Sean Roney;

 

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“Roney Trust” means the Patrick A. Roney and Laura G. Roney Trust;

 

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“Rudd Investors” means the Rudd Trust and the SLR Trust;

 

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“Rudd Trust” means Marital Trust D under the Leslie G. Rudd Living Trust U/A/D 3/31/1999, as amended (as successor to the Leslie G. Rudd Living Trust U/A/D 3/31/1999, as amended);

 

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“Sebastiani Investors” means Sonoma Brands II, L.P., Sonoma Brands II Select, L.P., and Sonoma Brands VWE Co-Invest, L.P.;

 

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“SEC” means the United States Securities and Exchange Commission;

 

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“Securities Act” means the Securities Act of 1933;

 

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“SLR Trust” means the SLR Non-Exempt Trust U/A/D 4/21/2018 (as successor to the SLR 2012 Gift Trust U/A/D 12/31/2012);

 

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“Specified Investors” means the Sponsor and all holders of VWE capital stock, excluding Wasatch;

 

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“Sponsor” means Bespoke Sponsor Capital LP;

 

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“Sunset Date” means the date of the first annual meeting of shareholders of VWE that is held after the fifth anniversary of the effective date of the VWE articles of incorporation.

 

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“transactions” means the domestication, the merger and the other transactions contemplated by the transaction agreement;

 

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“transaction agreement” means the transaction agreement dated February 3, 2021, among BCAC, merger sub, Legacy VWE, the Sponsor, and Darrell D. Swank as the Seller Representative, as amended;

 

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“TSX” means the Toronto Stock Exchange;

 

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“VWE” means Vintage Wine Estates, Inc., a Nevada corporation (f/k/a Bespoke Capital Acquisition Corp.), and its consolidated subsidiaries; and

 

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“Wasatch” refers to any or all of Wasatch Microcap Fund, Wasatch Ultra Growth Fund and Wasatch Small Cap Growth Fund, as the context may require; as disclosed elsewhere herein, the first such fund owns VWE stock and is a party to the investor rights agreement for registration rights purposes, and the last two such funds purchased shares of the Company’s common stock pursuant to the PIPE Investment.

Defined terms in the financial statements contained in this prospectus have the meanings given to them in the financial statements.

 

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FORWARD-LOOKING STATEMENTS

This prospectus contains “forward-looking statements” within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Investors are cautioned that statements that are not strictly historical statements of fact constitute forward-looking statements, including, without limitation, statements under the headings “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Description of Business” and are identified by words like “believe,” “expect,” “may,” “will,” “should,” “seek,” “anticipate,” or “could” and similar expressions.

Forward-looking statements are not assurances of future performance. Instead, they are based only on our current beliefs, expectations and assumptions regarding the future of our business, future plans and strategies, projections, anticipated events and trends, the economy and other future conditions. Because forward-looking statements relate to the future, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict and many of which are outside of our control. Our actual results and financial condition may differ materially from those indicated in the forward-looking statements. Therefore, you should not rely on any of these forward-looking statements. Important factors that could cause our actual results and financial condition to differ materially from those expressed or implied by forward-looking statements include those discussed under the heading “Item 1A. Risk Factors” in our most recent Annual Report on Form 10-K as well as those discussed in our other filings with the SEC.

Any forward-looking statement made by us in this prospectus is based only on information currently available to us and speaks only as of the date of this prospectus. We undertake no obligation to publicly revise or update any forward-looking statement, whether as a result of new information, future developments or otherwise, except as may be required by law.

 

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MARKET, RANKING AND OTHER INDUSTRY DATA

Market, ranking and other industry data used throughout this prospectus is based on reports of government agencies, published industry sources, and the good faith estimates of our management, which in turn are based on their knowledge and experience in the markets in which we operate. Data regarding the industry in which we compete and our market position and market share within our industry are inherently imprecise and subject to significant business, economic and competitive uncertainties beyond our control, but we believe they generally indicate size, position and market share within our industry. These estimates are based on information obtained from our customers, suppliers, trade and business organizations and other contacts in the markets in which we operate. While we are not aware of any misstatements regarding the data presented herein, these estimates involve risks and uncertainties and are subject to change based on various factors, including those discussed under the heading “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in this prospectus. These and other factors could cause our future performance to differ materially from our assumptions and estimates. See “Forward-Looking Statements.” As a result, you should be aware that market, ranking and other similar industry data included in this prospectus, as well as estimates and beliefs based on that data, may not be reliable, and you are cautioned not to give undue weight to such data, estimates and beliefs. We cannot guarantee the accuracy or completeness of any such information contained in this prospectus.

NON-GAAP FINANCIAL MEASURES

In addition to our results determined in accordance with GAAP, we use EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies. These metrics are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.

Adjusted EBITDA is defined as earnings (loss) before interest, income taxes, depreciation and amortization, stock-based compensation expense, casualty losses or gains, impairment losses, changes in the fair value of derivatives, restructuring related income or expenses, acquisition and integration costs, and certain non-cash, non-recurring, or other items included in net income (loss) that we do not consider indicative of our ongoing operating performance, including COVID-related adjustments. COVID related adjustments relate to the delayed GAZE brand launch and nonrecurring costs of implementing safety protocols for production facilities, warehouse, tasting rooms and offices. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net revenues.

For more information about how we use these non-GAAP financial measures in our business and the limitations of these measures, as well as a reconciliation of each of Adjusted EBITDA and Adjusted EBITDA Margin as presented in this prospectus to the most directly comparable GAAP measure, see “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Key Measures to Assess the Performance of Our Business — Non-GAAP Financial Measures.”

TRADEMARKS, SERVICE MARKS AND TRADE NAMES

This prospectus contains references to certain of our trademarks and service marks. Solely for convenience, trademarks, service marks and trade names referred to in this prospectus may appear without the ^®, SM or TM symbols, but such references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or the rights of the applicable licensor to these trademarks, service marks and trade names. It is not intended that any use or display of other companies’ trade names, trademarks or service marks implies a relationship with, or endorsement or sponsorship by, any other company.

 

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RISK FACTORS

In addition to the other information in this prospectus and our other filings with the SEC, you should carefully consider the risks and uncertainties described below, which could materially and adversely affect our business, financial condition and results of operations. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties that we are unaware of, or that we currently believe are not material, may also become important factors that affect us.

Risks Related to Our Operations

The ongoing COVID-19 pandemic has had, and will likely continue to have, adverse effects on the economy and on our business.

The outbreak of COVID-19, which the World Health Organization declared a pandemic in March 2020, has spread across the world and has disrupted the global economy and most industries, including the wine industry. Efforts to control the pandemic have slowed economic activity and disrupted, and reduced the efficiency of, normal business activities across the United States. The pandemic has resulted in authorities implementing numerous unprecedented measures such as travel restrictions, quarantines, shelter-in-place orders and workplace shutdowns. These measures have impacted, and will likely continue to impact, our business, customers, supply chain and employees.

We have experienced declines in visitors to our tasting rooms primarily due to travel restrictions, shelter-in-place orders and workplace shutdowns resulting from the COVID-19 pandemic. In response to governmental directives and recommended safety measures, we modified our workplace practices. While we have implemented personal safety measures at all of our facilities where our employees are working onsite, any actions that we take may not be sufficient to mitigate the risk of infection and could result in a significant number of COVID-19 related claims. Changes to state workers’ compensation laws, as have recently occurred in California, could increase VWE’s potential liability for such claims.

In the longer term, the COVID-19 pandemic is likely to adversely affect the economies and financial markets and could result in an economic downturn and a recession. It is uncertain how this would affect demand for our products. While VWE continues to see robust demand in its industry, and has seen little impact to its results of operations from the COVID-19 pandemic, the environment remains uncertain and it may not be sustainable over the longer term. The degree to which the pandemic ultimately impacts our business and results of operations will depend on future developments beyond our control, including the severity of the pandemic, the extent of actions to contain the virus, the availability and efficacy of a vaccine or other treatment, how quickly and to what extent normal economic and operating conditions can resume, and the severity and duration of the economic downturn that results from the pandemic.

Consumer demand for wine and alcoholic beverages could decline, which could adversely affect our results of operations.

We rely on consumers’ demand for our wine and other products. Consumer demand may decline due to a variety of factors, including a general decline in economic conditions, changes in the spending habits of consumers generally, a generational or demographic shift in consumer preferences, increased activity of anti-alcohol groups, increased state or federal taxes on alcoholic beverage products and concerns about the health consequences of consuming alcoholic beverage products. Furthermore, our ability to effectively manage production and inventory is inherently linked to actual and expected consumer demand for our products, particularly given the long product lead time and agricultural nature of the wine business. Unanticipated changes in consumer demand or preferences could have adverse effects on our ability to manage supply and capture growth opportunities, and substantial declines in the demand for one or more of our product categories could harm our results of operations, financial condition and prospects.

 

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We are subject to significant competition, which could adversely affect our profitability.

VWE’s wines compete for sales with thousands of other domestic and foreign wines. VWE’s wines also compete with other alcoholic beverages and, to a lesser degree, non-alcoholic beverages. As a result of this intense competition, we have been subject to, and may continue to be subject to, upward pressure on selling and promotional expenses. In addition, some of our competitors have greater financial, technical, marketing and public relations resources available to them than we do. These circumstances could adversely impact our revenues, margins, market share and profitability.

Our wholesale operations and wholesale revenues largely depend on independent distributors whose performance and continuity is not assured.

Our wholesale operations and wholesale revenues depend largely on independent distributors whose performance and continuity is not assured. Our wholesale operations generate revenue from products sold to distributors, who then sell them to off-premise retail locations such as grocery stores, specialty and multi-national retail chains, as well as on-premise locations such as restaurants and bars. Sales to distributors are expected to continue to represent a substantial portion of our revenues in the future. A change in relationships with one or more significant distributors could harm our business and reduce sales. The laws and regulations of several states prohibit changes of distributors except under certain limited circumstances, which makes it difficult to terminate a distributor for poor performance without reasonable cause as defined by applicable statutes. Difficulty or inability with respect to replacing distributors, poor performance of major distributors or inability to collect accounts receivable from major distributors could harm our business. There can be no assurance that existing distributors and retailers will continue to purchase our products or provide ours products with adequate levels of promotional support. Consolidation at the retail tier, among club and chain grocery stores in particular, can be expected to heighten competitive pressure to increase marketing and sales spending or constrain or reduce prices.

The loss or significant decline of sales to one or more of our more important distributors, marketing companies or retailers could have adverse effects on our results of operations, financial condition and prospects.

We derive significant revenue from distributors and marketing companies such as Deutsch Family Wine and Spirits, Republic National Distributing Company and Southern Glazer’s Wine & Spirits, and from retail business customers such as Costco, Albertson’s and Target. The loss of one or more of these customers, or significant decline in the volume of sales made to them, could have adverse effects on our results of operations, financial condition and prospects.

The strength of VWE’s brands is critical to our success.

Our reputation as a premier producer of wine and spirits among our customers and the wine industry is critical to the success of our business and our growth strategy. The wine market is driven by a relatively small number of active and well-regarded wine critics within the industry who have disproportionate influence over the perceived quality and value of wines. If we are unable to maintain the actual or perceived quality of our wines and other alcoholic beverage products, or if our wines otherwise do not meet the subjective expectations or tastes of one or more of a relatively small number of wine critics, the actual or perceived quality and value of one or more of our wines could be harmed, which could negatively impact not only the value of that wine, but also the value of the vintage, the particular brand or our broader portfolio. The winemaking process is a long and labor-intensive process that is built around yearly vintages, which means that once a vintage has been released we are not able to make further adjustments to satisfy wine critics or consumers. As a result, we are dependent on our winemakers and tasting panels to ensure that our wine products meet our exacting quality standards.

Any contamination or other quality control issue could have an adverse effect on sales of the impacted wine or our broader portfolio of winery brands. If any of our wines become unsafe or unfit for consumption, cause

 

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injury or are otherwise improperly packaged or labeled, we may have to engage in a product recall and/or be subject to liability and incur additional costs. A widespread recall, multiple recalls, or a significant product liability judgment against us could cause our wines to be unavailable for a period of time, depressing demand and our brand reputation. Even if a product liability claim is unsuccessful or is not fully pursued, any resulting negative publicity could adversely affect our reputation with existing and potential customers and accounts, as well as our corporate and individual winery brands image in such a way that current and future sales could be diminished. In addition, should a competitor experience a recall or contamination event, we could face decreased consumer confidence by association as a producer of similar products.

Additionally, third parties may sell wines or inferior brands that imitate our winery brands or that are counterfeit versions of our labels, and customers could be duped into thinking that these imitation labels are our authentic wines. A negative consumer experience with such a wine could cause them to refrain from purchasing our brands in the future and damage our brand integrity. Any failure to maintain the actual or perceived quality of our wines could materially and adversely affect our business, results of operations and financial results.

Damage to our reputation or loss of consumer confidence in our wines for any of these or other reasons could result in decreased demand for our wines and could have a material adverse effect on our business, operational results and financial results, as well as require additional resources to rebuild our reputation, competitive position and winery brand strength.

Our advertising and promotional investments may not be effective.

In the ordinary course of conducting its business, we regularly incur significant advertising and promotional expenditures to enhance our winery brands and raise consumer awareness in both existing and emerging categories. Variations in the levels of advertising and promotional expenditures in the past have caused, and are expected in the future to continue to cause, variability in our results of operations. While we strive to invest only in effective advertising and promotional activities, it is difficult to correlate such investments with sales results. There is no guarantee that advertising and promotional expenditures will be effective in building brand strength or in growing repeat sales.

Decreases in wine quality ratings by important rating organizations could adversely affect our business.

Many of VWE’s brands are issued ratings by local or national wine rating organizations. In the wine industry, higher product ratings usually translate into greater demand and higher pricing. Although some VWE brands have been rated highly in the past, and VWE believes its farming and winemaking activities are of a quality to generate good ratings in the future, VWE has no control over ratings issued by third parties, which may or may not be favorable in the future. Significant or persistent declines in the ratings issued to VWE wines could have adverse effects on its business.

We may not be fully insured against catastrophic events and losses, which may adversely affect our financial condition.

A significant portion of our activities are located in California and the Pacific Northwest, which regions are increasingly prone to seismic activity, landslides, wildfires and other natural disasters (collectively, “catastrophes”). Although VWE insures against catastrophes, including through our use of a wholly-owned captive insurance company and by carrying insurance to cover our own property damage, business interruption and certain production assets, we may not be fully insured against all catastrophes, the occurrence of which may (i) disrupt our operations, (ii) delay production, shipments and revenue and (iii) result in significant expenses to repair or replace damaged vineyards or facilities. Any disruption caused by a catastrophe could adversely affect our business, results of operations or financial condition.

 

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Our inability to protect its trademarks and other intellectual property rights could adversely affect its business.

VWE’s business relies on intellectual property, mainly consisting of trademarks, customer lists and business practices. VWE does not register its business practices or customer lists, but they are kept highly confidential and considered trade secrets and, as such, are accessible to a very limited number of people within VWE. Although VWE believes that it does not rely significantly on any individual intellectual property right, a breach of confidentiality with respect to the customer lists or business practices, or loss of access to them, or the future expiration of intellectual property trademark rights, could have adverse impacts on VWE’s business.

VWE relies in part on confidentiality agreements, ownership of intellectual property, and non-competition agreements with employees, vendors and third parties in order to protect its intellectual property. It is possible that these agreements could be breached and that VWE might lack an adequate remedy for breach. Disputes may arise concerning the ownership of intellectual property or the extent to which the confidentiality agreements remain in force. Furthermore, VWE’s trade secrets may become revealed to its competitors or developed independently by them, in which case VWE will not be able to enjoy exclusive use of some of its formulas or maintain confidentiality concerning its products.

New lines of business or new products and services could subject us to additional risks.

VWE may invest in new lines of business, or may offer new products, such as within its spirits business or, upon federal legalization of cannabis, cannabis-infused beverages. There are risks and uncertainties associated with such efforts, particularly in instances where the markets are not fully developed or are evolving. In developing and marketing new lines of business and new products and services, VWE may invest significant time and resources. External factors, such as regulatory compliance obligations, competitive alternatives, lack of market acceptance and shifting consumer preferences, may also affect the successful implementation of a new line of business or a new product or service. With respect to cannabis-infused beverages, even if the federal government legalizes medical and/or adult-use cannabis, significant delays in the drafting and implementation of industry regulations and licensing and the costs associated with burdensome regulations and taxes could adversely impact VWE’s ability to operate profitably in the cannabis-infused beverage industry. Failure to successfully manage these risks in the development and implementation of new lines of business or new products or services could have adverse effects on VWE’s business, results of operations and financial condition.

Litigation relating to alcohol abuse or the misuse of alcohol could adversely affect our business.

Increased public attention has been directed at the beverage alcohol industry, which we believe is due to concern over problems related to alcohol abuse, including drinking and driving, underage drinking and health consequences from the misuse of alcohol. Adverse developments in these or similar lawsuits or a significant decline in the social acceptability of beverage alcohol products that could result from such lawsuits could materially adversely affect our business.

Risks Related to Our Production Activities

If we are unable to obtain adequate supplies of grapes or other raw materials, or if there is an increase in the cost of such materials, our profitability and production of wine could be negatively impacted, which could materially and adversely affect our business, results of operations and financial condition.

We source our grapes from the vineyards that we own and control and from independent growers. Our production activities also require adequate supplies of other quality agricultural, raw and processed materials, including corks, glass bottles, barrels, winemaking additives and agents, water and other supplies. A shortage of grapes of the required variety and quality, or an inability to obtain or significant increase in the price of other requisite raw materials, could impair our ability to produce wines in the quantity and quality demanded by our customers and reduce our profitability.

Any such occurrences could adversely affect our business, results of operations and financial condition.

 

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Drought or inclement weather could reduce the amount of water available for use in our growing and production activities, which could materially and adversely affect our business, results of operations and financial condition.

Water supply and adequate rainfall are critical to the supply of grapes, other agricultural raw materials and generally our ability to operate our business. If climate patterns change or droughts occur, there may be a scarcity of water or poor water quality, which could affect production costs, consistency of yields or impose capacity constraints. VWE depends on sufficient amounts of quality water for operation of its wineries, as well as to irrigate its vineyards and conduct other operations. The suppliers of the grapes and other agricultural raw materials purchased by VWE also depend upon sufficient supplies of quality water for their vineyards and fields. Prolonged or severe drought conditions or restrictions imposed on irrigation options by governmental authorities could have an adverse effect on our business, results of operations and financial condition.

Increases in the cost, disruption of supply or shortage of energy could adversely affect our business.

Our production facilities use a significant amount of energy in their operations, including electricity, propane and natural gas. Increases in the price, disruption of supply or shortage of energy sources, which may result from increased demand, natural disasters, power outages or other causes could increase our operating costs and negatively impact our profitability. VWE has experienced increases in energy costs in the past, and energy costs could rise in the future. In addition, we incur costs in connection with the transportation and distribution of our materials and products. Higher fuel costs will result in higher transportation, freight, and other operating costs, which could significantly increase our production costs and, correlatively, decrease our operating margins and profit.

We could be negatively impacted by the occurrence of wine contamination.

We are subject to certain hazards and product liability risks, such as potential contamination, through tampering or otherwise, of ingredients or products. Contamination of our wine could result in destruction of our wine held in inventory and could cause the need for a product recall, which could significantly damage VWE’s reputation for product quality. We maintains insurance against certain of these kinds of risks, and others, under various insurance policies. However, our insurance may not be sufficient to fully cover any resulting liability or may not continue to be available at a price or on terms that are satisfactory to us.

Risks Related to Information Technology and Cybersecurity

A failure of one or more of our key IT systems, networks, processes, associated sites or service providers could have a material adverse impact on business operations, and if the failure is prolonged, our financial condition.

We rely on IT systems, networks, and services, including internet sites, data hosting and processing facilities and tools, hardware (including laptops and mobile devices), software and technical applications and platforms, some of which are managed, hosted, provided and used by third-parties or their vendors, to assist us in the operation of our business. The various uses of these IT systems, networks and services include, but are not limited to: hosting our internal network and communication systems; tracking bulk wine; supply and demand; planning; production; shipping wines to customers; hosting our winery websites and marketing products to consumers; collecting and storing customer, consumer, employee, stockholder, and other data; processing transactions; summarizing and reporting results of operations; hosting, processing and sharing confidential and proprietary research, business plans and financial information; complying with regulatory, legal or tax requirements; providing data security; and handling other processes necessary to manage our business.

Increased IT security threats and more sophisticated cybercrimes and cyberattacks, including computer viruses and other malicious codes, ransomware, unauthorized access attempts, denial of service attacks, phishing, social engineering, hacking and other types of attacks pose a potential risk to the security of our IT systems,

 

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networks and services, as well as the confidentiality, availability, and integrity of our data, and we have in the past, and may in the future, experience cyberattacks and other unauthorized access attempts to our IT systems. Because the techniques used to obtain unauthorized access are constantly changing and often are not recognized until launched against a target, we or our vendors may be unable to anticipate these techniques or implement sufficient preventative or remedial measures.

If we are unable to efficiently and effectively maintain and upgrade our system safeguards, we may incur unexpected costs and certain of our systems may become more vulnerable to unauthorized access. In the event of a ransomware or other cyber-attack, the integrity and safety of our data could be at risk or we may incur unforeseen costs impacting our financial position. If the IT systems, networks or service providers we rely upon fail to function properly, or if we suffer a loss or disclosure of business or other sensitive information due to any number of causes ranging from catastrophic events, power outages, security breaches, unauthorized use or usage errors by employees, vendors or other third parties and other security issues, we may be subject to legal claims and proceedings, liability under laws that protect the privacy and security of personal information (also known as personal data), litigation, governmental investigations and proceedings and regulatory penalties, and we may suffer interruptions in our ability to manage our operations and reputational, competitive or business harm, which may adversely affect our business, results of operations and financial results. In addition, such events could result in unauthorized disclosure of material confidential information, and we may suffer financial and reputational damage because of lost or misappropriated confidential information belonging to us or to our employees, stockholders, customers, suppliers, consumers or others. In any of these events, we could also be required to spend significant financial and other resources to remedy the damage caused by a security breach or technological failure and the reputational damage resulting therefrom, to pay for investigations, forensic analyses, legal advice, public relations advice or other services, or to repair or replace networks and IT systems.

As a result of the COVID-19 pandemic, a greater number of our employees are working remotely and accessing our IT systems and networks remotely, which may further increase our vulnerability to cybercrimes and cyberattacks and increase the stress on our technology infrastructure and systems. Although we maintain cyber risk insurance, this insurance may not be sufficient to cover all of our losses from any future breaches or failures of our IT systems, networks and services.

Our failure to adequately maintain and protect personal information of our customers or our employees in compliance with evolving legal requirements could have a material adverse effect on our business.

We collect, use, store, disclose or transfer (collectively, “process”) personal information, including from employees and customers, in connection with the operation of our business. A wide variety of local and international laws as well as regulations and industry guidelines apply to the privacy and collecting, storing, use, processing, disclosure and protection of personal information and may be inconsistent among countries or conflict with other rules. Data protection and privacy laws and regulations are changing, subject to differing interpretations and being tested in courts and may result in increasing regulatory and public scrutiny and escalating levels of enforcement and sanctions.

Compliance with applicable privacy and data protection laws and regulations is a rigorous and time-intensive process, and we may be required to put in place additional mechanisms ensuring compliance. Our actual or alleged failure to comply with any applicable privacy and data protection laws and regulations, industry standards or contractual obligations, or to protect such information and data that we process, could result in litigation, regulatory investigations, and enforcement actions against us, including fines, orders, public censure, claims for damages by employees, customers and other affected individuals, public statements against us by consumer advocacy groups, damage to our reputation and competitive position and loss of goodwill (both in relation to existing customers and prospective customers) any of which could have a material adverse effect on our business, financial condition, results of operations, and cash flows. Additionally, if third parties that we work with, such as vendors or developers, violate applicable laws or our policies, such violations may also place personal information at risk and have an adverse effect on our business. Even the perception of privacy concerns,

 

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whether or not valid, may harm our reputation, subject us to regulatory scrutiny and investigations, and inhibit adoption of our wines by existing and potential customers.

Risks Related to Regulation of Our Business

VWE’s failure to obtain or maintain necessary licenses or otherwise fail to comply with applicable laws and regulations could have adverse effects on its results of operations, financial condition and business.

A complex multi-jurisdictional regime governs alcoholic beverage manufacturing, distribution, sales, and marketing in the United States. The alcoholic beverages industry in which VWE operates is subject to extensive regulation by the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) (and other federal agencies), each state’s liquor authority, and potentially local authorities depending on location. These regulations and laws dictate such matters as licensing requirements, production, importation, ownership restrictions, trade, and pricing practices, permitted distribution channels, delivery, and prohibitions on sales to minors, permitted, and required labeling, and advertising and relations with wholesalers and retailers. These laws, regulations and licensing requirements may, and sometimes are, interpreted and applied in a manner that is inconsistent from one jurisdiction to another and may conflict with other legal mandates or with VWE’s business practices. Further, these laws, rules, regulations, and interpretations are constantly changing as a result of litigation, legislation, and agency priorities, and could result in increased regulation. VWE’s actual or asserted non-compliance with any such law, regulation or requirement could expose VWE to investigations, claims, litigation, injunctive proceedings and other criminal or civil proceedings by private parties and regulatory authorities, as well as license suspension, license revocation, substantial fines, and negative publicity, any of which could adversely affect VWE’s results of operations, financial condition, and business.

Failure to comply with environmental, health and safety laws and regulations would expose us to civil and criminal liability.

The laws and regulations concerning the environment, health and safety may subject us to civil liability for non-compliance or environmental pollution. Such laws may include criminal sanctions (including substantial penalties) for violations. Some environmental laws also include provisions imposing strict liability for the release of hazardous substances into the environment, which could result in VWE becoming liable for clean-up efforts without any negligence or fault on our part. Other environmental laws impose liability jointly and severally, which could expose us to responsibility for cleaning up environmental pollution caused by others.

In addition, some environmental, health and safety laws are applied retroactively such that they could impose liability for acts done in the past even if such acts were carried out in accordance with the law in force at the time. Civil or criminal liability under such laws could have adverse effects on our business, results of operations and financial condition.

We may also become subject to claims for personal injury or property damage arising from exposure to hazardous substances if personal injury or environmental contamination was ostensibly caused by activity at one of its production sites. Such legal proceedings could be instituted by private individuals or non-governmental organizations.

In addition, any expansion of our existing facilities or development of new vineyards or wineries, or any expansion of our business into new product lines or new geographic markets, may be limited by present and future environmental restrictions, zoning ordinances and other legal requirements.

 

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Risks Related to Our Financial Condition

We have identified a material weakness in our internal control over financial reporting, and if our remediation of such material weakness is not effective, or if we fail to develop and maintain an effective system of disclosure controls and internal control over financial reporting, our ability to produce timely and accurate financial statements or comply with applicable laws and regulations could be impaired.

In the course of our financial close process for the fiscal year ended June 30, 2021, we identified a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified relates to our process and controls regarding the tracking of costs through the various stages of inventory accounting, particularly as they pertain to bulk wine and spirits. Management concluded that this material weakness arose because we did not have effective business processes and controls to perform reconciliations of certain inventory-related account balances.

To address and remediate this material weakness, we are securing additional inventory cost accounting resources to help ensure that we effectively document and track bulk wine and spirits inventory costs from raw materials to cost of goods sold. We will not be able to fully remediate this material weakness until these steps have been completed and we have been operating effectively for a sufficient period of time. See “Part II, Item 9A—Controls and Procedures” in our Annual Report on Form 10-K for the fiscal year ended June 30, 2021 for additional information about this material weakness and our remediation efforts.

If we are unable to further implement and maintain effective internal control over financial reporting or disclosure controls and procedures, our ability to record, process and report financial information accurately, and to prepare financial statements within required time periods could be adversely affected, which could subject us to litigation or investigations requiring management resources and payment of legal and other expenses, negatively affect investor confidence in our financial statements and adversely impact our stock price. If we are unable to assert that our internal control over financial reporting is effective, or, if and when required, our independent registered public accounting firm is unable to express an unqualified opinion as to the effectiveness of our internal control over financial reporting, investors may lose confidence in the accuracy and completeness of our financial reports, the market price of our common stock could be adversely affected, our common stock could become subject to delisting and we could become subject to litigation or investigations by the stock exchange or exchanges on which our securities are listed, the SEC or other regulatory authorities, any of which could require additional financial and management resources.

Furthermore, we cannot assure you that the measures we have taken to date, and actions we may take in the future, will be sufficient to remediate the control deficiencies that led to our material weakness in our internal control over financial reporting or that they will prevent or avoid potential future material weaknesses. Our current controls and any new controls that we develop may become inadequate because of changes in conditions in our business. Further, weaknesses in our disclosure controls and internal control over financial reporting may be discovered in the future. Any failure to develop or maintain effective controls or any difficulties encountered in their implementation or improvement could harm our operating results or cause us to fail to meet our reporting obligations and may result in a restatement of financial statements for prior periods.

We may be unable to obtain additional financing to fund the operations and growth of our business on terms favorable to us, or at all.

We may require additional financing to fund our operations or growth. The failure to secure additional financing could have a material adverse effect on our continued development or growth. Such financings may result in dilution to stockholders, issuance of securities with priority as to liquidation and dividend and other rights more favorable than our common stock, imposition of debt covenants and repayment obligations, or other restrictions that may adversely affect our business. In addition, we may seek additional capital due to favorable

 

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market conditions or strategic considerations even if we believe that we have sufficient funds for current or future operating plans. There can be no assurance that financing will be available to us on favorable terms, or at all. The inability to obtain financing when needed may make it more difficult for us to operate its business or implement its growth plans.

The terms of the VWE credit facility may restrict our flexibility, and failure to comply with such terms would have a variety of adverse effects.

The VWE credit facility contains various covenants and restrictions that may, in certain circumstances and subject to carve-outs and exceptions, limit VWE’s ability to, among other things:

 

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create liens;

 

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make loans to third parties;

 

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incur additional indebtedness;

 

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make capital expenditures in excess of agreed upon amounts;

 

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merge or consolidate with another entity;

 

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dispose of its assets;

 

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make dividends or distributions to its shareholders;

 

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change the nature of its business;

 

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amend its organizational documents;

 

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make accounting changes; and

 

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conduct transactions with affiliates.

Under the VWE credit facility, VWE also is required to maintain compliance with a minimum fixed charge coverage ratio covenant (not less than 1.10:1.00).

As a result of the covenants and other restrictions contained in its credit facility, VWE is limited in how it may choose to conduct its business. VWE cannot guarantee that it will be able to remain in compliance with these covenants and other restrictions or be able to obtain waivers for noncompliance in the future. Failure to comply with the covenants and other restrictions contained in its debt instruments would likely have adverse effects on its financial condition and business by impairing its ability to continue financing its business.

Of particular significance, VWE could be forced to repay immediately and in full any outstanding borrowings under its credit facility if it were to breach its covenants and not cure the breach, even if it could otherwise satisfy its debt service obligations. Also, if VWE were to experience a change of control, as defined in its credit facilities, it could be required to repay in full all loans outstanding thereunder, plus accrued interest and fees.

VWE may be adversely affected by the phase-out of, or changes in the method of determining, the London Interbank Offered Rate (“LIBOR”), or the replacement of LIBOR with different reference rates.

LIBOR is the basic rate of interest used in lending between banks on the London interbank market and is widely used as a reference for setting the interest rate on U.S. dollar-denominated loans globally. The VWE credit facility uses LIBOR as a reference rate such that the interest due to VWE’s creditors under this facility is calculated using LIBOR.

On July 27, 2017, the U.K.’s Financial Conduct Authority (the authority that administers LIBOR) announced that it intends to phase out LIBOR by the end of 2021. It is unclear whether new methods of

 

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calculating LIBOR will be established such that it continues to exist after 2021, or if alternative rates or benchmarks will be adopted. Changes in the method of calculating LIBOR, or the replacement of LIBOR with an alternative rate or benchmark, may adversely affect interest rates and result in higher borrowing costs. This could materially and adversely affect our results of operations, cash flows and liquidity. VWE cannot predict the effect of the potential changes to LIBOR or the establishment and use of alternative rates or benchmarks. VWE may need to renegotiate its credit facility or incur other indebtedness. Changes in the method of calculating LIBOR, or the use of an alternative rate or benchmark, could negatively impact the terms of such renegotiated credit facility or such other indebtedness. If changes are made to the method of calculating LIBOR or LIBOR ceases to exist, VWE might need to amend certain contracts and cannot predict what alternative rate or benchmark would be negotiated. This may result in an increase to VWE interest expense.

If VWE’s intangible assets or goodwill become impaired, then VWE may be required to record charges to earnings, which could be significant.

VWE has substantial intangible assets and goodwill on its balance sheet resulting from acquisitions that VWE has completed. VWE reviews intangible assets and goodwill for impairment annually or more frequently if events or circumstances indicate that these assets might be impaired. Application of impairment tests requires judgment. A significant deterioration in a key estimate or assumption or a less significant deterioration to a combination of assumptions or the sale of a part of a reporting unit could result in an impairment charge in the future, which could have an impact, possibly significant, on VWE’s reported earnings.

We may not realize the benefits anticipated from our recent business combination, which could adversely affect our common stock price.

The anticipated benefits from the recently completed business combination are, necessarily, based on projections and assumptions that may not materialize as expected or which may prove to be inaccurate. Our ability to achieve the anticipated benefits will depend on our ability to successfully implement our growth strategies, as well as the availability of cash. We may encounter significant challenges with recognizing the anticipated benefits of the business combination, including the following:

 

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potential disruption of, or reduced growth in, our historical core businesses;

 

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challenges arising from the expansion of VWE’s product offerings into adjacencies with which VWE has limited experience;

 

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coordinating sales and marketing efforts to effectively position VWE’s capabilities and the direction of product development;

 

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difficulties in achieving anticipated cost savings, synergies, business opportunities and growth prospects from combining VWE’s business with the capital resources resulting from the transactions;

 

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the increased scale and complexity of VWE’s operations resulting from the business combination;

 

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retaining key employees, suppliers and other stakeholders of VWE;

 

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retaining and efficiently managing VWE’s expanded distributor and supplier base; and

 

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difficulties in anticipating and responding to actions that may be taken by competitors in response to VWE’s business combination.

If we do not successfully manage these issues and the other challenges inherent in operating a business of our scale, then we may not achieve the anticipated benefits of the business combination, could incur unanticipated expenses and charges and the results of operations and the market price of our common stock could be adversely affected.

 

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A significant aspect of VWE’s expansion plan is to grow through strategic acquisitions. If the liabilities VWE assumes as part of making strategic acquisitions are greater than anticipated, VWE’s financial results could be adversely affected.

When VWE acquires the equity, i.e., the stock of a corporation or the membership interests in a limited liability company, rather than the assets, of a target company, it also generally assumes the liabilities of the target company, which often include known, unknown, and contingent liabilities. VWE’s ability to accurately identify and assess the magnitude of these assumed liabilities may be limited by, among other things, the information available to VWE and the limited operating experience VWE has with these acquired businesses. If VWE is unable to accurately assess the scope of these liabilities or if these liabilities are neither probable nor estimable at the time of the acquisition, VWE’s projected financial results for the acquired company could be adversely affected. To the extent that VWE’s overall results of operations are affected by any of these events, the price of VWE common stock could decrease.

General Risk Factors

Mergers and acquisitions in which VWE might engage involve risks that could adversely affect its business.

As part of its growth strategy, VWE will continue considering and entering into discussions, negotiations and agreements regarding possible transactions such as mergers, acquisitions and other business combinations. The purchase price for possible acquisitions of brands, other assets and businesses might be paid in cash, through the issuance of common stock or other securities, borrowings or a combination of these methods. Business combinations entail numerous risks, including:

 

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difficulties in the integration of acquired operations, supply and distribution networks, and products, which can impact retention of customer goodwill;

 

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failure to achieve expected synergies;

 

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diversion of management’s attention from other business concerns;

 

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assumption of unknown material liabilities of acquired companies, which could become material or subject us to litigation or regulatory risks;

 

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amortization of acquired intangible assets, which could reduce future reported earnings; and

 

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potential loss of customers or key employees.

There can be no assurance that VWE will continue to be able to identify, consummate and successfully integrate business combinations.

VWE is an emerging growth company and can offer no assurance that the reduced reporting requirements applicable to emerging growth companies will not make its shares less attractive to investors.

VWE is an emerging growth company as defined in the Jumpstart Our Business Startups Act (the “JOBS Act”). For as long as VWE continues to be an emerging growth company, it may take advantage of exemptions from various reporting requirements that apply to public companies other than emerging growth companies, including exemption from compliance with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”), reduced disclosure obligations regarding executive compensation and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. VWE will remain an emerging growth company until the earlier of (1) the date (a) December 31, 2026, (b) on which VWE has total annual gross revenue of at least $1.07 billion, or (c) on which VWE is deemed to be a large accelerated filer, which means the market value of shares of VWE’s common stock that are held by non-affiliates exceeds $700 million as of the prior June 30th, and (2) the date on which VWE has issued more than $1.0 billion in non-convertible debt during the prior three-year period.

 

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VWE can offer no assurance that investors will not find its common stock less attractive because VWE may rely on these exemptions. If some investors find such less attractive as a result, then there may be a less active trading market for such stock and its market price may be more volatile.

VWE will continue to incur significant increased expenses and administrative burdens as a public company, which could have an adverse effect on its business, financial condition and results of operations.

VWE, as a public company, faces increased legal, accounting, administrative and other costs and expense. VWE also is a reporting issuer in all of the provinces and territories of Canada, other than Quebec. The Sarbanes-Oxley Act, as well as rules and regulations subsequently implemented by the SEC, the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 and the rules and regulations promulgated and to be promulgated thereunder, the Public Company Accounting Oversight Board (United States), Nasdaq and the TSX impose additional reporting and other obligations on public companies. Compliance with public company requirements will increase costs and make certain activities more time-consuming. In addition, expenses associated with SEC and Canadian reporting requirements will be incurred. Furthermore, if any issues in complying with those requirements are identified (for example, if the auditors identify a material weakness or a significant deficiency in the internal control over financial reporting), then VWE could incur additional costs rectifying those issues, and the existence of those issues could adversely affect VWE’s reputation or investor perceptions of it. It may also be more expensive to obtain director and officer liability insurance in such a situation. Risks associated with VWE’s status as a public company may make it more difficult to attract and retain qualified persons to serve on the board of directors or as executive officers. The additional reporting and other obligations imposed by these rules and regulations will increase legal and financial compliance costs and the costs of related legal, accounting and administrative activities. These increased costs will require VWE to divert a significant amount of money that could otherwise be used to expand the business and achieve strategic objectives. Advocacy efforts by stockholders and third parties may also prompt additional changes in governance and reporting requirements, which could further increase costs.

VWE is subject to financial reporting and other requirements that places increased demands on its accounting and other management systems and resources and for which VWE may not be adequately prepared.

VWE is subject to reporting and other obligations under the Exchange Act, including the requirements of Section 404(a) of the Sarbanes-Oxley Act and similar legislation imposed on reporting issuers under Canadian law, as applicable. Section 404 requires annual management assessments of the effectiveness of VWE’s internal controls over financial reporting and, after VWE is no longer an “emerging growth company,” its independent registered public accounting firm may be required to express an opinion on the effectiveness of VWE’s internal controls over financial reporting. To the extent applicable, these reporting and other obligations will place significant demands on VWE’s management, administrative, operational, and accounting resources and will cause VWE to incur significant expenses. VWE is in the process of creating systems, implementing financial and management controls, reporting systems and procedures, and hiring additional accounting and finance staff. If VWE is unable to accomplish these objectives in a timely and effective manner, then its ability to comply with the financial reporting requirements and other rules that apply to public reporting companies could be impaired. Any failure to maintain effective internal controls could have adverse effects on our business, results of operations and stock price.

We compete for skilled management and labor and our future success depends in large part on key personnel.

Our future success depends in large part on our ability to retain and motivate to a high degree our senior management team. Our ability to deliver high-quality products also depends on retaining and motivating proficient winemakers, grape growers and other skilled management and operations personnel. The loss of such personnel or a labor shortage could adversely affect our business and our ability to implement our strategy.

 

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VWE’s management has limited experience operating a public company. This could lead to diversion of time otherwise spent on business operations and could necessitate the incurrence of additional costs to staff for regulatory expertise.

Although several of the directors of the Company have substantial public market experience, VWE’s executive officers have limited experience in the management of a publicly traded company subject to significant regulatory oversight and reporting obligations under federal securities laws. VWE’s management team may struggle to manage VWE successfully or effectively as a public company. Their limited experience in dealing with the increasingly complex laws pertaining to public companies could be a significant disadvantage in that it is likely that an increasing amount of their time may be devoted to these activities, which will result in less time being devoted to the management and growth of VWE. It is possible that VWE will be required to expand its employee base and hire additional qualified personnel, or engage additional outside consultants and professionals, to support its operations as a public company, increasing its operating costs in future periods.

The terms of the investor rights agreement, VWE’s organizational documents and Nevada law could inhibit a takeover that VWE shareholders might consider favorable.

Features of the investor rights agreement, the VWE articles of incorporation and bylaws and Nevada law will make it difficult for any party to acquire control of VWE in a transaction not approved by the VWE board of directors. These features include:

 

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until the 2028 annual meeting of shareholders of VWE, the Roney Representative (which will be Patrick Roney, so long as he is alive) may designate five individuals (the “Roney Nominees”), the former Bespoke shareholders may designate two individuals (the “Bespoke Nominees”) and the VWE nominating committee may designate two individuals (the “Nominating Committee Nominees”) in the slate of nominees recommended to VWE shareholders for election as directors at any annual or special meeting of the shareholders at which directors are to be elected, subject to certain terms and conditions;

 

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the affirmative vote of shareholders holding at least 66-2/3% of the voting power of the issued and outstanding shares of capital stock of VWE will be required to amend or repeal certain provisions of the articles of incorporation and bylaws of VWE, including those relating to election, removal and replacement of directors, for five years following the closing of the transactions;

 

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the ability of the board of directors to issue and determine the terms of preferred stock;

 

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advance notice for shareholder proposals and nominations of directors by shareholders to be considered at VWE’s annual meetings of shareholders;

 

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certain limitations on convening shareholder special meetings;

 

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limiting the ability of shareholders to act by written consent; and

 

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anti-takeover provisions of Nevada law.

These features may have an anti-takeover effect and could delay, defer or prevent a merger, acquisition, tender offer, takeover attempt or other change of control transaction that a VWE shareholder might consider in its best interest, including those attempts that might result in a premium over the market price of their common stock.

The VWE articles of incorporation provide that the Second Judicial District Court in the State of Nevada, located in Washoe County, Nevada will be the sole and exclusive forum for substantially all disputes between VWE and its shareholders, which could limit VWE shareholders’ ability to obtain a favorable judicial forum for disputes with VWE or its directors, officers or employees.

The VWE articles of incorporation provide that, unless VWE consents in writing to the selection of an alternative forum, the Second Judicial District Court, in and for the State of Nevada, located in Washoe County,

 

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Nevada, will, to the fullest extent permitted by law, be the exclusive forum for (i) any derivative action, suit or proceeding brought on behalf of VWE, (ii) any action, suit or proceeding asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or stockholder of VWE to VWE or to its stockholders, or (iii) any action, suit or proceeding arising pursuant to any provision of the NRS or the VWE articles of incorporation or bylaws (as either may be amended and/or restated from time to time). Subject to the foregoing, the federal district courts of the United States will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Such exclusive forum provision will not relieve VWE of its duties to comply with the federal securities laws and the rules and regulations thereunder, and its shareholders will not be deemed to have waived VWE’s compliance with such laws, rules and regulations.

The VWE articles of incorporation further provide that any person or entity purchasing or otherwise acquiring any interest in any VWE securities will be deemed to have notice of and consented to these provisions. Such articles provide that if any action whose subject matter is within the scope of clause (i), (ii) or (iii) above is filed in a court other than the courts in the State of Nevada (a “foreign action”) in the name of any stockholder, such stockholder will be deemed to have consented to (1) the personal jurisdiction of the state and federal courts in Nevada in connection with any action brought in any such court to enforce the provisions of such clause and (2) having service of process made upon any such stockholder’s counsel in the foreign action as agent for such stockholder. These exclusive forum provisions may limit a shareholder’s ability to bring an action, suit or proceeding in a judicial forum of its choosing for disputes with VWE or its directors, officers, employees or stockholders, which may discourage such actions, suits and proceedings. None of the aforementioned provisions of the VWE articles of incorporation will apply to suits to enforce any liability or duty created by the Securities Act or the Exchange Act or any other claim for which the federal courts of the United States have exclusive jurisdiction.

If a court were to find the exclusive forum provision contained in the VWE articles of incorporation to be inapplicable or unenforceable in an action, suit or proceeding, then VWE may incur additional costs associated with resolving such action, suit or proceeding in other jurisdictions, which could harm its business, results of operations, and financial condition. Even if VWE is successful in defending against such actions, suits and proceedings, litigation could result in substantial costs and be a distraction to management and other employee.

 

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USE OF PROCEEDS

All of the shares of our common stock offered by the Selling Stockholders pursuant to this prospectus will be sold by the Selling Stockholders for their respective accounts. We will not receive any of the proceeds from these sales.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

You should read the following discussion and analysis of financial condition and results of operations together with our audited consolidated financial statements and related notes included elsewhere in this prospectus. This discussion may contain forward-looking statements based upon current expectations that involve risks, uncertainties, and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of various factors, including those set forth under “Risk Factors” or in other parts of this prospectus. Unless the context otherwise requires, references in this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to “we”, “us”, “our” and “the Company” are intended to mean the business and operations of Vintage Wine Estates, Inc. (“VWE”) and its consolidated subsidiaries.

Overview

Vintage Wine Estates is a leading vintner in the United States (“U.S.”), offering a collection of wines produced by award-winning, heritage wineries, popular lifestyle wines, innovative new wine brands, packaging concepts, as well as craft spirits. Our name brands include Layer Cake, Cameron Hughes, Clos Pegase, B.R. Cohn, Firesteed, Bar Dog, Kunde, Cherry Pie and many others. Since our founding over 20 years ago, we have grown organically through wine brand creation and through acquisitions to become the 15th largest wine producer based on cases of wine shipped in California. We’ve exceeded 20% net revenue and adjusted EBITDA compound annual growth rates since 2010. We now sell nearly 2 million cases annually.

Our key differentiator is our diversification—what we call our three-legged stool business model.

We are diversified in our brand collection, producing over 50 brands ranging in retail price from $10 to $150, with a focus on the fastest growing $10 and $20 segment. Approximately eighty percent of our business is done in this critical segment.

We are diversified in our omni-channel sales strategy balanced between direct-to-consumer, 30% of sales, traditional wholesale, 33% of sales and business-to-business at 35% of sales. Our direct-to-consumer segment is particularly robust. Where most wine companies have two direct sales levers to pull: tasting rooms and wine clubs, we have seven: tasting rooms, wine clubs, ecommerce, Cameron Hughes, Windsor/custom label design and engraving, QVC/HSN and The Sommelier Company.

We are diversified in our sourcing with a strong asset base of 2,800 owned and leased vineyard acres in located in the premier winegrowing regions of the U.S. and 10 owned winery estates. These properties extend from the Central Coast of California to storied appellations in Napa Valley and Sonoma County, north to Oregon and Washington. We obtain fruit for our wines from owned and leased vineyards, as well as other sources, including independent growers and the spot wine market.

We have completed over 20 acquisitions in the past 10 years and completed over 10 acquisitions in the past 5 years. We generally acquire the brands and inventories of a targeted business, eliminating redundant corporate overhead. We then integrate the acquired assets into our highly efficient production, distribution and omni channel selling networks, quickly increasing the sales and margins of the acquired business.

Our growth has allowed us to reinvest in our business and create the scale and infrastructure needed to successfully manage a variety of different wine brands and channels and reduce costs. Our owned winery facilities have the current capacity to produce up to 7 million cases of wine per year. As of the date of this prospectus, we are near completion of a $45 million investment into our Ray’s Station production facility, which includes a high-speed bottling facility with the capacity to bottle over 13.5 million cases annually and a 364,000 square foot warehouse and distribution center.

 

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Additional bottling capacity will not only be used for our products, but also will allow us to further expand our bottling and fulfillment services offered to third parties on a contract basis. The additional capacity of the bottling facility may not initially be fully utilized but provides us with capacity consistent with our growth plans. Our scale and consolidated operations are expected to enable us to increase margins of the businesses that we acquire, providing accretive value promptly after the acquisition.

Strategy

Our strategy is to continue to grow organically and through acquisitions with a view towards making two to three acquisitions per year over the next five years. We believe we have completed more brand mergers and acquisitions in the U.S. wine industry over the last 10 years than any other company in the industry. These acquisitions have allowed us to diversify our wine sourcing into regions outside of California, expand our portfolio of brands, increase our vineyard assets and provide our DTC and retail customers with a range of wines to choose from.

We have historically targeted a significant increase in the target company’s EBITDA within three years of the acquisition. To achieve these results, our acquisitions are subject to a rigorous, data-driven, due diligence and underwriting process, to assure that minimum financial thresholds with meaningful upside can be satisfied in each transaction. In accordance with GAAP, the results of the acquisitions we have completed are reflected in our consolidated financial statements. We typically incur minimal transaction costs in connection with identifying and completing acquisitions and ongoing integration costs as we integrate acquired companies and seek to achieve synergies.

Recent Developments

Our Business Combination

We were formed in 2019 as Bespoke Capital Acquisition Corp. (“BCAC”), a special purpose acquisition corporation incorporated under the laws of the Province of British Columbia. BCAC was organized for the purpose of effecting an acquisition of one or more businesses or assets by way of a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or any other similar business combination involving BCAC.

On June 7, 2021, BCAC consummated its business combination (the “Business Combination”) with Vintage Wine Estates, Inc., a California corporation (“Legacy VWE”), pursuant to a transaction agreement dated February 3, 2021. As a result of the Business Combination and the related transactions, BCAC changed its jurisdiction of incorporation from the Province of British Columbia to the State of Nevada, BCAC changed its name to “Vintage Wine Estates, Inc.” and Legacy VWE became our wholly-owned subsidiary.

For accounting purposes, and in accordance with generally accepted accounting principles, BCAC was treated as the acquired company and Legacy VWE was treated as the acquirer.

U.S. Wildfires

Significant wildfires in California, Oregon and Washington states, have recently engulfed the affected regions in smoke and flames. The long-term trend is that wildfires are increasing resulting from drought conditions. Drought conditions due to global climate change have increased the severity of destructive wildfires which have affected the U.S. grape harvest. When vineyards and grapes are exposed to smoke, it can result in an ashy, burnt, or smoky aroma, described as “smoke tainted”. Industry grape suppliers have also experienced smoke and fire damage from the wildfires. Damage to our grape harvest and vineyards caused from the wildfires has impacted our revenues, costs of revenues and winery overhead for the periods presented.

 

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Acquisitions and Divestitures

The Sommelier Company

On June 22, 2021, we acquired the net assets of The Sommelier Company consisting of customer relationships, independent Sommelier relationships and brand trademarks, for total consideration of $12.0 million. Consideration transferred consisted of a cash payment of $8.0 million and contingent consideration up to $4.0 million, whereby the Company will pay the seller three annual earn-out payments over three years, determined as a percentage of EBITDA.

Kunde Acquisition

On April 19, 2021, we acquired 100% of the outstanding equity of Kunde Enterprise Inc. (“Kunde”) for total consideration, including amounts to acquire the combined 33.3% ownership held by two of the Company stockholders, of which one is an executive officer of the Company, of approximately $53.0 million, net of $5.9 million in pre-existing net liabilities due to Kunde. Kunde produces and sells premium Sonoma Valley varietal wines via the wholesale channel as well as internationally and locally through its tasting room, wine club, and internet site. In addition, Kunde provides wine storage, processing, and bottling services for other wineries. The operations of Kunde align with those of us, providing for expanded synergies and growth through the acquisition. See Note 3 to the consolidated financial statements.

The $53.0 million purchase consideration was comprised of approximately $21.5 million of cash, approximately $11.7 million of notes payable to the sellers, and the issuance of 906,345 shares (2,589,507 shares retroactively restated giving effect to the recapitalization transaction discussed in Note 1) of the Company’s Series A stock, with a value of $25.8 million, totaling $58.9 million less the release of pre-existing net liabilities between the Company and Kunde of $5.9 million. Two of the three notes payable issued to the sellers have a interest rate of Prime plus 1.00%, compounded quarterly, and mature on January 5, 2022, while the third note has a stated interest rate of 1.61%, compounded quarterly, and matures on December 31, 2021. To fund the cash portion of the purchase consideration, we utilized our line of credit and delay draw term loan. For a summary of the allocation of the purchase price to the fair value of the assets acquired, see Note 3 to the consolidated financial statements.

Owen Roe Winery

In September 2019, the Company acquired assets, including inventory, land, winery equipment and brand trademarks from Owen Roe Winery for total consideration of approximately $16.1 million. Consideration consisted of cash of approximately $15.1 million and contingent consideration of $1.0 million whereby we will pay the seller a fixed fee based on sales of the wine brands acquired for four years.

Divestiture of Certain Assets

Grounded Wine Project Divestiture

On October 31, 2020, we entered into a purchase and sale agreement with a former employee pursuant to which we sold our 51% interest in Grounded Wine Project, LLC (“GWP”), certain bulk wine and cased goods inventory related to GWP’s business, and certain other assets used in the operation of GWP’s business, including trademarks, customer lists, website content, domain names, marketing materials and certain assignable contracts, but excluding cash on hand and accounts receivable relating to the GWP business, for a purchase price of $1.0 million. In connection with the sale, we entered into an interim services agreement with the purchaser for a period ending on the earlier of six months from the closing date and purchaser’s receipt of necessary permits for the operation of GWP,whereby we would continue to operate GWP and store and maintain its wine assets and purchaser would provide certain services to us relating to the operation of GWP. The services agreement was

 

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extended to August 31, 2021. Management routinely evaluates the profitability of our brands and determined that GWP branded products were underperforming our expectations for the two years prior to June 30, 2020. GWP accounted for approximately 0.09% and 0.62% of our consolidated net revenues for fiscal years ended June 30, 2021 and 2020.

Sales Pro and Master Class Divestiture

On December 30, 2019, we entered into an asset purchase agreement with a current employee pursuant to which we agreed to sell the intellectual property and marketing materials of Sales Pro and Master Class in exchange for a royalty payment per case sold by the purchaser between January 1, 2020 and December 1, 2025. The effective date of the transfer of Sales Pro and Master Class was January 1, 2020. We acquired Sales Pro and Master Class as part of the acquisition of the assets of Cameron Hughes Wine. Sales Pro and Master Class is engaged in in-store wine tasting and promotion, which is not core to our business. Sales Pro and Master Class represented approximately 1.4% of our consolidated net revenues for fiscal 2020.

Potential Divestiture of Certain Real Estate Assets

In the first quarter of fiscal 2020, our board of directors authorized management to explore the divestiture of certain non-core real estate assets with a combined appraised value in excess of $70.0 million. These efforts continue as of June 30, 2021.

Key Measures to Assess the Performance of our Business

We consider a variety of financial and operating measures in assessing the performance of our business, formulating goals and objectives and making strategic decisions. The key GAAP measures we consider are net revenues; gross profit; selling, general and administrative expenses; and income from operations. The key non-GAAP measure we consider is Adjusted EBITDA. We also monitor our case volume sold and depletions from our distributors to retailers to help us forecast and identify trends affecting our growth.

Net Revenues

We generate revenue from our segments: Wholesale, B2B, DTC and Other. We recognize revenue from wine sales when obligations under the terms of a contract with our customer are satisfied. Generally, this occurs when the product is shipped, and title passes to the customer, and when control of the promised product or service is transferred to the customer. Our standard terms are free on board, or FOB, shipping point, with no customer acceptance provisions. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products. We recognize revenue net of any taxes collected from customers, which are subsequently remitted to governmental authorities. We account for shipping and handling as activities to fulfill our promise to transfer the associated products. Accordingly, we record amounts billed for shipping and handling costs as a component of net sales and classify such costs as a component of costs of sales. Our products are generally not sold with a right of return unless the product is spoiled or damaged. Historically, returns have not been significant to us.

Gross Profit

Gross profit is equal to net revenues less cost of sales. Cost of sales includes the direct cost of manufacturing, including direct materials, labor and related overhead, as well as inbound and outbound freight and import duties.

Selling, General and Administrative Expenses

Selling, general and administrative expenses include expenses arising from activities in selling, marketing, warehousing, and administrative expenses. Other than variable compensation, selling, general and administrative

 

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expenses are generally not directly proportional to net revenues, but are expected to increase over time to support the needs of the Company.

Income from Operations

Income from operations is gross profit less selling, general and administrative expenses; acquisition and restructuring related expense or income and amortization of intangible assets. Income from operations excludes interest expense, income tax expense, and other expenses, net. We use income from operations as well as other indicators as a measure of the profitability of our business.

Case Volume

In addition to acquisitions, the primary drivers of net revenue growth in any period are attributable to changes in case volume and changes in product mix and sales price. Case volume represents the number of 9-liter equivalent cases of wine that we sell during a particular period. Case volume is an important indicator of what is driving gross margin. This metric also allows us to develop our supply and production targets for future periods.

 

		VWE 9L Equivalent Case Sales by Segment
		Year ended June 30,
(in thousands)		2021				2020
Wholesale			969				1,037
B2B			558				411
DTC			348				274
Total case volume			1,875				1,722

Case volume was up 9% for the fiscal year driven by volume increase in the B2B and DTC segments. B2B volumes grew 35.8% for the year due to expanded relationships in private label. DTC volume was up 27% driven by increased tasting room activity and special programming through a large e-commerce company. Wholesale volumes were down 6.6% due to the discontinuation of certain brands partially offset by the inclusion of Kunde in the fourth quarter.

Depletions

Within our three tier distribution structure, depletion measures the sale of our inventory from the distributor to the retailer. Depletions are an important indicator of customer satisfaction, which management uses for evaluating performance of our brands and for forecasting.

Non-GAAP Financial Measures

In addition to our results determined in accordance with GAAP, we use EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin to supplement GAAP measures of performance to evaluate the effectiveness of our business strategies. These metrics are also frequently used by analysts, investors and other interested parties to evaluate companies in our industry, when considered alongside other GAAP measures.

Adjusted EBITDA is defined as earnings (loss) before interest, income taxes, depreciation and amortization, stock-based compensation expense, casualty losses or gains, impairment losses, changes in the fair value of derivatives, restructuring related income or expenses, acquisition and integration costs, and certain non-cash, non-recurring, or other items included in net income (loss) that we do not consider indicative of our ongoing operating performance, including COVID-related adjustments. COVID related adjustments relate to the delayed GAZE brand launch and nonrecurring costs of implementing safety protocols for production facilities,

 

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warehouse, tasting rooms and offices. Adjusted EBITDA Margin is defined as Adjusted EBITDA divided by net revenues.

 

(in thousands)		June 30, 2021				June 30, 2020
Net income (loss)		$	10,088			$	(9,700	)
Interest expense			11,581				15,422
Income tax provision (benefit)			766				(9,957	)
Depreciation and amortization			11,436				11,805
Amortization of label design fees			464				260
Gain on litigation proceeds, net of legal fees			(3,845	)			—
Taint provision			—				4,859
Stock-based compensation expense			3,334				289
Inventory adjustment for wildfire impact—vineyard			3,302				—
Inventory adjustment for wildfire impact—winery overhead			9,000				—
PPP loan forgiveness			(6,604	)			—
Net unrealized (gain) loss on interest rate swap agreements			(6,136	)			12,945
(Gain) loss on disposition of assets			(2,336	)			(1,052	)
Deferred lease adjustment			352				501
Transaction expenses			4,339				—
Impairment of intangible assets			1,081				1,281
Remeasurement of contingent consideration liabilities			(329	)			(1,035	)
Post-acquisition accounts receivable write-down			109				434
COVID impact			1,563				200
Inventory acquisition basis adjustment			401				1,271
Adjusted EBITDA		$	38,566			$	27,523
Revenue			220,742				189,919
Adjusted EBITDA Margin			17.5	%			14.5	%

Adjusted EBITDA and Adjusted EBITDA Margin are not recognized measures of financial performance under GAAP. We believe these non-GAAP measures provide analysts, investors and other interested parties with additional insight into the underlying trends of our business and assists these parties in analyzing our performance across reporting periods on a consistent basis by excluding items that we do not believe are indicative of our core operating performance, which allows for a better comparison against historical results and expectations for future performance.

Management uses these non-GAAP measures to understand and compare operating results across reporting periods for various purposes including internal budgeting and forecasting, short and long-term operating planning, employee incentive compensation, and debt compliance. These non-GAAP measures are not intended to replace the presentation of our financial results in accordance with GAAP. Use of the terms Adjusted EBITDA and Adjusted EBITDA Margin are not calculated in the same manner by all companies, and accordingly, are not necessarily comparable to similarly titled measures of other companies and may not be an appropriate measure for performance relative to other companies. Adjusted EBITDA should not be construed as indicators of our operating performance in isolation from, or as a substitute for, net income (loss), which is prepared in accordance with GAAP. We have presented Adjusted EBITDA and Adjusted EBITDA Margin solely as supplemental disclosure because we believe it allows for a more complete analysis of our results of operations. In the future, we may incur expenses such as those added back to calculate Adjusted EBITDA. Our presentation of Adjusted EBITDA should not be construed as an inference that our future results will be unaffected by these items.

 

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Trends and Other Factors Affecting Our Business

Various trends and other factors affect or have affected our operating results, including:

COVID-19

The outbreak of COVID-19, which the World Health Organization declared a pandemic in March 2020, has spread across the globe and the U.S and has disrupted the global economy and most industries, including the wine industry. In an effort to contain and slow the spread of COVID-19, governments implemented various measures, such as ordering non-essential businesses to close, issuing travel advisories and restrictions, canceling large public events, ordering shelter-in-place and requiring the public to practice social distancing. While many of these measures have been lifted or eased, some are continuing and others are being reimplemented as COVID-19 continues to spread.

Although we have not experienced significant business disruptions to date from the COVID-19 pandemic, we experienced a year over year decline in visitors to our 14 tasting rooms during fiscal year ended June 30, 2021 primarily due to continued COVID-19 measures. However, the decrease in the business we derive from our tasting rooms was offset by an increased amount of e-commerce and DTC wine sales. We sold approximately 1,875 cases for the year ended June 30, 2021 compared to 1,722 cases for the year ended June 30, 2020. We expect that, following acceptance of COVID-19 vaccines and lifting of travel restrictions, tasting room volumes will, over time, increase from the current lows.

In response to governmental directives and recommended safety measures, we modified our workplace practices. While we have implemented personal safety measures at all of our facilities where our employees are working onsite, any actions that we take may not be sufficient to mitigate the risk of infection and could result in a significant number of COVID-19 related claims. Changes to state workers’ compensation laws, as have recently occurred in California, could increase our potential liability for such claims. To support employees and protect the health and safety of employees and customers, we provided temporary pay increases to certain employees and purchased additional sanitation supplies and personal protective materials. These measures will increase operating costs and adversely affect liquidity.

In the longer-term, the COVID-19 pandemic is likely to adversely affect the economies and financial markets, and could result in an economic downturn and a recession. It is uncertain how this would affect demand for our products. While we continue to see robust demand in our industry, and have seen little impact to our business from the COVID-19 pandemic, we are unable to predict the full impact the COVID-19 pandemic will have on our future results of operations, liquidity and financial condition due to numerous uncertainties, including the duration of the pandemic, the actions that may be taken by government authorities across the U.S., the impact to our customers, employees and suppliers, and other factors described in the section titled “Risk Factors” in this prospectus. These factors are beyond our knowledge and control and, as a result, at this time, we are unable to predict the ultimate impact, both in terms of severity and duration, that the COVID-19 pandemic will have on our business, operating results, cash flows and financial condition.

Seasonality

There is a degree of seasonality in the growing cycles, procurement and transportation of grapes. The wine industry in general tends to experience seasonal fluctuations in revenues and net income. Typically, we have lower sales and net income during our third fiscal quarter (January through March) and higher sales and net income during or second fiscal quarter (October through December) due to usual timing of seasonal holiday buying, as well as wine club shipments. We expect these trends to continue.

Weather Conditions

Our ability to fulfill the demand for wine is restricted by the availability of grapes. Climate change, agricultural and other factors, such as wildfires, disease, pests, extreme weather conditions, water scarcity,

 

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biodiversity loss and competing land use, impact the quality and quantity of grapes available to us for the production of wine from year to year. Our vineyards and properties, as well as other sources from which we purchase grapes, are affected by these factors. For example, the effects of abnormally high rainfall or drought in a given year may impact production of grapes, which can impact both our revenues and costs from year to year.

In addition, extreme weather events, such as wildfires can result in potentially significant expenses to repair or replace a vineyard or facility as well as impact the ability of grape suppliers to fulfill their obligations to us.

Industry and Economic Conditions

The wine industry is recession resistant, with sustained growth over the past 25 years despite downturns in economic conditions from time to time. Consumers are increasingly purchasing higher priced wines and other alcoholic beverages, which has accelerated throughout the COVID-19 pandemic. Consumption increases are largely in the $10.00 or more retail price per bottle premium and luxury wine categories. Over the past ten years, the premium segment ($10 to $20 retail sales price) has grown on average by 6.6% annually. We benefit from this trend by focusing on the premium wine segment. Approximately 80% of our wine sales are in the $10.00 to $20.00 per bottle range.

Casualty Gains

We suffered smoke-tainted inventory damage resulting from the October 2017 Napa and Sonoma County wildfires. We filed an insurance claim for this damage, which was settled in December 2020 for approximately $3.8 million, net of legal costs. The gain of litigation proceeds consists of payments we received from our insurer.

 

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Results of Operations

Comparison of the years ended June 30, 2021 and 2020

The following table summarizes our operating results for the periods presented:

 

		Year Ended June 30,								Dollar Change				Percent Change
(in thousands, except shares and per share data)		2021				2020
Net revenues
Wine and spirits		$	177,331			$	155,741			$	21,590				14	%
Nonwine			43,411				34,178				9,233				27	%
			220,742				189,919				30,823				16	%
Cost of revenues
Wine and spirits			119,350				98,236				21,114				21	%
Nonwine			26,041				20,051				5,990				30	%
			145,391				118,287				27,104				23	%
Gross profit			75,351				71,632				3,719				5	%
Selling, general, and administrative expenses			72,505				64,699				7,806				12	%
Impairment of intangible assets			1,081				1,282				(201	)			-16	%
Gain on sale of property, plant, and equipment			(2,336	)			(1,052	)			(1,284	)			122	%
Gain on litigation proceeds			(4,750	)			—				(4,750	)			*
Gain on remeasurement of contingent consideration liabilities			(329	)			(1,035	)			706				68	%
Income from operations			9,180				7,738				1,442				19	%
Other income (expense)
Interest expense			(11,581	)			(15,422	)			(3,841	)			-25	%
Net unrealized gain (loss) on interest rate swap agreements			6,136				(12,945	)			19,081				147	%
Gain on Paycheck Protection Program loan forgiveness			6,604				—				6,604				*
Other, net			515				972				(457	)			-47	%
Total other income (expense), net			1,674				(27,395	)			29,069				106	%
Income (loss) before provision for income taxes			10,854				(19,657	)			30,511				155	%
Income tax provision			(766	)			9,957				(10,723	)			-108	%
Net income (loss)			10,088				(9,700	)			19,788				204	%
Net income attributable to the noncontrolling interests			(218	)			(41	)			(177	)			432	%
Net income (loss) attributable to Vintage Wine Estates, Inc.			9,870				(9,741	)			19,611				201	%
Accretion on redeemable Series B stock			5,785				4,978				807				16	%
Net income allocable to common stockholders		$	4,085			$	(14,719	)		$	18,804				128	%
Net earnings (loss) per share allocable to common stockholders
Basic		$	0.14			$	(0.67	)
Diluted		$	0.14			$	(0.67	)
Weighted average shares used in the calculation of earnings (loss) per share allocable to common stockholders
Basic			24,696,828				21,920,583
Diluted			25,179,502				21,920,583

 

*	Not meaningful

Net Revenues

Net revenues for the year ended June 30, 2021 increased $30.8 million, or 16.2%, to $220.7 million, from $189.9 million for the year ended June 30, 2020. The increase was driven by an increase in B2B net revenues of

 

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approximately $23.4 million, coupled with an increase in DTC net revenues of approximately $11.0 million, partially offset by a decrease in Wholesale net revenues of approximately $2.5 million and a decrease in Other net revenues of approximately $1.0 million. Nearly all of the increase in B2B net revenues for fiscal 2021 as compared to fiscal 2020 resulted from organic growth with less than 1% coming from acquisitions.

Gross Profit

Gross profit for the year ended June 30, 2021 increased $3.7 million, or 5.2%, to $75.4 million, from $71.6 million for the year ended June 30, 2020. The increase in gross profit was driven by the increased volume in the B2B and DTC segments partially offset by wholesale volume and mix and by an atypical year end inventory adjustments of approximately $9.0 million (11.9% impact on margin), primarily related to the impact of wildfires on the 2020 harvest. In addition, the shift in mix to greater B2B volume, which is the lowest gross margin business, combined with a shift of channels within the DTC segment had an approximate 5.5% reduction of margin.

Selling, General, and Administrative Expenses

Selling, general, and administrative expenses for the year ended June 30, 2021 increased $7.8 million, or 12.1%, to $72.5 million, from $64.7 million for the year ended June 30, 2020. The increase in selling, general and administrative expenses was driven primarily by costs related to going public, increased costs of insurance, freight, shipping and labor.

Income from Operations

Income from operations for the year ended June 30, 2021 increased $1.4 million, or 18.6%, to $9.2 million from $7.7 million for the year ended June 30, 2020. The increase was driven by growth in B2B and DTC segments, gain on litigation proceeds related to the smoke taint lawsuit, and gain on sale of assets partially offset by lower wholesale revenue, inventory adjustments and impairment of intangible assets.

Other Income (Expense)

Total other income (expense) was $1.7 million income for the year ended June 30, 2021 compared to $(27.4) million expense for the year ended June 30, 2020, a net increase year over year of $29.1 million or 106.1%. The change was due primarily to a change from an unrealized loss on interest rate swap agreements to an unrealized gain accounting for $19.1 million of the change. In addition, $6.6 million related to the forgiveness of the Paycheck Protection Program (“PPP”) loan of $6.6M, and a $3.8 million decrease in interest expense due to amendments to the debt and lower interest rates.

Income Tax Provision

Income tax expense was $(766) thousand for the year ended June 30, 2021 compared to income tax benefit of $10.0 million for the year ended June 30, 2020. The income tax expense in fiscal 2021 was primarily due to an increase in annual net income and costs related to the transaction, partially offset by the PPP Loan forgiveness, stock based compensation and research and development tax credits. The income tax benefit for the year ended June 30, 2020 was primarily due to a net loss in fiscal 2020, the release of valuation allowance, a research and development tax credit and other adjustments.

Segment Results

Our financial performance is classified into the following segments: Wholesale, B2B, DTC and Other. Our corporate operations, including centralized selling, general and administrative expenses and other factors, such as the remeasurements of contingent consideration and impairment of intangible assets and goodwill are not allocated to the segments, as management does not believe such items directly reflect our core operations. Other

 

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than our long-term property, plant and equipment for wine tasting facilities, and the customer list and trademark intangible assets specific to the Sommelier acquisition, our revenue generating assets are utilized across segments. Accordingly, the foregoing items are not allocated to the segments and are not discussed separately as any results that had a significant impact on operating results are included in the consolidated results discussion above.

We evaluate the performance of our segments on income from operations, which management believes is indicative of operational performance and ongoing profitability. Management monitors income from operations to evaluate past performance and identify actions required to improve profitability. Income from operations assists management in comparing the segment performance on a consistent basis for purposes of business decision-making by removing the impact of certain items that management believes do not directly reflect the core operations and, therefore, are not included in measuring segment performance. We define income from operations as gross margin less operating expenses that are directly attributable to the segment. Selling expenses that can be directly attributable to the segment are allocated accordingly.

Segment Results for the Years Ended June 30, 2021 and 2020

Wholesale Segment Results

 

(in thousands, except %)		Year Ended June 30,								Dollar Change				Percent Change
		2021				2020
Wholesale Segment Results
Net revenues		$	72,908			$	75,435			$	(2,527	)			-3.3	%
Income from operations		$	15,044			$	14,777			$	267				1.8	%

Wholesale net revenues for the year ended June 30, 2021 decreased by approximately $2.5 million, or 3.3%, from the year ended June 30, 2020. The decrease was attributable to a decrease in case volumes due to the normalized case volumes in the 2021 period as compared to the 2020 period when retailers increased case volume related to COVID as well as the impact of the discontinuation of two brands and partially offset by favorable mix.

Wholesale income from operations for the year ended June 30, 2021 increased by approximately $267 thousand, or1.8%, from the year ended June 30, 2020. The increase was attributable to improved mix, partially offset by a decreased case volumes.

B2B Segment Results

 

(in thousands, except %)		Year Ended June 30,								Dollar Change				Percent Change
		2021				2020
B2B Segment Results
Net revenues		$	77,440			$	54,056			$	23,384				43.3	%
Income from operations		$	17,944			$	14,783			$	3,161				21.4	%

B2B net revenues for the year ended June 30, 2021 increased by approximately $23.4 million, or 43.3% from the year ended June 30, 2020. The increase was attributable to increased custom production as well as increased case volumes, reflecting the Company’s continued strong relationships with private label and custom production customers.

B2B income from operations for the year ended June 30, 2021 increased by $3.2 million, or 21.4%, from the year ended June 30, 2020. The increase was attributable to the increased custom production activity coupled with increased case volumes delivering a low mix.

 

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DTC Segment Results

 

(in thousands, except %)		Year Ended June 30,								Dollar Change				Percent Change
		2021				2020
DTC Segment Results
Net revenues		$	66,605			$	55,639			$	10,966				19.7	%
Income from operations		$	11,437			$	7,149			$	4,288				60.0	%

DTC net revenues of $66.6 million for the year ended June 30, 2021 increased by approximately $11.0 million, or 19.7%, from the year ended June 30, 2020. The increase was primarily attributable to an increase in case volume from tasting rooms and e-commerce. The overall mix affected by a shift to special programming through a large e-commerce company.

DTC income from operations for the year ended June 30, 2021 increased by approximately $4.3 million, or 60.0%, from the year ended June 30, 2020. The increase was due to improved traffic in tasting rooms compared to the prior year and wine clubs resulting in positive mix and continued strong growth in e-commerce.

Other Segment Results

 

(in thousands, except %)		Year Ended June 30,								Dollar Change				Percent Change
		2021				2020
Other Segment Results
Net revenues		$	3,789			$	4,789			$	(1,000	)			-20.9	%
Income from operations		$	(35,245	)		$	(28,971	)		$	(6,274	)			21.7	%

Other net revenues for the year ended June 30, 2021 decreased by approximately $1.0 million, or 20.9%, from the year ended June 30, 2020. The decrease was primarily attributable to fewer bulk wine sales in the year compared to the year prior.

Other losses from operations for the year ended June 30, 2021 increased by $6.3 million, or 21.7%, from the year ended June 30, 2020. The increase in losses were due to the go public transaction costs, increased costs of warehousing freight, insurance and labor partially offset by the proceeds from the smoke taint litigation and the gain on sale of assets.

Liquidity and Capital Resources

Our ongoing operations have, to date, been funded by a combination of cash flow from operations, the Business Combination with BCAC, borrowings under our credit facility and other debt financing. As of June 30, 2021, we had cash and cash equivalents on hand of approximately $118.9 million and approximately $125.0 million in borrowing capacity available under our credit facility. We had approximately $293.9 million in total debt as of June 30, 2021.

Our principal uses of cash have been to provide working capital, meet debt service requirements, fund capital expenditures and finance strategic plans, including acquisitions. We continuously reinvest in our properties and production assets and are currently working on several capital projects. Our capital expenditures are expected to be approximately $5 million to $9 million over the next twelve months, $5.6 million of which will be used to complete the construction of additional warehouse and storage space at our Ray’s Station facility located in Hopland, California.

We believe our existing cash and cash equivalents, cash flow from operations, and availability under our credit facility will provide sufficient liquidity to fund our current obligations, projected working capital

 

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requirements, debt service requirements and capital spending requirements. We may also seek to finance capital expenditures under capital leases or other debt arrangements that provide liquidity or favorable borrowing terms. COVID-19 has negatively impacted the global economy and financial markets which could interfere with our ability to access sources of liquidity at favorable rates and generate operating cash flows. We took advantage of the Paycheck Protection Program (the “PPP”) established as part of the Coronavirus Aid, Relief and Economic Security Act (“CARES Act”).

We continue to consider acquisition opportunities, but the size and timing of any future acquisitions and the related potential capital requirements cannot be predicted. While we have in the past financed certain acquisitions with internally generated cash, term loans and our credit facility, in the event that suitable businesses are available for acquisition upon acceptable terms, we may obtain all or a portion of the necessary financing through the incurrence of additional long-term borrowings.

Our future capital requirements will depend on many factors, including funding needs to support our business growth and to respond to business opportunities, challenges or unforeseen circumstances. If our forecasts prove inaccurate, we may be required to seek additional equity or debt financing from outside sources, which we may not be able to raise on terms acceptable to us, or at all. If we are unable to raise additional capital when desired, our business, financial condition and results of operations would be adversely affected.

Indebtedness

Credit Facility

During our fiscal year ended June 30, 2020, we entered into a $350 million credit facility consisting of (i) a $100.0 million term loan; (ii) a $50.0 million capital expenditure facility; and (iii) a $200.0 million revolving credit facility. On April 13, 2021, we entered into an amended and restated loan and security agreement to increase the credit facility from an aggregate of $350.0 million to $480.0 million, consisting of an accounts receivable and inventory revolving facility up to $230.0 million, a term loan in a principal amount of up to $100.0 million, a capital expenditures facility in an aggregate principal of up to $50.0 million, and a new delay draw term loan facility in an aggregate principal amount of up to $100.0 million. All other terms of the original agreement generally remain the same. Concurrent with the amendment, we executed approximately a $29.3 million delayed draw term loan. Proceeds from the new loan were used to pay down $10.8 million and $12.0 million of the existing term loan and outstanding line of credit, respectively, deposit cash of $4.8 million into a restricted cash collateral account, and pay bank fees and third party expenses associated with the amendment.

The credit facility can be used to fund acquisitions, real estate purchases, capital equipment purchases and for other general corporate purposes. The credit facility is collateralized by our eligible inventory and accounts receivable and matures as follows:

 

(in thousands)		Maximum funding				Maturity
Description
Term loan		$	100,000				July 18, 2026
Revolving credit facility		$	230,000				July 18, 2026
Delay draw term loan		$	100,000				July 18, 2024
Capital expenditure facility		$	50,000				July 18, 2026

Repayments of the term loan and the capital expenditure facility are calculated based on whether the purpose of the original loan or draw was for real estate or capital equipment purchases or draw and are subject to periodic third-party valuations. For real estate purchases, quarterly repayments are equal to 1% of the original principal balance at closing. For capital equipment purchases, quarterly repayments are equal to 1/28th of the

 

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original balance. Any unpaid principal is due upon the termination of these loans at maturity. Repayment of the revolving credit facility is required if the borrowing base (as defined in the credit facility) does not support the amount of borrowing on the facility. Borrowings under the credit facility bear interest at a rate per annum equal to, at our option, either (a) a LIBOR rate determined by reference to the LIBOR rate for dollar deposits with a term equivalent to the interest period relevant to such borrowing as administered by the ICE Benchmark Administration, plus an applicable margin or (b) an adjusted base rate, or ABR, determined by reference to the highest of (i) 0.50% above the federal funds effective rate, (ii) the rate of interest established by the administrative agent as its “prime rate” and (iii) 1.0% above the LIBOR rate for dollar deposits with a one-month term commencing that day, plus an applicable margin. See Note 8 to our consolidated financial statements included elsewhere in this prospectus for a discussion of our interest rate swap transactions.

In addition, we pay certain recurring fees with respect to the credit facility, including (i) a fee for the unused commitments of the lenders under the revolving credit facility and the capital expenditure facility as of the end of each month, accruing at a rate equal to 0.125% per annum, which may be reduced to 0.0% if the average availability under the revolving credit facility is less than 50%, (ii) letter of credit fees, including a fronting fee and processing fees to each issuing bank, which vary depending on the applicable margin rate based on the average availability under the revolving credit facility and (iii) administration fees. Amortization expense related to debt issuance fees was approximately $0.1 million and $0.2 million for the years ended June 30, 2021 and 2020, respectively.

The credit facility contains various covenants and restrictions that may, in certain circumstances and subject to carve-outs and exceptions, limit our ability to, among other things:

 

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create liens;

 

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make loans to third parties;

 

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incur additional indebtedness;

 

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make capital expenditures in excess of agreed upon amounts;

 

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merge or consolidate with another entity;

 

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dispose of our assets;

 

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make dividends or distributions to our shareholders;

 

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change the nature of our business;

 

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amend our organizational documents;

 

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make accounting changes; and

 

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conduct transactions with affiliates.

We are required to maintain compliance with a minimum fixed charge coverage ratio covenant of not less than 1.10:1.00.

We may prepay, in full or in part, borrowings under the credit facility without premium or penalty, subject to notice requirements, minimum prepayment amounts and increment limitations, provided that prepayments on all LIBOR loans will be subject to customary “breakage” costs.

Convertible Notes

Woodbridge Notes

On January 2, 2018, we issued a secured convertible promissory note in favor of Jayson Woodbridge in the original principal amount of $19.0 million. Interest on the outstanding principal amount accrues at the prime rate,

 

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as published in the Wall Street Journal on the issuance date, subject to adjustment every six months. The principal amount of the convertible promissory note was due and payable in four equal annual installments commencing on January 2, 2019. The outstanding principal amount of the note could be repaid at any time without premium or penalty. The holder of the note could, at its option, convert all or part of any regularly scheduled principal payment into shares of Series A stock. In addition, the holder had conversion rights upon a liquidity event. As of June 30, 2021, Jayson Woodbridge converted the remaining outstanding principal of the secured convertible promissory note of $4.8 million resulting in us having no further liability or obligations under this convertible promissory note.

Rudd Trust Notes

On January 2, 2018, we entered into a convertible promissory note, which was subsequently amended, in favor of the Rudd Trust in the original principal amount of $9.0 million, which was issued pursuant to a credit agreement of the same date. Interest on the outstanding principal amount accrued at the prime rate in effect on the issuance date plus 4%, subject to adjustment on the first day of each calendar quarter. The note matured on May 31, 2021. In May 2021, we repaid $9.0 million aggregate principal, at which time we had no further liability or obligations under this convertible promissory note.

Patrick Roney Note

On January 2, 2018, we entered into a convertible promissory note, which was subsequently amended, in favor of Patrick Roney in the original principal amount of $1.0 million issued pursuant to a credit agreement of the same date. Interest on the outstanding principal amount accrued at the prime rate in effect on the issuance date plus 4%, subject to adjustment on the first day of each calendar quarter. The note matured on May 31, 2021. We repaid $1.0 million aggregate principal, at which time we had no further liability or obligations under this convertible promissory note.

Paycheck Protection Program

Our Paycheck Protection Program loan (the “PPP Loan”), under Division A, Title I of the Coronavirus Aid, Relief and Economic Security (“CARES”) Act on April 14, 2020, of approximately $6.5 million required monthly amortized principal and interest payments to begin six months after the date of disbursement. In October 2020, the deferral period associated with the monthly payments was extended from six to ten months. While the PPP Loan currently had a two-year maturity, the amended law permitted the borrower to request a five-year maturity from its lender.

Under the terms of the CARES Act, as amended by the Paycheck Protection Program Flexibility Act of 2020, we were eligible to apply for and receive forgiveness for all or a portion of the PPP Loan. Such forgiveness is determined, subject to limitations, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs (as defined under the PPP) and mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”), and on the maintenance of employee and compensation levels during the twenty-four week period following the funding of the PPP Loan.

On June 25, 2021, the Company received notification from the Small Business Association that the Company’s Forgiveness Application of the PPP Loan and accrued interest, totaling approximately $6.6 million, was approved in full, and the Company had no further obligations related to the PPP Loan. Accordingly, the Company recorded a gain on the forgiveness of the PPP Loan.

 

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Cash Flows

Information about our cash flows, by category, is presented in our consolidated statements of cash flows and is summarized below:

 

		Year Ended June 30,
(in thousands)		2021				2020
Operating activities		$	8,991			$	(23,045	)
Investing activities		$	(60,288	)		$	1,289
Financing activities		$	173,225			$	20,730

Cash Flows provided by (used in) Operating Activities

Net cash provided by operating activities was $9.0 million for the year ended June 30, 2021 compared to net cash used in operating activities of $23.0 million for the year ended June 30, 2020, representing an increase of net cash of $32.0 million. The increase in net cash provided was primarily attributable to the increase in net income of $19.8 million, net changes in certain non-cash adjustments of $0.9 million to reconcile net income to operating cash flow and net changes in other operating assets and liabilities as detailed on the consolidated statement of cashflows.

Cash Flows provided by (used in) Investing Activities

Net cash used in investing activities was $60.3 million for the year ended June 30, 2021, compared to net cash provided by investing activities of $1.3 million for the year ended June 30, 2020, representing an increase of net cash used of $61.6 million. Cash flows from investing activities are utilized primarily to fund acquisitions, capital expenditures for improvements to existing assets and other corporate assets. The increase in net cash used was primarily attributable to the purchase of plant, property and equipment of $38.0 million and $23.6 to acquire businesses.

Cash Flows provided by (used in) Financing Activities

Net cash provided by financing activities was $173.2 million for the year ended June 30, 2021 compared to net cash provided of $20.7 million for the year ended June 30, 2020, representing an increase of net cash provided of $152.5 million. The increase in net cash provided consisted primarily of $250.1 million of cash provided by the merger and PIPE financing, net of transactions costs, offset by cashed used of $27.5 million for payments, net of proceeds on our line of credit and long-term debt and cash used of $32.0 million to purchase Series B redeemable stock (See Note 2).

Critical Accounting Policies and Estimates

Our consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our consolidated financial statements and related disclosures requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue, costs and expenses, and the disclosure of contingent assets and liabilities in our consolidated financial statements. We base our estimates on historical experience, known trends and events, and various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We evaluate our estimates and assumptions on an ongoing basis. Our actual results may differ from these estimates under different assumptions or conditions. We believe that the accounting policies discussed below are critical to understanding our historical and future performance, as these policies relate to the more significant areas involving management’s judgments and estimates.

 

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While our significant accounting policies are described in more detail in Note 1 to our audited consolidated financial statements and notes thereto included elsewhere in this prospectus, we believe that the following accounting policies are those most critical to the judgments and estimates used in the preparation of our consolidated financial statements.

Revenue Recognition

We recognize revenue from the sale of wine, including private label wines, to wholesale distributors and to consumers. We also recognize revenue from custom winemaking and production services, grape and bulk sales, private events held at its winery estates and storage services, as well as the sale of other merchandise and services.

We recognize revenue when control of promised goods or services is transferred to a customer in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To determine revenue recognition for its arrangements, we perform the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. We recognize revenue when obligations under the terms of a contract with our customer are satisfied. Generally, this occurs when the product is shipped, and title passes to the customer, and when control of the promised product or service is transferred to the customer. Our standard terms are free on board (“FOB”) shipping point, with no customer acceptance provisions. Revenue is measured as the amount of consideration expected to be received in exchange for transferring products. Revenue is recognized net of any taxes collected from customers, which are subsequently remitted to governmental authorities. We account for shipping and handling as activities to fulfill our promise to transfer the associated products. Accordingly, we record amounts billed for shipping and handling costs as a component of net sales and classify such costs as a component of costs of sales. Our products are generally not sold with a right of return unless the product is spoiled or damaged. Historically, returns have not been significant to us.

Revenue is generated from one of our three reporting segments as described below:

Wholesale: Wholesale operations generate revenue from product sold to distributors, which then sell the product to off-premise retail locations such as grocery stores, wine clubs, specialty and multi-national retail chains, as well as on-premise locations such as restaurants and bars. We transfer control and recognize revenue for these orders upon shipment of the wine out of our own or third-party warehouse facilities. We pay depletion and marketing allowances to certain distributors, based on sales to our customers, or the allowance is netted against the purchase price.

Direct to Consumer: We sell our wine and other merchandise directly to consumers through wine club memberships, at wineries’ tasting rooms and through the internet. Wine club membership sales are made under contracts with customers, which specify the quantity and timing of future wine shipments. Customer credit cards are charged in advance of wine shipments in accordance with each contract. We recognize revenue for these contracts at the time that control of the wine passes to the customer, which is generally at the time of shipment. Tasting room and internet wine sales are paid for at the time of sale. We transfer control and recognize revenue for this wine when the product is either received by the customer (on-site tasting room sales) or upon the shipment to the customer (internet sales). Sales taxes are calculated based upon the customer’s location and are collected at the time of the sale and recorded in a sales tax liability account. Sales reporting requirements to the states are performed as required by the state and sales taxes are remitted to the government agencies when due.

Our winery estates hold various public and private events for customers and our wine club members. Upfront consideration received from the sale of tickets or under private event contracts for future events is recorded as deferred revenue. We recognize event revenue on the date the event is held.

 

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Business-to-Business: This segment generates revenue primarily from the sale of private label wines and custom winemaking services. Annually, we work with our national retail partners to develop private label wines incremental to our wholesale channel businesses. Additionally, we provide custom winemaking and production services. These services are made under contracts with customers, which include specific protocols, pricing, and payment terms. The customer retains title and control of the wine during the production process. We recognize revenue over time as the contract specific performance obligations are met. Additionally, we provide storage services for wine inventory of various customers. The customer retains title and control of the inventory during the storage agreement. We recognize revenue over time for storage services, and when the contract specific performance obligations are met.

Other: Our Other segment includes revenue from grape and bulk sales, storage services, and for the year ended June 30, 2020 revenue under the Sales Pro LLC (“SalesPro”) and Master Class Marketing, LLC (“Master Class”) business line sold in 2019. We transfer control and recognize revenue for grape sales when product specification has been met and title to the grapes has transferred, which is generally on the date the grapes are harvested, weighed and shipped. We transfer control and recognizes revenue for wine and spirits bulk contracts upon shipment. SalesPro and Master Class revenue represents fees earned from off-premise tastings for third-party customers. These customers include other wine and beer brand owners and producers.

Income Taxes

Deferred income taxes are determined using the asset and liability method. Under this method, deferred income tax assets and liabilities are determined based on differences between the financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recorded when the expected recognition of a deferred income tax asset is considered to be unlikely.

We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the tax authorities, based on the technical merits of the position. The tax benefit is measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. We recognize interest and penalties related to income tax matters as a component of income tax expense.

Inventories

Inventories of bulk and bottled wines and spirits and inventories of non-wine products and bottling and packaging supplies are valued at the lower of cost using the FIFO method or net realizable value. Costs associated with winemaking, and other costs associated with the manufacturing of products for resale, are recorded as inventory. Net realizable value is the value of an asset that can be realized upon the sale of the asset, less a reasonable estimate of the costs associated with either the eventual sale or the disposal of the asset in question. Inventories are classified as current assets in accordance with recognized industry practice, although most wines and spirits are aged for periods longer than one year.

Goodwill and Intangible Assets

Goodwill represents the excess of consideration transferred over the estimated fair value of assets acquired and liabilities assumed in a business combination. We have three reporting units under which goodwill has been allocated. We conduct a goodwill impairment analysis annually for impairment, as of the end of the respective fiscal year, or sooner if events or circumstances indicate the carrying amount of the asset may not be recoverable.

Our intangible assets represent purchased intangible assets consisting of both indefinite and finite lived assets. Certain criteria are used in determining whether intangible assets acquired in a business combination must be recognized and reported separately. Our indefinite lived intangible assets, representing trademarks and winery

 

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use permits, are initially recognized at fair value and subsequently stated at adjusted costs, net of any recognized impairments. The indefinite lived assets are not subject to amortization. Our finite-lived intangible assets, comprised of customer relationships and Sommelier relationships, are amortized using a method that reflects the pattern in which the economic benefits of the intangible assets are consumed or otherwise used. If that pattern cannot be reliably determined, the intangible assets are amortized using the straight-line method over their estimated useful lives and are tested for impairment along with other long-lived assets. Amortization related to the finite-lived assets is included in selling, general and administrative expenses. Intangible assets are reviewed annually for impairment, as of the end of the reporting period, or sooner if events or circumstances indicate the carrying amount of the asset may not be recoverable.

Stock-Based Compensation, Stock Option and Series A Stock Valuation

Stock-based compensation is reported at calculated fair value based on the grant date of the share-based payment. The Black-Scholes option-pricing model is used to estimate the calculated fair value of each option grant on the date of grant. We amortize the calculated value to stock-based compensation expense using the straight-line method over the vesting period of the option.

As there has been no public market for the stock options we have granted, the grant date fair value of such awards has been determined by our board of directors with the assistance of management and an independent third-party valuation specialist. We believe our board of directors has the relevant experience and expertise to determine the fair value of our stock options. The grant date fair value of stock options was determined first by estimating our aggregate equity value using a weighting of discounted cash flows, comparable public companies, and comparable-transactions valuation methodologies. An option-pricing method, which utilizes certain assumptions including volatility, time to liquidation, a risk-free interest rate, and an assumption for a discount for lack of marketability, was then used to allocate the total equity value to our different classes of equity according to the rights and preferences. A discount for lack of marketability was applied to determine the stock option equity values. In determining the fair value of the stock options, the methodologies used to estimate its enterprise value were performed using methodologies, approaches, and assumptions consistent with the American Institute of Certified Public Accountants Accounting and Valuation Guide, Valuation of Privately-Held-Company Equity Securities Issued as Compensation (“AICPA Accounting and Valuation Guide”). The assumptions we used in the valuation model were based on future expectations combined with management’s judgment. In the absence of a public trading market, the board of directors, with input from management, exercised significant judgment and considered numerous objective and subjective factors to determine the fair value of the stock options as of the date of each award, including the following factors:

 

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independent valuations performed at periodic intervals by an independent third-party valuation firm;

 

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operating and financial performance, forecasts and capital resources;

 

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current business conditions;

 

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the hiring of key personnel;

 

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the status of research and development efforts;

 

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any adjustment necessary to recognize a lack of marketability for the stock options;

 

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trends and developments in the industry;

 

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the market performance of comparable publicly traded technology companies; and

 

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the U.S. and global economic and capital market conditions.

The dates of our valuation reports, which were prepared on a periodic basis, were not contemporaneous with the grant dates of our option awards. Therefore, we considered the amount of time between the valuation report date and the grant date to determine whether to use the latest valuation report for the purposes of determining the fair value of the options for financial reporting purposes. The additional factors considered when determining any

 

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changes in fair value between the most recent valuation report and the grant dates included, when available, the prices paid in recent transactions involving our Series A stock, as well as our operating and financial performance, current industry conditions and the market performance of comparable publicly traded companies. There were significant judgments and estimates inherent in these valuations, which included assumptions regarding our future operating performance and the determinations of the appropriate valuation methods to be applied. If we had made different estimates or assumptions, our stock-based compensation expense, net income (loss) per unit attributable to our series A stockholders could have been significantly different from those reported in this prospectus.

In valuing the series A stock, we determined the equity value of our business by taking a weighted combination of the value indications using the income approach and the market comparable approach valuation methods.

Income Approach

The income approach estimates value based on the expectation of future cash flows a company will generate, such as cash earnings, cost savings, tax deductions and the proceeds from disposition. These future cash flows are discounted to their present values using a discount rate derived from an analysis of the cost of capital of comparable publicly traded companies in its industry or similar lines of business as of each valuation date. This weighted-average cost of capital discount rate, or WACC, is adjusted to reflect the risks inherent in the business. The WACC used for these valuations was determined to be reasonable and appropriate given our debt and equity capitalization structure at the time of each respective valuation. The income approach also assesses the residual value beyond the forecast period and is determined by taking the projected residual cash flow for the final year of the projection and applying a terminal exit multiple. This amount is then discounted by the WACC less the long-term growth rate.

Market Comparable Approach

The market comparable approach estimates value based on a comparison of the subject company to comparable public companies in a similar line of business. From the comparable companies, a representative market multiple is determined which is applied to its financial metrics to estimate the value of its parent or its subsidiary.

To determine our peer group of companies, we considered winery and consumer product public companies and selected those most similar to us based on various factors, including, but not limited to, financial risk, company size, geographic diversification, profitability, growth characteristics and stage of life cycle.

In some cases, we considered the amount of time between the valuation date and the award grant date to determine whether to use the latest valuation determined pursuant to one of the methods described above or to use a valuation calculated by management between the two valuation dates.

Once we determined an equity value, we utilized the Black-Scholes Option Pricing Model (“BSOPM”) to allocate the equity value to our options. BSOPM values its options by creating call options on the respective equity value, with exercise prices based on the liquidation preferences, participation rights and strike prices. This method is generally preferred when future outcomes are difficult to predict and dissolution or liquidation is not imminent.

Emerging Growth Company Election

We are an “emerging growth company” as defined in Section 2(a) of the Securities Act, and have elected to take advantage of the benefits of the extended transition period for new or revised financial accounting standards. We expect to continue to take advantage of the benefits of the extended transition period, although we may

 

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decide to early adopt such new or revised accounting standards to the extent permitted by such standards. We expect to use this extended transition period for complying with new or revised accounting standards that have different effective dates for public and non-public companies until the earlier of the date we (i) are no longer an emerging growth company or (ii) affirmatively and irrevocably opt out of the extended transition period provided in the JOBS Act. This may make it difficult or impossible to compare our financial results with the financial results of another public company that is either not an emerging growth company or is an emerging growth company that has chosen not to take advantage of the extended transition period exemptions because of the potential differences in accounting standards used.

In addition, we intend to rely on the other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act and compliance with applicable laws, if, as an emerging growth company, we rely on such exemptions, we are not required to, among other things: (a) provide an auditor’s attestation report on our system of internal control over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act of 2002; (b) provide all of the compensation disclosures that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010; (c) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis); and (d) disclose certain executive compensation-related items such as the correlation between executive compensation and performance and comparisons of the Chief Executive Officer’s compensation to median employee compensation.

We will remain an emerging growth company under the JOBS Act until the earliest of (a) December 31, 2026, (b) the last date of our fiscal year in which we had total annual gross revenue of at least $1.07 billion, (c) the date on which we are deemed to be a “large accelerated filer” under the rules of the SEC or (d) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the previous three years.

Recent Accounting Pronouncements

See Note 1 of notes to the consolidated financial statements for a discussion of recent accounting standards and pronouncements.

 

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DESCRIPTION OF BUSINESS

Our Company

Vintage Wine Estates, Inc. is a leading vintner in the United States (“U.S.”), offering a collection of wines produced by award-winning, heritage wineries, popular lifestyle wines, innovative new wine brands, packaging concepts, as well as craft spirits. Our name brands include Layer Cake, Cameron Hughes, Clos Pegase, B.R. Cohn, Firesteed, Bar Dog, Kunde, Cherry Pie and many others. Since our founding over 20 years ago, we have grown organically through wine brand creation and through acquisitions to become the 15th largest wine producer based on cases of wine shipped in California. We’ve exceeded 20% net revenue and adjusted EBITDA compound annual growth rates since 2010. We now sell nearly 2 million cases annually.

Our key differentiator is our diversification—what we call our three-legged stool business model.

We are diversified in our brand collection, producing over 50 brands ranging in retail price from $10 to $150, with a focus on the growing segment between $10 and $20. Eighty percent of our business is done in this critical segment.

We are diversified in our omni-channel sales strategy balanced between direct-to-consumer, 30% of sales, traditional wholesale, 33% of sales and business-to-business at 35% of sales. Our direct-to-consumer segment is particularly robust. Where most wine companies have two direct sales levers to pull: tasting rooms and wine clubs, we have six: tasting rooms, wine clubs, ecommerce, Cameron Hughes, Windsor/custom label design and engraving, and QVC/HSN.

We are diversified in our sourcing with a strong asset base of 2,800 owned and leased vineyard acres located in the premier winegrowing regions of the U.S. and 10 owned winery estates. These properties extend from the Central Coast of California to storied appellations in Napa Valley and Sonoma County, north to Oregon and Washington. We obtain fruit for our wines from owned and leased vineyards, as well as other sources, including independent growers and the spot wine market.

Vintage Wine Estates has completed over 20 acquisitions in the past 10 years and completed over 10 acquisitions in the past 5 years. We generally acquire the brands and inventories of a targeted business, eliminating redundant corporate overhead. We then integrate the acquired assets into our highly efficient production, distribution and omni channel selling networks, quickly increasing the sales and margins of the acquired business.

Our growth has allowed us to reinvest in our business and create the scale and infrastructure needed to successfully manage a variety of different wine brands and channels and reduce costs. Our owned winery facilities have the current capacity to produce up to 7 million cases of wine per year. We are in the process of completing a $45 million investment into our Ray’s Station production facility, which includes a high-speed bottling facility with the capacity to bottle over 13.5 million cases annually and a 364,000 square foot warehouse and distribution center. This project will be complete at the end of Q1 FY 22.

Additional bottling capacity will not only be used for our products, but also will allow us to further expand our bottling and fulfillment services offered to third parties on a contract basis. The additional capacity of the bottling facility may not initially be fully utilized but provides us with capacity consistent with our growth plans. Our scale and consolidated operations are expected to enable us to increase margins of the businesses that we acquire, providing accretive value promptly after the acquisition. We intend to continue to grow our business organically and through acquisitions, with a view towards making two to three acquisitions per year over the next five years.

Our acquisition strategy is to acquire brands and inventories while eliminating redundant corporate overhead, increasing gross margins of the acquired businesses by leveraging scale economies, and driving

 

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revenue growth through our distribution network. Gross margins improve by incorporating brands into a more efficient operating system. In addition, operating margins improve from synergies of acquisitions.

There are more than 11,000 wineries in the U.S., with the largest 50 wineries controlling approximately 90% of the market share by volume, but less than 60% of consumer spending. We plan to use our financial capacity to: (i) continue to acquire family-owned brands from small wineries, (ii) acquire non-core brands from medium sized and large competitors, and (iii) potentially acquire one or more large businesses in our industry.

Our primary unique selling proposition for a seller is that we have a strong track record of closing once the price and structure are agreed upon. We also believe our managers are perceived as excellent brand stewards, having increased the market share and profitability of virtually all of our acquired brands. We intend to be a disciplined acquirer, exercising cost discipline, with a focus on the industry’s growth in premium and super-premium wines. We expect that the fragmented nature of the wine industry, coupled with our infrastructure and experience, will enable us to continue to gain market share.

Our innovation strategy is focused on creating and building new wine brands for today’s wine consumer. In the past five years, we have launched over 15 new wine brands, which are primarily sold to major national retail accounts and through direct-to-consumer channels. We also develop private labels and produce wine for major retail clients, including Costco and Target, to sell as proprietary brands. The ability to create new wine brands and quickly bring them to market allows us to respond swiftly to trends and changing consumer tastes and needs.

Our mission is to maintain an entrepreneurial spirit, stay humble and focus on the customer. We respect the ways people buy wine—at the estate wineries, at retail, in restaurants, on the telephone, on the internet, on television and by mail.

Our Business Combination

We were formed in 2019 as Bespoke Capital Acquisition Corp. (“BCAC”), a special purpose acquisition corporation incorporated under the laws of the Province of British Columbia. BCAC was organized for the purpose of effecting an acquisition of one or more businesses or assets by way of a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or any other similar business combination involving BCAC.

On June 7, 2021, BCAC consummated its business combination (the “Business Combination”) with Vintage Wine Estates, Inc., a California corporation (“Legacy VWE”), pursuant to a transaction agreement dated February 3, 2021. As a result of the Business Combination and the related transactions, BCAC changed its jurisdiction of incorporation from the Province of British Columbia to the State of Nevada, BCAC changed its name to “Vintage Wine Estates, Inc.” and Legacy VWE became our wholly-owned subsidiary.

For accounting purposes, and in accordance with generally accepted accounting principles, BCAC was treated as the acquired company and Legacy VWE was treated as the acquirer.

Core Business Segments

We report our results of operations through the following segments: Wholesale, Business-to-Business (“B2B”), Direct-to-Consumer (“DTC”) and Other.

Fundamentally, we are an omni-channel consumer goods business that happens to operate in the wine industry. Unlike wine companies that solely or mainly sell to wholesale distributors, we sell our products through a number of different channels.

 

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A description of our segments follows:

Wholesale

Our wholesale operations generate revenue from products sold to distributors, who then sell them to off-premise retail locations such as grocery stores, specialty and multi-national retail chains, as well as on-premise locations such as restaurants and bars.

We have longstanding relationships with our distribution network and marketing companies, including with industry leaders such as Deutsch Family Wine and Spirits, Republic National Distributing Company and Southern Glazer’s Wine & Spirits. Through these relationships, our products are sold in all 50 states and in 37 countries outside the U.S. In addition to our geographical reach, our products are available for purchase at 34,500 off-premise locations as of June 30, 2021 including leading national chains such as Costco, Kroger, Target, Albertsons and Total Wine & More. Our products were also sold at 17,657 restaurants and bars as of June 30, 2021.

Our wholesale segment generated $72.9 million and $75.4 million of revenue for the fiscal years ended June 30, 2021 and June 30, 2020, respectively.

Business-to-Business

Our B2B sales segment generates revenue from the sale of private label wines and custom winemaking services.

We work with national retailers, including Costco, Albertsons, Target and other major retailers, to provide private label wines incremental to their existing beverage alcohol business. Retailers generally earn higher margins on sales of their private label wines than on sales of third-party wines. Consequently, retailers are increasingly offering more private label products in their stores. We expect retailers’ demand for private labels to continue to increase and believe that our private label business will continue to grow. Retailers frequently request brand, label and product line extensions.

Our custom winemaking services are governed by long-term contracts with other wine industry participants and include services such as fermentation, barrel aging, procurement of dry goods, bottling and cased goods storage. Additionally, we believe that our custom winemaking services business allows us to maximize our production assets’ throughput and efficiency and thus improves profit margins for our proprietary brands.

Our B2B segment generated $77.4 million and $54.1 million of revenue for the fiscal years ended June 30, 2021 and June 30, 2020, respectively.

Direct-to-Consumer

Our DTC segment generates revenue from sales made directly to the consumer. DTC sales have higher gross profit margins than wholesale sales because DTC sales allow us to capture the profit margin that otherwise would go to our distribution partners on sales in the wholesale segment. As a result, our profit margins in the DTC segment are significantly higher than in our other segments while operating margins are consistent with other segments. We believe that our DTC business is one of the largest in the U.S. wine industry.

Our DTC sales are made primarily through our tasting rooms, wine clubs and e-commerce.

Tasting Rooms — We currently operate 14 tasting rooms that served over 135,000 visitors during the fiscal year ended June 30, 2021, down from over 188,000 for the fiscal year ended June 30, 2020 due to the effects of the COVID-19 pandemic. We expect that, after there has been availability and public acceptance of effective

 

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COVID-19 vaccines and travel restrictions have been lifted, tasting room volumes will, over time, increase from the current lows. Our tasting rooms are designed to provide a welcoming atmosphere where we can introduce the consumer to our brands with a view towards developing an authentic relationship over time. These tasting rooms feature our exclusive, low-production wines, at higher-than-average price points, as well as our more accessible, higher-production, wines. Visitors are encouraged to taste, and then purchase, our wines.

Wine Clubs — We currently offer 26 branded wine clubs and had more than 35,000 wine club members as of June 30, 2021. Our wine club members sign up to purchase regular shipments of our wines and receive additional benefits such as volume discounts, exclusive visits to our tasting rooms, invitations to member-only events, access to winemakers and the ability to try each of our wines before they are widely sold in stores. We leverage digital technology through virtual tastings and mixers, giving members new ways to network with one another.

E-Commerce — Sales through our various brand websites are a growing part of DTC sales. We have an active email list with over 859,000 subscribers. Our digital marketing team drafted and sent over 5,200 unique emails that generated over 64 million impressions for the fiscal year ended June 30, 2021. We have used digital marketing since the early 2000s, recently increasing our e-commerce customer conversion rate to 9.3%, which is substantially above the food and drink industry’s e-commerce conversion rate of 1.7%, as of August 2021.

Custom Label Design and Engraving — We also offer custom label design and engraving services whereby customers can design and engrave wine bottles to their specifications. We believe that we are the only wine producer with the ability to do custom engraving on wine bottles. As a result, we are able to offer our services profitably at a lower price than competitors that need to outsource bottle engraving. In addition to our core private label customers, we have created custom bottles for weddings, major corporate events and other promotional opportunities.

Our DTC segment generated $66.6 million and $55.6 million of revenue for the fiscal years ended June 30, 2021 and June 30, 2020, respectively.

Other

Our Other segment generates revenue from grape and bulk sales, storage services and for the year ended June 30, 2020, revenue under the Sales Pro and Master Class business line sold in 2019. We record corporate level expenses, non-direct selling expenses and other expenses not specifically allocated to the results of operations in our Other segment.

Our Other segment generated $3.8 million and $4.8 million of revenue for the years ended June 30, 2021 and 2020, respectively.

Our Diversified Portfolio

Our asset base and product portfolio have been strategically built to provide significant flexibility throughout the business cycle. Our wine portfolio has three tiers: lifestyle brands, luxury brands, and digitally native brands. We also produce and sell craft spirits.

Lifestyle Brands

Our lifestyle wines primarily sell through off-premise channels at retail prices ranging from $10.00 to $25.00 per bottle. The lifestyle tier accounts for more of our branded case volume than the luxury tier due to the lifestyle tier’s wider distribution and lower pricing. Our lifestyle brands are designed to deliver a compelling price-to-quality ratio. We believe our infrastructure, sourcing network and bottling-on-demand capabilities allow us to adjust production in line with market demand.

 

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Our lifestyle brands include the following, among others:

Layer Cake — Layer Cake is a vintage-dated, premium wine brand featuring Cabernet Sauvignon, Pinot Noir and Chardonnay and other varietals sourced from various vineyards from around the world. The wines are designed to be approachable and food-friendly, with layers of flavor. Layer Cake is distributed nationally, at retail prices between $11.99 and $19.99 per bottle.

Firesteed — Founded in 1982, Firesteed is one of Oregon’s most recognized wine marques, well-known as an award-winning, high scoring top Pinot Noir producer. Located in Oregon’s Willamette Valley and considered a foundation brand for Oregon Pinot Noir, Firesteed serves the growing interest in and demand for authentic, cool-climate Oregon Pinot Noir. The signature wine, Firesteed Pinot Noir, is notably 100% Pinot Noir, with no blending wines added to alter the pure varietal character. Recognizing the appeal and demand for Oregon Pinot Noir, Firesteed is one of our top retail sales priorities. Firesteed wines are also available for sale DTC through our e-commerce channel and wine club. Firesteed wines sell at retail prices between $16.00 and $40.00 per bottle.

Bar Dog — Bar Dog is vintage-dated, premium California wine, including Chardonnay, Cabernet Sauvignon and Pinot Noir varietals, along with Red Blend. Bar Dog launched as a first-to-market brand in Target stores in 2019 and now is distributed nationally with significant room to be distributed further. Bar Dog’s Cabernet Sauvignon has earned 94 points from the Toronto International Wine Competitions, its Red Wine and Chardonnay have earned Gold Medals, and its Pinot Noir has earned a Silver Medal from the San Francisco International Wine Competition. These wines sell at retail prices between $12.00 and $20.00 per bottle.

Middle Sister — Middle Sister is a non-vintage, premium California wine. The star of the “sisters” is Middle Sister Sweet & Savvy, the top-selling California Moscato in the United States, featuring a sister of color on the label. Middle Sister is a longstanding lifestyle brand, launched over 15 years ago in Target stores. It enjoys strong brand equity with a devoted consumer base. Middle Sister was the first wine label to feature a cast of stick figure characters on the label, engaging consumers in a novel, cheeky and humorous way. Middle Sister also was one of the early wine industry adopters of social media, having launched at the same time that Facebook was becoming a widely-used consumer platform. Middle Sister wines sell at a retail price of $10.00 per bottle.

Cherry Pie — Cherry Pie wines are a vintage, premium California wine. These wines are 100% Pinot Noir sourced from select, cooler climate vineyards in Northern California and the Central Coast that highlight the variety. These wines sell at a retail prices between $20.00 and $50.00 per bottle.

Cartlidge & Browne — Cartlidge & Browne is a legacy, premium California wine brand founded in 1980. Cartlidge & Brown wines appeals to consumers looking for quality and value. The brand continues to grow on the strength of longstanding trust in the wine quality and its appealing price point, with national distribution in retail chains, independent retailers and on-premise. Cartlidge & Brown wines sell at a retail price of $12.00 per bottle.

GAZE Wine Cocktails — GAZE Wine Cocktails are refreshing, light, low-alcohol blends of Green Tea Moscato, Blueberry Pomegranate Moscato and White Peach Moscato. GAZE Wine Cocktails blend quality California wine with natural ingredients popular with wellness-minded consumers. The GAZE package is a sleek, portable, recyclable aluminum bottle with a resealable twist-off closure and bright, fashion-forward silkscreened graphics. The Blueberry Pomegranate Moscato flavor was awarded 94 points and a Double Gold award at the 2019 San Francisco International Wine Competition. A case of six GAZE Wine Cocktails sells at a retail price of $36.00.

Luxury Brands

Our super-premium to ultra-premium wines are generally smaller-production, estate-based wines. We also have a tier of more widely sourced and available appellation wines. Our luxury wines consistently garner 90+

 

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scores, awards and accolades from top wine industry publications. They appeal to the wine aficionado who is intensely interested in the winemaker’s craft, the influence that vineyards and sites have on the wine, and the details of the vintage from budbreak to bottle.

Our luxury brands sell primarily at wine retailers, on-premise and through wine clubs and tasting rooms at prices ranging from $16.00 to $150.00 per bottle.

Our luxury brands include the following:

Girard — Girard is a super-premium brand founded more than forty years ago. Girard wines use small batch fermentation techniques and classic blending techniques, which have consistently produced award-winning wines. Girard’s tasting room room and production facility are in Calistoga, located in the northern end of Napa Valley, attraction for both tourists and wine collectors. Girard wines are offered in high-end grocery stores and restaurants, as well as in the tasting rooms and other e-commerce channels. Girard wines sell through wholesale, e-commerce, wine clubs and at the winery, at retail prices between $18.00 and $100.00 per bottle.

Clos Pegase — Clos Pegase is one of the best known assets in our luxury portfolio. Renowned architect Michael Graves submitted a neo-classical design for this winery to an international competition and was awarded the commission. The winery was completed in 1987 and has been recognized as one of the world’s great winery buildings. The winery features extensive caves for the cellaring and aging of wines and a drought-tolerant heritage garden. A companion winery house was completely restored to the original vision in 2019. In keeping with the high aesthetics of the winery, Clos Pegase wines are a benchmark for Napa Valley luxury wines. Two estate vineyards in the Calistoga American Viticultural Area (“AVA”) for Bordeaux varietal red wines, Applebone and Tenma, and Mitsuko’s Vineyard in the Carneros AVA for Pinot Noir. Chardonnay and other varieties produce world-class, award-winning wines. Clos Pegase wines are distributed nationally at wholesale and at the winery, and through e-commerce and wine clubs, selling at retail prices between $22.00 and $125.00 per bottle.

Laetitia Vineyard and Winery — The Laetitia estate, located approximately three miles from the Pacific Ocean in Arroyo Grande on California’s south-central coast, is a well-known name in California’s sparkling wine market. The 1,800-acre estate was founded as a sparkling wine producer in the 1980s, as the cooler climate, site and soils resembled those in the Champagne region of France. Laetitia has earned a reputation as a top California sparkling wine producer and continues to make a range of luxury sparkling wines, as well as Pinot Noir and Chardonnay varietals and Rhône-style wines. All Laetitia wines currently in wholesale distribution have scores of 90 points or higher from leading wine publications. The winery is a popular wine tourism destination, where guests can enjoy views of the vineyards and the Pacific Ocean as they enjoy the wines. Laetitia also features a private winery guest house for trade and media hospitality. Laetitia wines are sold at wholesale, the tasting room, wine clubs and e-commerce at retail prices between $24.00 and $65.00 per bottle.

Swanson Vineyards — In Napa Valley, Swanson Vineyards is strongly associated with Merlot. Founded in 1995 in the Rutherford AVA (generally better recognized for Cabernet Sauvignon), it was determined that Swanson’s site and soils resembled those of Château Pétrus in Bordeaux, France. We believe Swanson offered Napa Valley its first luxury wine tasting experience when it opened the Salon in 2001. Swanson Vineyards wines are distributed through wholesale, e-commerce and wine clubs at retail prices between $21.00 and $140.00 per bottle.

Kunde Family Winery — The Kunde Family Winery was established in 1904 and celebrated its 117th harvest in 2020. Kunde sources grapes from the Kunde family’s 1,800-acre sustainable vineyard and winery, which is the largest contiguous private property in Sonoma Valley, California. The Kunde brand is known for Cabernet Sauvignon, Merlot, Chardonnay and Zinfandel and is consistently recognized as one of the top ten brands in Sonoma. Kunde wines have earned scores of 90 points or higher for many of its wines across the portfolio. Kunde wines sell at the winery, and through wholesale, e-commerce and wine clubs at retail prices between $18.00 and $100.00 per bottle.

 

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Viansa — Viansa is known for its Italian varietals and its 270-degree views of the Sonoma Valley. Viansa was one of the first wineries to use the tasting room as a place to host and entertain guests. Viansa’s hilltop villa and estate, referred to as the “Summit of Sonoma,” has a panoramic view of Sonoma Valley. The site features olive tree-lined vineyards, a 97-acre wetland preserve, an event pavilion, and tasting patios that overlook the marketplace area. Viansa has been a notable Sonoma attraction for more than 30 years. Viansa wines are sold exclusively at the winery, through wine clubs and e-commerce at retail prices between $22.00 and $125.00 per bottle.

B.R. Cohn Winery —The B.R. Cohn Winery is located between the Mayacamas and Sonoma Mountain ranges, in the heart of California’s Sonoma Valley. Sonoma is pictured by some as a free-spirited cousin of Napa Valley. The history and heritage of B.R. Cohn may support this impression. Founded by the legendary rock and roll manager of the Doobie Brothers and other rock acts in the 1980s, the B.R. Cohn estate is an ideal site for growing Cabernet Sauvignon and other red Bordeaux varietals. Numerous musical events are hosted on the estate, including the Sonoma Harvest Music Festival held annually in September (with the exception of September 2020 due to COVID-19 restrictions). Alongside a range of small-lot estate wines, the Silver Label tier markets the B.R. Cohn wines to consumers at a more affordable price point. B.R. Cohn Silver Label wines, including Cabernet Sauvignon, Merlot, Chardonnay and Pinot Noir varietals and Sauvignon Blanc, are in wide wholesale and e-commerce distribution. B.R. Cohn wines sell at the winery, and through wholesale, e-commerce and wine clubs, at retail prices between $17.00 and $100.00 per bottle.

Craft Spirits

In addition to wine production and distribution, which is our core business, we are in the spirits business. We own the brand No. 209 Gin and Splinter Group Spirits, whose brands consists of Straight Edge Bourbon Whiskey, Slaughterhouse American Whiskey, and Whip Saw Rye. We also team with leading spirits manufacturers and distributors to develop products for our customers. We have collaborated with another spirits manufacturer to create Partner Vermouth, which is a sweet vermouth from the gardens and vineyards of California wine country.

We believe that we can use the spirits business to further expand our private label business with existing B2B customers. We expect that interest in selling private label products (due to the increased margins that we earn relative to sales of third party products) will lead to more retailers selling private label spirits. We believe that we can use our significant distribution network and production capabilities to increase our spirits private label business with both existing and new B2B customers.

Our Competitive Strengths

We believe that our strengths include a diversified brand portfolio and infrastructure, a customer-centric and innovation-driven culture, a demonstrated success in acquiring and integrating new assets into our platform, strong working relationships with distributor and retail networks, access to low-cost and flexible debt financing, and an experienced management team assembled and led by Patrick Roney.

Diversified Brand Portfolio and Infrastructure

Our diversified wine sourcing, brand positioning and omni-channel sales strategy result in a nimble, scalable business model, enabling us to bring our products to market rapidly and navigate ever-changing consumer demand flexibly. We believe the efficiencies of our infrastructure have been reflected in our historical results.

Strong Relationships with Distributors and Retailers

We have longstanding working relationships with many of the wine industry’s largest distributors and retailers, which facilitates the distribution of our products to customers in as many locations as possible.

 

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We believe that our existing arrangements with distributors also provide a scalable platform for us to introduce new products into the market and further expand our revenue and market share. The distribution market has experienced and continues to undergo significant consolidation. As a result, it is harder for newer or smaller wine and alcohol businesses to gain traction with major distributors, which limits their ability to get their products into the major wholesale and retail markets. We believe that our longstanding working relationships with the largest distributors and retailers—forged over many years—give us an advantage over newer and smaller competitors.

We have powerful, long-standing relationships with national retailers, including Costco, Albertson’s, Target and others. In addition, we believe that we have a seven-figure annual case volume expansion opportunity with our national chain account clients by placing more brands with existing customers and adding new major customers.

Customer-Centric and Innovation-Driven Culture

We have created more than 15 new brands over the last 5 years to address specific consumer needs and market opportunities. We take a holistic approach with new brands, evaluating key attributes such as price points, packaging format, demographic and psychographic trends. We create new brands organically through an efficient concept-to-launch process, which generally requires less than six months in total and can sometimes be completed in less than three months. We believe that our efficient new product development and rapid speed to market gives us and our private label retailers an advantage over competitors because it enables us to quickly address actual or perceived unmet consumer needs and can help us better align brand strategy with consumer demand.

 

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Demonstrated Success Acquiring and Integrating New Assets

We believe we have completed more brand mergers and acquisitions in the U.S. wine industry over the last 10 years than any other company in the industry. As illustrated in the following chart, we have completed more than 20 acquisitions since 2010.

 

 

Historically, our acquisitions have generated a strong return on equity. Over the three years immediately preceding the COVID-19 pandemic, we reviewed, on average, over 20 acquisitions per year, submitted an average of four letters of intent and completed an average of two acquisitions per year. We have historically targeted a significant increase in the target company’s EBITDA within three years of the acquisition. To achieve these results, our acquisitions are subject to a rigorous, data-driven, due diligence and underwriting process, to assure that minimum financial thresholds with meaningful upside can be satisfied in each transaction.

Experienced Management Team

Our senior leaders have decades of experience in the wine and spirits industry and have gone through numerous economic and consumer cycles, providing them with unique insight and historical perspectives that less experienced leaders do not have. Vintage Wine Estates was founded by Patrick Roney and Leslie Rudd, who passed away in 2018. Mr. Roney has spent more than 30 years in the wine, spirits and food industries and has held senior leadership roles at leading brands such as Seagram’s, Chateau St. Jean, Dean & Deluca and the Kunde Family Winery. Throughout his career, Mr. Roney has demonstrated a keen understanding of and ability to anticipate market trends and consumer behaviors. Mr. Roney also has also been able to attract some of the top talent in the industry, including President, Terry Wheatley. Mrs. Wheatley has spent her entire career in the wine and spirits industry at leading firms, including at E.J. Gallo and the Sutter Home/Trinchero Family Estate. Mrs. Wheatley also started her own wine brand, creation, sales and marketing company, Canopy Management, leveraging her long-term relationships with the wine industry’s top buyers to bring a portfolio of innovative wine brands to market. We acquired Canopy Brands in 2014.

Our Strategy

We are currently the 15th largest wine producer by cases shipped in California. We have been able to grow our business despite economic recessions. We intend to continue to grow our business by prioritizing the

 

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following goals: (i) increasing sales of our existing brands, (ii) continuing to develop new and innovative products, (iii) executing on our acquisition pipeline, (iv) continuing to grow our private label business, and (v) continuing to invest in and expand production capacity to meet the needs of our brands and our customers.

Increasing Sales of Existing Brands

We seek to grow our existing brands by increasing penetration within existing on-premise and off-premise retailers, selling into new retailers and distributors and investing in and expanding our DTC segment. Given the strength of our brands and our strong reputation with consumers, we believe we can increase the number of varietals and blends that are offered in retail and on-premise locations. As consumer shopping behaviors continue to evolve and change, we are well positioned to continue to increase sales and conversions through our off-premise retailers’ digital channels with the investment in a dedicated eGrocery team to manage and support the digital shelf online as well as in popular delivery apps and services. We will continue to invest in our DTC business and intend to capitalize on the consumer’s willingness to purchase more products online. Additionally, as government implemented measures in response to COVID-19 subside, we expect tasting room sales to increase, which should generally lead to increased wine club participation. Additionally, regulatory authorities across the U.S. have relaxed regulations regarding delivery of alcohol directly to consumers. As consumers have grown more used to obtaining alcoholic beverages this way, we expect DTC sales to continue to increase. While it is too soon to know if these relaxed regulations will be permanently enacted in each state, we believe we are well-positioned to take advantage of a consumer shift to DTC sales.

Developing New Brands and Innovative Products

We believe that we can continue to develop new brands and products that address consumer demand and sell these new products into our omni-channel distribution system. These new products are expected to diversify our revenue further and expand our addressable market to additional categories beyond wine. We believe our integrated infrastructure allows us to capitalize on emerging trends faster than many of our competitors, giving us an advantage in new product development. Additionally, upon federal legalization of cannabis, we expect to seek to produce and sell cannabis infused beverages through our distribution channels. We are at the early stage of developing this strategy and no material assets have been created from this initiative as of the date hereof. We do not intend to enter this sector unless cannabis is federally legalized in the U.S. and there is no assurance if or when cannabis will be federally legalized.

Executing our Acquisition Pipeline

There continues to be consolidation of distributors and retailers in the wine industry, creating uncertainty for smaller wine companies and further limiting their ability to garner attention in the wholesale channel. As a result, we expect more brands to look for buyers of their businesses, which may create more attractive acquisition opportunities for us in the future. Given our scale and infrastructure, we are generally able to increase margins of acquired businesses relatively quickly, adding value to the enterprise from the outset. While other, larger wine companies have recently been preoccupied with other strategic initiatives, we remain committed and highly active with our merger and acquisition (“M&A”) strategy.

Growing Private Label Sales

We intend to expand our private label business by increasing sales of existing products, creating product line extensions and developing new brands for new customers. We believe the largest retailers will continue to increase their private label offerings. We also believe that, in addition to private label wine sales, we are well-positioned to expand our private label options to include spirits and other products.

Expanding Production Capacity

We believe we have opportunities to make capital investments that satisfy our financial return requirements while expanding our capacity to meet additional demand for our private brands and private label customers over

 

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time. We are in the process of completing a $45 million investment in state-of-the-art technology upgrades to our Ray’s Station production facility. The upgraded facility, together with existing facilities, will allow us to produce and ship approximately 15 million cases of wine per year and store over 3 million cases of wine. The new facility will put our production and distribution capacity at levels comparable to the top 5 wine producers in the U.S. This facility also will allow us to automate a number of processes that were previously completed manually, leading to increased efficiencies and margins.

We are one of a few vertically integrated winery companies that has our own pick-and-pack capabilities, leading to substantial per case cost savings. Notably, we have recently added a second warehouse facility in Cincinnati, Ohio. This is significantly more efficient than outsourcing this work and is currently the fastest growing portion of the wine business versus wholesale or private label.

Our capital expenditures have been at elevated levels in recent years, and as projects are completed, the business is expected to significantly increase margins with modest platform investments required going forward.

Competition

The wine industry and alcohol markets generally are intensely competitive. Our wines compete domestically and internationally with premium or higher quality wines produced in Europe, South America, South Africa, Australia and New Zealand, as well as North America. We compete on the basis of quality, price, brand recognition and distribution capability. The ultimate consumer has many choices of products from both domestic and international producers. Our wines may be considered to compete with all alcoholic and nonalcoholic beverages.

At any given time, there are more than 400,000 wine choices available to U.S. consumers, differing with one another based on vintage, variety or blend, location and other factors. Accordingly, we experience competition from nearly every segment of the wine industry. Additionally, some of our competitors have greater financial, technical, marketing and other resources, offer a wider range of products, and have greater name recognition, which may give them greater negotiating leverage with distributors and allow them to offer their products in more locations and/or on better terms than us. Nevertheless, we believe that our diverse brand offerings, scalable infrastructure and relationships with the largest wholesalers and retailers will allow us to continue growing our business.

Seasonality

There is a degree of seasonality in the growing cycles, procurement and transportation of grapes. The wine industry in general tends to experience seasonal fluctuations in revenue and net income. Typically, we have lower sales and net income during our third fiscal quarter (January through March) and higher sales and net income during our second fiscal quarter (October through December) due to the usual timing of seasonal holiday buying, as well as wine club shipments. We expect these trends to continue.

Human Capital Management

We are committed to fostering a work environment that values diversity and inclusion. This commitment includes providing equal access to and participation in, equal employment opportunities, programs and services without regard to race, religion, color, origin, disability, sex, sexual orientation, gender identity, veteran status, age or stereotypes based thereon. We welcome team members’ differences, experiences, and beliefs, and we are investing in a more productive, engaged, diverse and inclusive workforce.

We monitor human capital metrics to ensure we are executing on our core values and making progress towards our diversity and inclusion commitments. As of June 30, 2021, we had 563 full-time employees. Among our employees, 44% identify as female and 56% identify as male. None of our employees are represented by a labor union, and none of our employees have entered into a collective bargaining agreement with us. We offer a highly competitive compensation and benefits program to attract and retain top talent.

 

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Our talented employees drive our mission and share core values that both stem from and define our culture, which plays an invaluable role in our execution at all levels in our organization. Our culture is based on these shared core values which we believe contribute to our success and the continued growth of the organization. Our core values are used in candidate screening and in employee evaluations to help reinforce their importance in our organization:

 

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Entrepreneurial in Spirit

 

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Humble in our Hearts

 

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Results Driven in Practice

 

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Customers Top of Mind

We continue to focus on workplace safety by providing training and bringing awareness to workplace best practices in our continuous efforts to reduce workplace injuries and accidents. We acted quickly to respond to safety protocols as a result of the COVID-19 pandemic to protect the health and safety of our team members. To support team members, we provided temporary pay increases to certain employees, offered remote work where possible, purchased additional sanitation supplies and increased personal protective materials provided to staff.

Trademarks

Trademarks are an essential part of our business. We sell our products under a number of trademarks, which we own or use under license. We also have multiple licenses and distribution agreements for the import, sale, production and distribution of our products. Depending on the jurisdiction, trademarks are valid as long as the trademarks are in use and their registrations are properly maintained. These licenses and distribution agreements have varying terms and durations.

Government Regulation

The alcoholic beverage industry is subject to extensive regulation by the Alcohol and Tobacco Tax and Trade Bureau (“TTB”) (and other federal agencies), each state’s liquor authority and potentially local authorities as well, depending on location. As a result, there is a complex multi-jurisdictional regime governing alcoholic beverage manufacturing, distribution, sales and marketing in the U.S. Regulatory agencies issue permits and licenses for manufacturing, distribution and retail sale (with requirements varying depending on location), govern “trade practice” activity at each tier and also regulate how each tier of the alcohol industry may interact with another tier. In addition, these laws, rules, regulations and interpretations are constantly changing as a result of litigation, legislation and agency priorities. We take regulatory compliance very seriously, and to facilitate compliance with applicable requirements, we have a team of seven compliance professionals. We also use leading compliance software providers (Avalara and SOVOS) to assist the compliance team with data management and reporting cycles. Additionally, we consult with outside regulatory counsel on compliance issues on a regular basis and utilize Compliance Connection, an outside compliance company, on an as needed basis.

We maintain licenses and permits to produce and wholesale wine in Oregon and Washington with state regulatory agencies and TTB. We maintain licenses and permits to import, produce, and wholesale wine, and to import, rectify and wholesale distilled spirits with California regulatory authorities and TTB. In addition to licenses for our primary production activity, we maintain hundreds of ancillary permits to support our wholesale and DTC segments. Most states require permitting and registrations with the state for shipments to wholesalers or consumers within the state, and these permits often also require local registration and tax reporting. We manage our permit compliance internally, with our team responsible for managing renewals, tax payments and reporting in a timely manner. Specifically, we complete the following to satisfy our regulatory obligations: (i) prepare TTB’s monthly Report of Wine Premises Operations, (ii) complete monthly TTB export division reports which coincide with the monthly Report of Wine Premises Operations, (iii) complete bi-weekly excise TTB tax returns, (iv) prepare and complete California Department of Tax and Fee Administration’s (CDTFA) winegrower, beer/

 

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wine importer, and distilled spirits reports and tax returns, (v) prepares and completes Washington state’s winegrower, beer/wine importer, and distilled spirits reports and tax returns, (vi) file annual grape crush and purchase reports with the U.S. Food and Drug Administration (“FDA”), (vii) regularly update corporate filings with the TTB, as well as state Alcohol Beverage regulatory agencies as required, and (viii) complete biennial registrations with the FDA.

In California, we maintain licenses with: (i) the California Department of Food and Agriculture to purchase grapes, (ii) a potable water system permit with the California Division of Drinking Water, (iii) a hazardous material business plan permit with the County of Mendocino California Division of Environmental Health, and (iv) a storm water pollution prevention plan permit with the State of California State Water Resources Control Board. Additionally, food processing facilities, which includes wineries, must register with the FDA, and we maintain such registrations for our winery facilities.

We believe that we possess all licenses and permits material to operating our business.

Sale of our wine is subject to federal alcohol tax, payable at the time wine is removed from the bonded area of the winery for sale. In December 2017, the federal government passed comprehensive tax legislation that included the Craft Beverage Modernization and Tax Reform Act. This legislation modified federal alcohol tax rates by expanding the lower $1.07 per gallon tax rate to wines up to 16.0% alcohol content with wines containing higher alcohol levels being taxed at $1.57 per gallon. We are also subject to certain taxes at the state and local levels.

 

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MANAGEMENT

Executive Officers and Directors

The following table sets forth, as of October 1, 2021, certain information regarding our executive officers and directors who are responsible for overseeing the management of our business, including their names, ages and positions.

 

Name		Age				Title
Executive Officers
Patrick Roney			65			Chief Executive Officer and Director
Terry Wheatley			67			President
Kathy DeVillers			59			Chief Financial Officer
Jeff Nicholson*			61			Chief Operating Officer
Non-Employee Directors
Paul S. Walsh			66			Chairman of the Board
Robert L. Berner III			60			Director
Mark W.B. Harms			60			Director
Candice Koederitz			65			Director
Jon Moramarco			64			Director
Timothy D. Proctor			71			Director
Lisa M. Schnorr			56			Director
Jonathan Sebastiani			51			Director

 

*	Mr. Nicholson announced on September 14, 2021 that he will resign as Chief Operating Officer of the Company, effective October 31, 2021. Russell G. Joy, 58, will succeed Mr. Nicholson as Chief Operating Officer and began his employment with the Company on October 18, 2021.

Executive Officers

Patrick Roney has served as our Chief Executive Officer and a director since June 2021. Mr. Roney served as the Chief Executive Officer of Legacy VWE since its inception, having co-founded Legacy VWE in 2007 with the late Leslie Rudd. Mr. Roney has spent his 30-plus year career in the wine, spirits, and food industries, beginning with his first job as a young sommelier at the legendary Pump Room in Chicago. He has been hands-on in every aspect of the wine and spirits business—from production to sales and marketing, to finance and senior management, at some of the industry’s most important brands, including Seagram’s, Chateau St. Jean, Dean & Deluca and the Kunde Family Winery. Mr. Roney’s idea to bring fine wine brand Girard together with a direct-to-consumer brand Windsor Vineyards, to form Vintage Wine Estates, illustrates his deep knowledge of market trends and consumer behaviors. Mr. Roney models an entrepreneurial spirit and is dedicated to preserving the heritage of iconic wine brands while maintaining focus on the customer and innovative ideas. He holds a B.S. degree from Northwestern University and an M.B.A. degree from Southern Illinois University. He is well-qualified to serve as a director because of his manifold roles in operations, finance, sales and marketing throughout his career in food and beverage companies, including leadership of Legacy VWE from its very beginning.

Terry Wheatley has served as our President since June 2021. Prior to that, she had served as the President of Legacy VWE since 2018, overseeing all commerce channels and marketing for the company, having joined Legacy VWE in 2014 when Canopy Management was acquired by Legacy VWE. Mrs. Wheatley began her 30-plus year career in the wine and spirits industry at E.&J. Gallo. After 17 years at Gallo, Ms. Wheatley took over sales and marketing positions at Sutter Home/Trinchero Family Estate, ultimately becoming the Senior Vice President of Marketing. In 2008, Mrs. Wheatley founded her own wine brand creation, sales and marketing company, Canopy Management, leveraging her long-term relationships with the wine industry’s top buyers to bring a portfolio of innovative wine brands to market. Mrs. Wheatley has also served as Chairwoman of CannaCraft, a large-scale cannabis manufacturer, since December 2019.

 

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Kathy DeVillers has served as our Chief Financial since June 2021. Prior to that, she had served as Legacy VWE’s Chief Financial Officer since August 2018. From January 2014 until joining Legacy VWE, Ms. DeVillers served as Chief Financial Officer at C. Mondavi Family and before then, held finance positions at other wine businesses, including Allied Domecq, The Vincraft Group and Ascentia Wine Estates, LLC. Ms. DeVillers also collaborates on acquisition strategy and implementation and oversees the Finance and Accounting departments of VWE. She holds a B.S. degree from California Polytechnic State University at San Luis Obispo.

Jeff Nicholson has served as Chief Operating Officer of VWE since January 1, 2019 and will resign from this position effective October 31, 2021. He has spent more than 30 years in food industry leadership. Beginning in 2017 until joining VWE, Mr. Nicholson held the position of Operating Partner at AGR Partners, a food and agriculture investment firm that made a minority investment in VWE in 2018. Before joining AGR in 2017, Mr. Nicholson was an entrepreneur in the food and agriculture space, founding and operating companies focused on maximizing value chain efficiencies. For the years 2015 and 2016, Mr. Nicholson managed personal agricultural investments and served as an Advisory Board Member for BrightPet, a pet food manufacturing portfolio company owned by the private equity firm Graham Partners. Mr. Nicholson’s expertise in logistics, procurement and distribution are well suited to the complex needs of the wine and spirits industry. Mr. Nicholson oversees all of VWE’s operations, including winemaking, production, warehouses, information technology, supply chain and purchasing. He has a B.A. degree from Oregon State University.

Russell G. Joy will serve as our Chief Operating Officer following the departure of Mr. Nicholson, effective November 1, 2021. Mr. Joy has over 15 years of extensive experience in the wine industry. Prior to joining the Company, Mr. Joy most recently served as General Manager of Napa Wine Company from May 2020 to September 2021. Prior to that, he was Vice President-Director of Strategy-CA from March 2017 to February 2020 and Vice President of California Operations from April 2016 to April 2019 at Ste. Michelle Wine Estates.

Non-Employee Directors

Paul S. Walsh is our Chairman of the Board and has served as a director since July 2019. Mr. Walsh brings with him a wealth of experience as Chief Executive Officer of a large multinational branded consumer products corporation operating in highly regulated markets. Mr. Walsh previously served as Chairman of Compass Group PLC from February 2014 to December 2020. He also previously served as the Lead Operating Partner of Bespoke Capital Partners, LLC (“Bespoke”) from August 2016 to June 2020. Mr. Walsh was the Chief Executive Officer of Diageo, the world’s largest spirits company, from 2000 to 2013. Prior to that, Mr. Walsh was the Chairman and President of The Pillsbury Company from 1996 to 1999. Under Mr. Walsh’s leadership, Diageo was transformed from a multi-national conglomerate into a focused global market leading spirits business via a combination of organic growth and significant acquisitions. Mr. Walsh and his management team created over $80 billion of shareholder value while in leadership at Diageo. Mr. Walsh brings with him substantial corporate leadership experience, knowledge of consumer-centric companies, international operations expertise, and experience with regulated industries. He has also held executive-level finance positions, including as Chief Financial Officer of Grand Metropolitan Foods and Intercontinental Hotels. Throughout his career, Mr. Walsh has built success and growth at his companies through the deployment of effective brand development and marketing strategies, which brings added perspective to our Board. Notable successes include the creation of the Johnnie Walker family of Scotch Whiskey brands. He also currently serves as Executive Chairman of McLaren Group. He is a non-executive director of McDonald’s Corporation (NYSE: MCD) and FedEx Corporation (NYSE: FDX).

Robert L. Berner III has served as a director since July 2019. Mr. Berner is a founder, Joint Managing Partner and Chief Investment Officer of Bespoke and Chairman of Bespoke’s Investment Committee. He has been active in the private equity industry for over 30 years. Mr. Berner has sat on numerous boards and is currently Chairman of, Johnnie-O LLC (men’s lifestyle brand). Mr. Berner also was a principal investor in, and Chairman of Diversified Distribution Systems, LLC (DDS), the largest specialty retail distribution and services

 

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business in the United States, which was recently successfully sold to Bunzl Plc. Mr. Berner was previously a Partner at CVC Capital Partners, a global private equity firm with over $100 billion of assets under management, and assisted in the opening and development of the firm’s US efforts, including serving as Chairman of CVC US. Prior to CVC, he served as a Managing Director at Ripplewood Holdings and was a member of the firm’s Investment Committee. Prior thereto, Mr. Berner was a Partner and member of the Investment Committee of Charterhouse International. Mr. Berner began his career in the investment banking division of Morgan Stanley where he was a Principal in the mergers and acquisitions department. Mr. Berner also serves on the board of Bespoke’s portfolio companies. In addition, Mr. Berner has acted as a non-executive director on the boards of numerous private equity portfolio companies during his private equity career and has sat on the board of several charitable and not for profit organizations. Mr. Berner has an MBA from Northwestern University and a BBA in Finance from the University of Notre Dame.

Mark W.B. Harms has served as a director since July 2019. He previously served as the Chief Executive Officer of BCAC from December 2020 to June 2021. Mr. Harms is a founder and Joint Managing Partner of Bespoke. Prior to Bespoke, Mr. Harms founded Global Leisure Partners (“GLP”) in 2004, where he is the Chairman and Chief Executive Officer. GLP has advised on over $60 billion of transactions to date, deploying over $500 million of capital into a number of investments and developed an industry leading operating executive network with 75+ members. Mr. Harms has completed over 130 advisory and principal transactions in North and South America, Europe and Australia. Mr. Harms has extensive experience with regard to leveraged debt, mezzanine and equity financing techniques in Europe and the U.S. with over $100 billion in completed transactions. Prior to founding GLP, Mr. Harms worked at Oppenheimer as a Managing Director and at CIBC World Markets as the founder and head of the Consumer Growth Group. Mr. Harms built within Consumer Growth Group strong industry verticals in branded consumer products and services, gaming, health and fitness, specialty retail and travel and tourism. Mr. Harms also serves on the board of Bespoke’s portfolio company, World Fitness Services. Mr. Harms was a non-executive director of 24 Hour Fitness, a Bespoke portfolio company, from 2014 to 2020. Mr. Harms was a Vice Chairman of the World Travel & Tourism Council from 2009 to 2014 and is a member and on the board of the International Association of Gaming Advisors. He was also a non-executive director on a number of other charitable, educational and non for profit boards. Mr. Harms has an MBA from the University of Chicago and a BA from the University of Michigan.

Candice Koederitz has served as a director since June 2021. She previously served as a director of BCAC from July 2019 to November 2019. Ms. Koederitz brings capital markets, due diligence, financial market product development, international and risk management experience, which she gained as a Managing Director at Morgan Stanley where she spent over 30 years. At Morgan Stanley, Ms. Koederitz worked with companies and governments globally to raise over $30 billion in capital. Ms. Koederitz held various senior management roles, including head of Capital, head of Regulatory Implementation, Chief Executive Officer of Morgan Stanley Asia (S) Ltd in Singapore and head of Capital Markets Execution. She co-chaired the Capital Commitment Committee, Equity Underwriting Committees, Americas Franchise Committee and was a member of the Firm and Securities Risk Committees. Ms. Koederitz is currently an independent, non-executive director of TEAM, Inc. (Nasdaq: TEAM) and ICE Benchmark Administration Ltd, a financial benchmark administrator, and of Scotia Holdings (US) Inc., whose parent company is The Bank of Nova Scotia. She is also active in several non-profit organizations. Ms. Koederitz has an M.B.A. degree from Harvard Business School and a B.S. degree in Civil Engineering from the University of Texas at Austin. She is qualified to serve on the Company’s board of directors because of her financial acumen and executive skills.

Jon Moramarco has served as a director since June 2021. Mr. Moramarco has nearly 40 years of uninterrupted involvement in the wine industry. Since 2009, he has been Managing Partner of BW166 LLC, a consultancy to the beverage alcohol industry and provider of beverage alcohol industry data. Industry reports published by BW166 LLC include the bw166 Total Beverage Alcohol Overview and The Gomberg & Frederiksen Report. From 2010 to 2014, Mr. Moramarco was President and Chief Executive Officer of Winebow Inc., a significant importer of table wines into the U.S. market and a wholesaler of fine wines and craft spirits. From 1999 to 2009, was an executive with Constellation Brands, holding positions such as President and Chief

 

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Executive Officer of Canandaigua Wine Co. (1999-2003), President and Chief Executive Officer of Icon Estates (2003-2005), President and Chief Executive Officer of Constellation Europe (2007-2007) and Chief Executive Officer of Constellation International (2007-2009). In his final role at Constellation Brands leading to his recruitment to Winebow Inc., he served on the Executive Management Committee of the parent company and participated in all board meetings. From 1982 to 1999, Mr. Moramarco held a series of positions with Allied Domecq and its predecessor companies. He holds a B.S. degree in Agricultural Science & Management from the University of California at Davis and a certificate in Organizational Change from Stanford Business School. Mr. Moramarco’s professional affiliations include the Executive Leadership Board for Viticulture and Enology of the University of California at Davis and former board positions with the Wine Institute of California, the American Vintners Association and the Wine Market Council. He is qualified to serve on the Company’s board of directors because of his deep understanding of the wine industry and his financial and managerial skills relating directly to the industry.

Timothy D. Proctor has served as a director since August 2019. He has 38 years of experience in the practice of law, primarily in the highly regulated industries of pharmaceuticals and drinks. After five years at Union Carbide Corporation, Mr. Proctor spent 13 years at Merck supporting pharmaceutical marketing and research activities worldwide. At Glaxo (now GlaxoSmithKline) Mr. Proctor was US general counsel with responsibility for the full range of legal activities in support of marketing, manufacturing, and research, including intellectual property, as well as corporate compliance. He moved with Glaxo to the head office in London to be global head of human resources, and while in London joined Diageo plc as global general counsel. His thirteen years at Diageo involved managing a worldwide team of lawyers in support of a number of marketing, M&A, regulatory, and compliance challenges, during a period of strong growth for the company. Mr. Proctor’s previous board service included the Northwestern Mutual, Wachovia Bank and Allergan, Inc. Mr. Proctor has MBA and JD degrees from the University of Chicago, earned in a joint program.

Lisa M. Schnorr has served as a director since June 2021. She retired in May 2021 from Constellation Brands (NYSE: STZ), a Fortune 500 company and a leading international producer of beer, wine and spirits with operations in the U.S., Mexico, New Zealand and Italy. Ms. Schnorr joined Constellation Brands in 2004 and earned promotion through a series of positions with increasing responsibility, including Vice President of Compensation and HRIS (2011-2013), Senior Vice President of Total Rewards (2014-2015), Corporate Controller (2015-2017) and Chief Financial Officer of the Wine & Spirits Division (2017-2019). Before joining Constellation Brands, Ms. Schnorr held financial and accounting positions at various public and private companies and she began her career in 1987 at PricewaterhouseCoopers (formerly Price Waterhouse), all in Rochester, New York. Since 2014, Ms. Schnorr has been a member of the board of directors of Graham Corporation (NYSE: GHM), where she serves as an Audit Committee member and Compensation Committee chair. She holds a B.S. degree in Accounting from the State University of New York at Oswego. Ms. Schnorr’s experience in VWE’s industry is a valuable contribution to the Company’s board of directors, as is her experience in strategic planning, audit, financial planning and analysis, capital allocation, public company corporate governance and risk management, among other functions and roles.

Jonathan Sebastiani has served as a director since June 2021. He previously served as a director of Legacy VWE from October 2018 to June 2021. He founded Sonoma Brands in January 2016 to invest in high-growth, emerging consumer brands and selectively incubate new concepts. Mr. Sebastiani currently leads all aspects of Sonoma Brands’ investment strategy and portfolio company management. Prior to founding Sonoma Brands, he was the Founder and Chief Executive Officer of KRAVE Pure Foods, acquired by The Hershey Company in 2015. Prior to KRAVE, he was the President of Viansa Winery. Mr. Sebastiani holds a B.S. degree from Santa Clara University and a dual M.B.A. degree from the Haas School of Business, University of California at Berkeley, and Columbia Business School. Mr. Sebastiani is qualified to serve on the Company’s board of directors because of his success as an entrepreneur and investor with respect to consumer products companies, particularly in the wine industry.

 

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EXECUTIVE COMPENSATION

Overview

We were originally formed in 2019 as Bespoke Capital Acquisition Corp. (“BCAC”), a special purpose acquisition corporation incorporated under the laws of the Province of British Columbia. BCAC was organized for the purpose of effecting an acquisition of one or more businesses or assets by way of a merger, amalgamation, share exchange, asset acquisition, share purchase, reorganization or any other similar business combination involving BCAC.

On June 7, 2021, BCAC consummated the transactions with Legacy VWE, pursuant to a transaction agreement dated February 3, 2021. As a result of the transactions, BCAC changed its jurisdiction of incorporation from the Province of British Columbia to the State of Nevada, BCAC changed its name to “Vintage Wine Estates, Inc.” and Legacy VWE became our wholly owned subsidiary.

Effective upon consummation of the Business Combination, Mark Harms resigned as Chief Executive Officer of the Company, Patrick Roney was appointed as Chief Executive Officer of the Company, Terry Wheatley was appointed as President of the Company, and Jeff Nicholson was appointed as Chief Operating Officer of the Company, among other management changes.

This section discusses the material components of the executive compensation for the executive officers who were our “named executive officers” for fiscal year 2021. This discussion may contain forward-looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs.

For fiscal year 2021, our named executive officers (“NEOs”) were:

 

•

Patrick Roney, our Chief Executive Officer;

 

•

Terry Wheatley, our President;

 

•

Jeff Nicholson, who served as our Chief Operating Officer; and

 

•

Mark Harms, who served as Chief Executive Officer of BCAC until the consummation of the transactions.

2021 Summary Compensation Table

The following table provides information regarding the compensation of our NEOs for fiscal year 2021 (other than Mr. Harms, who did not receive any compensation during fiscal year 2021).

 

Name and Principal Position		Fiscal Year				Salary ($)(1)				Bonus ($)				Stock Awards ($)				Option Awards ($)(2)(3)				Non-Equity Incentive Plan Compensation ($)				All Other Compensation ($)(4)				Total ($)
Patrick Roney			2021			$	406,603			$	124,373			$	—			$	—			$	—			$	—			$	530,976
Chief Executive Officer
Terry Wheatley			2021			$	407,808			$	123,291			$	—			$	1,917,645			$	—			$	18,000			$	2,466,744
President
Jeff Nicholson(5)			2021			$	334,750			$	100,200			$	—			$	654,605			$	—			$	33,996			$	1,123,551
Former Chief Operating Officer

 

(1)	Amounts in this column represent base salary earned during fiscal year 2021.

 

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(2)

Although Mr. Roney, Ms. Wheatley and Mr. Nicholson received grants to purchase common stock on June 7, 2021, such grants are contingent upon stockholder approval of the Vintage Wine Estates, Inc. 2021 Omnibus Incentive Plan, as further described below under “— Fiscal Year 2021 Equity-Based Compensation — The 2021 Omnibus Incentive Plan.” Because the grants are contingent upon stockholder approval, the grant date fair value for these stock options is not yet determinable.

(3)

Upon the consummation of the business combination, each option to purchase shares of Legacy VWE capital stock outstanding immediately prior to the consummation of the business combination, whether vested or unvested, was cancelled in exchange for a cash payment, as further described below under “— Fiscal Year 2021 Equity-Based Compensation.” Amounts in this column reflect the excess of the fair value of the consideration issued (the cash payments net of the exercise price of the options) over the fair value of the settled options at the cancellation date, which the Company recognized as incremental compensation expense. Ms. Wheatley received a total of $1,917,645 and Mr. Nicholson received a total of $654,605 in cash in exchange for the cancelled options to purchase shares of Legacy VWE capital stock.

(4)	Amounts in this column represent a car allowance of $18,000 for Mrs. Wheatley and the cost of a company-paid apartment sometimes used by Mr. Nicholson.

(5)	Mr. Nicholson will resign from the Company effective October 31, 2021.

Employment Agreements with the NEOs

In fiscal year 2021, the Company entered into new employment agreements with each of its post-transaction executive officers, including the NEOs, that became effective upon the consummation of the transactions.

Roney Employment Agreement

The employment agreement with Mr. Roney specifies that he will serve as the Company’s Chief Executive Officer and that his annual base salary is $500,000, subject to review and adjustment by the Board from time to time. Mr. Roney is eligible for a discretionary bonus of up to 40% of his base salary. Upon a termination of employment by the Company without cause or by Mr. Roney with good reason, Mr. Roney would be entitled to accrued benefits and a severance payment equal to three years’ base salary, payable over 36 months. For purposes of the employment agreements, “cause” is defined generally as a conviction or certain pleas to, a felony or certain other crimes, commission of a fraudulent or illegal act in respect of the Company, failure to perform duties under the employment agreement that was, or reasonably could be expected to be, materially injurious to the business, operations or reputation of the Company, a material violation of the Company’s written policies or procedures or a material breach of the executive’s obligations under the employment agreement. For purposes of the employment agreements, “good reason” is defined generally as a material reduction in the executive’s base salary, a material diminution of the executive’s title, duties, authorities or responsibilities or a material breach of the Company’s obligations under the employment agreement.

Wheatley and Nicholson Employment Agreements

The employment agreements with Mrs. Wheatley and Mr. Nicholson specify their titles as President and Chief Operating Officer, respectively, and entitle them to annual base salaries of $413,822 and $334,750, respectively, in each case subject to review and adjustment by the Board from time to time. Mrs. Wheatley’s and Mr. Nicholson’s employment agreements also provide for discretionary annual bonuses of up to 30% of their respective annual base salaries. The employment agreements also entitle them to accrued benefits and a severance payment equal to three years’ base salary, payable over 36 months, upon a termination of employment by the Company without cause or by the executive with good reason (as defined consistent with the definitions set forth above).

 

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NEO Fiscal Year 2021 Bonus Compensation

For fiscal year 2021, each of the NEOs (other than Mr. Harms) was eligible to receive a bonus under VWE’s bonus plan at a target level equal to the following percentages of their respective base salaries:

 

NEO		Target Percentage of Base Salary
Mr. Roney			40	%
Mrs. Wheatley			30	%
Mr. Nicholson			30	%

The performance goal for VWE’s fiscal year 2021 bonus plan was business plan earnings before interest, taxes, depreciation and amortization.

Following the end of fiscal year 2021, it was determined that the performance goals described above had been achieved and, accordingly, bonuses in recognition of such performance were paid in October 2021.

Fiscal Year 2021 Equity-Based Compensation

Upon the consummation of the business combination, each option to purchase shares of Legacy VWE capital stock outstanding immediately prior to the consummation of the business combination, whether vested or unvested, was cancelled in exchange for a cash payment equal to (i) the excess, if any, of the deemed fair market value per share of Legacy VWE capital stock represented by the Per Share Merger Consideration (as defined in the transaction agreement) over the exercise price of such option multiplied by (ii) the number of shares of Legacy VWE capital stock subject to such option (without interest and subject to any required withholding tax). If the exercise price of any VWE stock option was equal to or greater than the Per Share Merger Consideration, such option was cancelled without any cash payment being made in respect thereof. Ms. Wheatley received $1,917,645 and Mr. Nicholson received $654,605 in exchange for the cancelled options to purchase shares of Legacy VWE capital stock.

The 2021 Omnibus Incentive Plan

Effective June 7, 2021, the Company adopted the 2021 Omnibus Incentive Plan (“the 2021 Plan”) which superseded the 2015 Stock Option Plan. Pursuant to the 2021 Plan, the Board of Directors may grant up to 11,200,000 shares under share-based awards to officers, directors, employees and consultants. The 2021 Plan must be approved by the stockholders of the Company, which approval must occur at the next annual meeting of stockholders and in any event no later than June 7, 2022. The 2021 Plan provides for the issuance of stock options, stock appreciation rights, performance shares, performance units, stock, restricted stock, restricted stock units and cash incentive awards. Shares issued under share-based payment awards may either be authorized and unissued shares or shares held in treasury. The 2021 Plan will terminate on June 7, 2031.

Incentive and non-statutory stock options may be granted with exercise prices not less than 100% of the fair value of our common stock on the date of grant. Awards granted under the 2021 Plan generally expire no later than 10 years after the date of grant.

On June 7, 2021, we legally granted options to purchase shares of common stock. The exercise price of these options was $10.50 per share and will expire 10 years after the grant date. The options will vest with respect to 25% on the date which is 18 months after the grant date and with respect to an additional 25% on each of the second, third and fourth anniversary dates of the grant date. However, the vested portion of the options will only become exercisable if the volume-weighted average price per share of our common stock is at least $12.50 over a 30-day consecutive trading period following the grant date. We evaluated the grants under ASC 718 - Compensation-Stock Compensation and determined a grant date and a service inception date for accounting purposes did not exist as of June 7, 2021 because all necessary approvals had not been obtained, which will not

 

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occur until the shareholders have approved the 2021 Plan. Until shareholder approval is obtained, the 2021 Plan and related options are not considered outstanding for accounting purposes (see Note 11 to our Consolidated Financial Statements included elsewhere in this prospectus), and no compensation expense associated with these grants will be recognized.

Outstanding Equity Awards at 2021 Fiscal Year-End

None of our NEOs had outstanding equity awards as of the fiscal year ended June 30, 2021.

Retirement Plans

VWE offered a defined contribution plan for substantially all of its employees, including the NEOs, during fiscal year 2021. The plan provides for a discretionary matching contribution, and VWE expects to make a matching contribution with respect to fiscal year 2022. VWE did not offer a defined benefit pension plan or a nonqualified deferred compensation plan for its NEOs during fiscal year 2021.

Severance and Change in Control Compensation

Severance Under Employment Agreements

As disclosed above under “— Employment Agreements with the NEOs,” the Company entered into employment agreements with Mr. Roney, Mrs. Wheatley and Mr. Nicholson during fiscal year 2021 that became effective upon the consummation of the business combination and under which, upon a termination of employment by the Company without cause, or by the executive with good reason, the Company would be required to pay accrued benefits and a severance payment equal to three times the executive’s base salary over the 36 months following termination. No severance would be payable upon termination of employment with cause.

Equity Compensation

The options granted to our NEOs described above were granted under the Omnibus Incentive Plan, which remains subject to stockholder approval. Upon a change of control (as defined in the Omnibus Incentive Plan), unless otherwise determined by the Omnibus Incentive Plan administrator or set forth in an applicable agreement, outstanding awards under the Omnibus Incentive Plan will be treated as follows:

 

•

If the cash consideration paid in the change of control is less than 80% of the total consideration paid in the change of control, and the successor or surviving corporation (the “Successor”) agrees, outstanding awards may be assumed or replaced by the Successor, subject to the following requirements:

 

•

Such awards will be adjusted (among other appropriate adjustments) to cover the number and class of securities that would have been issuable to the participant on the consummation of the change of control had the award been exercised, vested or earned immediately prior to the change of control;

 

•

Each outstanding option that is less than 50% vested will become vested with respect to 50% of the award;

 

•

If the securities covered by the awards after the change of control are not listed and traded on a national securities exchange, then the participant will have the option upon exercise or settlement to receive cash in lieu of such securities; and

 

•

Upon a participant’s termination of employment or service within two years after the change of control, (1) by the Successor without cause (as defined in the Omnibus Incentive Plan), (2) by reason of death or disability, or (3) by the participant for good reason (as defined for purposes of the Omnibus Incentive Plan), all of the participant’s outstanding awards would vest in full (for performance-based awards, assuming target performance) on the date of such termination.

 

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•

If the cash consideration in the change in control is at least 80% of the total consideration paid in the change of control, or if the Successor does not agree to assume or replace the awards as described above (including by reason of a participant’s termination of employment in connection with the change in control), then immediately prior to the date of the change of control:

 

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Each stock option or stock appreciation right (“SAR”) held by a participant will become fully vested, and unless otherwise determined by the Board or administrator, will be cancelled in exchange for a cash payment equal to the excess of the per share price paid (or deemed to be paid) in the change of control transaction (as determined by the administrator) of the shares covered by the award over the purchase or grant price of such shares under the award (with stock options and SARs that have a purchase or grant price greater than the change of control price being cancelled for no consideration);

 

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Unvested service-based restricted stock and restricted stock units will vest in full;

 

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Performance shares, performance units, and cash incentive awards for which the performance period has expired will be paid based on actual performance;

 

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Performance shares, performance units, and cash incentive awards for which the performance period has not expired will be canceled in exchange for a cash payment equal to the amount that would have been due under such awards assuming target performance (but pro-rated based on the number of full months in the performance period that have elapsed as of the date of the change of control);

 

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Unvested dividend equivalent units will vest (to the same extent as the related award, if applicable); and

 

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All other unvested awards will vest and pay out in cash.

Other than as described above, the NEOs are not covered by any contracts, agreements or arrangements that provide for severance payments or benefits in connection with a termination of employment or a change in control.

 

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DIRECTOR COMPENSATION

The following table presents the total compensation for services to VWE for each person who served as a member of VWE’s Board during the year ended June 30, 2021 (other than Mr. Roney). Patrick Roney also served on VWE’s Board during 2021, but his compensation for services to VWE during 2021 is fully reflected in the 2021 Summary Compensation Table above.

 

Name		Fees Earned or Paid in Cash ($)				Stock Awards ($)				Option Awards ($)				Change in Pension Value and Nonqualified Deferred Compensation Earnings ($)				All Other Compensation ($)				Total ($)
Paul S. Walsh		$	10,222			$	—			$	—			$	—			$	—			$	10,222
Robert L. Berner III		$	5,750			$	—			$	—			$	—			$	—			$	5,750
Mark W.B. Harms		$	4,792			$	—			$	—			$	—			$	—			$	4,792
Candace Koederitz		$	4,792			$	—			$	—			$	—			$	—			$	4,792
Jon Moramarco		$	4,792			$	—			$	—			$	—			$	—			$	4,792
Tim Proctor		$	4,792			$	—			$	—			$	—			$	—			$	4,792
Jonathan Sebastiani		$	4,792			$	—			$	—			$	—			$	—			$	4,792
Lisa M. Schnorr		$	6,069			$	—			$	—			$	—			$	—			$	6,069

In fiscal 2022, the non-employee directors of the Company will receive varying levels of compensation for their services as directors and members of Board committees. Compensation payable per year for service will be as follows: except for Paul Walsh, the Chairman of the Board, each non-employee director will receive $150,000 in total, composed of $75,000 in cash and $75,000 in restricted stock (based on the variable weighted average market price for the common stock as measured at the close of the first 30 trading days of the fiscal year). The Chairman will receive $300,000 in total, composed of $150,000 in cash and $150,000 in restricted stock. The chairs of the Audit Committee, the Compensation Committee and the Nominating and Governance Committee will receive additional cash payments of $20,000, $15,000 and $10,000, respectively. The restricted stock grants, which grants are subject to stockholder approval of the Omnibus Incentive Plan at the Annual Meeting, will vest one year after date of grant and the stock shall not be resold for at least 18 months following the closing of the business combination.

Compensation that deviates from these arrangements may be paid in the event of resignations, vacancies and other situations resulting in service for a partial fiscal year. As permitted by SEC and Nasdaq rules, directors of the Company who are not Audit Committee members may be paid additional fees and other compensation for services to the Company on special projects and other matters distinct from service on the Board or as a member of one or more of the Board’s standing committees. The compensation payable to non-employee directors, like compensation payable to employees, may be revised from time to time by the Compensation Committee.

 

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CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

Agreements with Stockholders

In January 2016, D209, owned by the SLR No. 209 Trust, the LR Living Trust and VWE entered into a support and production agreement (the “Kirkland Agreement”). Under the Kirkland Agreement, D209 agreed to provide certain services related to VWE’s Kirkland branded spirits including overall management of the production process and advice and consulting regarding bottling, packaging and distribution. In November 2018, for a purchase price of $658,367, VWE acquired certain assets of D209 from D209 and the LR Living Trust, including key trademarked intellectual property. As part of the purchase agreement, the parties agreed to terminate the Kirkland Agreement for $250,000 in additional payments and VWE’s agreement to reimburse the SLR 209 Trust for 50% of expenses related to canceling an unrelated third-party consulting agreement such that the total payment VWE made to the LR Living Trust in finalizing the asset purchase agreement, inclusive of the purchase price was $908,367, plus the reimbursement of such expenses. In addition, VWE agreed to ongoing quarterly payments of $3 for every nine liter case of gin sold under the D209 trademarks by VWE for three calendar years following the sale (through November 2021). Such payment for case fees resulted in immaterial payments for the periods July 1, 2019 to June 30, 2020 and July 1, 2020 to June 30, 2021, respectively. Samantha Rudd is the sole trustee of the SLR No. 209 Trust and was a director of Legacy VWE. Darrell Swank is one of two co-trustees of the LR Living Trust and was a Legacy VWE director. VWE continues to make payments to the LR Living Trust pursuant to this agreement.

Kunde Family Winery Relationship

VWE acquired Kunde on April 19, 2021, whereupon the “related party” feature of the relationship between VWE and Kunde as separate enterprises ceased to exist. Until the acquisition, VWE provided certain administrative and management services to Kunde in return for management fees that totaled $407,000 for the year ended June 30, 2021 and $429,000 for the year ended June 30, 2020. VWE provided Kunde with certain services related to wine storage and handling of alcoholic beverages. For the years ended June 30, 2021 and 2020, Kunde paid VWE $65,000 and $649,000 respectively for actual storage and handling services provided at VWE’s warehouse.

VWE served as a pass-through for Kunde with automated invoicing of Kunde’s products sold to distributors. VWE invoiced distributors for Kunde-identified items. VWE’s ERP automated system immediately set up the Kunde account received for Kunde’s portion of the transactions, as well as the payable to Kunde (as a vendor). The Kunde payable portion had an “on hold” flag placed on it. Upon receipt of a payment from any Kunde distributor or customer, payment of any Kunde portion was applied to Kunde on the VWE books. Once the payment was applied, the payable to Kunde on its vendor account was released from hold and a check was issued to Kunde. This was a direct pass-through of funds.

On December 31, 2020, VWE entered into a marketing and distribution arrangement with Kunde. Under that arrangement, Kunde paid VWE a commission for certain distribution sales. VWE recognized $1,625,000 in revenue from the arrangement in the three and nine month periods ended March 31, 2021, with $1,625,000 included in accounts receivable at March 31, 2021. The arrangement terminated when VWE acquired Kunde on April 19, 2021. Revenue recognized in April 2021 for the period covering April 1, 2021 through April 18, 2021 was $97,100 included in accounts receivable.

Mr. Roney, throughout this period, was President of Kunde. He also was the Chief Executive Officer and a director of Legacy VWE and he is the Chief Executive Officer and a director of the Company The Roney Trust and the Rudd Trust were significant shareholders of Kunde and were and are significant shareholders of the Company.

 

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Loans and Guarantees from Related Parties

In January 2018, VWE and related entities issued a promissory note, as amended, in favor of the LR Living Trust in the original principal amount of $9,000,000. This note was assigned to from the LR Living Trust to the Rudd Trust effective as of December 31, 2019. The interest rate on the loan is equal to the prime rate of interest published by the Wall Street Journal (the “Prime Rate”) plus 4% as computed on a 360-day year with the interest rate being adjusted for all outstanding advances as of the first day of each calendar quarter. Any amount that is not paid when due bears interest at the Prime Rate plus 5%. VWE made an interest payment during the fiscal year ended June 30, 2021 in the amount of $1,633,312, representing all accrued interest as of December 31, 2019. The principal amount of $9,000,000 and accrued interest of $920,247 was paid on May 31, 2021.

In January 2018, VWE and related entities issued a promissory note in favor of Mr. Patrick Roney in the original principal amount of $1,000,000. The interest rate on the loan is equal to the Prime Rate plus 4% as computed on a 360-day year with the interest rate being adjusted for all outstanding advances as of the first day of each calendar quarter. Any amount not paid when due at the Prime Rate plus 5%. On March 9, 2021, VWE paid $488,730 of principal and 267,570 in accrued interest to Patrick Roney. On May 31, 2021, VWE paid the remaining principal of $511,270 and accrued interest of $10,217 to settle the outstanding note.

Loan to Related Party

In 2014, VWE made two unsecured loans to Terry Wheatley, one for $560,000 and the other for $110,000, in connection with VWE’s acquisition of her company, Canopy Brands. In June 2018, the terms of the loans were amended such that the interest accrued on both loans (totaling $86,269), was added to the outstanding principal amount on the loans, resulting in a new loan for the outstanding principal amount of $756,289. The principal amount of this loan was repaid in full in 2021 before the April 28, 2021 filing by the Sponsor with the SEC of the Sponsor’s Registration Statement on Form S-4 (File No. 333-254260). Interest on the loan in the amount of $87,032 was forgiven by VWE at that time. Terry Wheatley is the President of the Company.

Immediate Family Member Employment Agreements

VWE provides at will employment to Mr. Sean Roney, who provides administrative and general services to VWE, manages VWE’s trademarks and acts as brand manager for Sabotage, Sean Roney, who is the son of Mr. Patrick Roney, has served VWE from 2010 to present. During the years ended June 30, 2021 and 2020, he was paid a salary of $142,999 and $133,563, respectively.

In 2018, VWE employed Chris Sebastiani, the brother of Jonathan Sebastiani, as the General Manager of Viansa, responsible for direct-to-consumer sales and marketing of the Viansa brand. During the years ended June 30, 2021 and 2020, VWE paid Mr. Sebastiani $155,160 and $150,482, respectively. This arrangement remained in effect in 2021.

In 2014, VWE employed Kevin Lynn, the brother of Terry Wheatley, as Regional Sales Manager, selling wine to distributors. In the year ended June 30, 2020, VWE paid Mr. Lynn $159,900. This arrangement ended in 2020. Mr. Lynn was re- hired in October 2021 as the Visual Communications Manager.

Family Member Business Arrangements

In connection with its acquisition of Terry Wheatley’s business in 2014, VWE began to pay an unincorporated business named Tough Enough to Wear Pink for sponsorship services in connection with the latter’s breast cancer awareness campaign in the western community. Tough Enough to Wear Pink is the marketing platform for VWE’s Purple Cowboy brand. During the periods July 1, 2020 to June 30, 2021 and July 1, 2019 to June 30, 2020, VWE paid $360,000 and $380,000, respectively, to Tough Enough to Wear Pink for its services. These payments were made to Lacey and Wade Wheatley, who are the daughter-in-law and son of Terry Wheatley.

 

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XMS Arrangement

BCAC engaged XMS Capital Partners, LLC, a financial services firm (“XMS”), to provide advisory and consulting services to BCAC in connection with its initial public offering, identifying an acquisition target and diligence, the merger transaction and related matters. XMS received from BCAC and Bespoke B LP, respectively, a fee in cash of $2,000,000 and 333,333 profits interests for these services. Candice Koederitz, one of the Company’s directors, is a registered representative of XMS and performed certain of these services on behalf of XMS and prior to the consummation of the transactions. Following the consummation of the transactions, Ms. Koederitz received a portion of XMS’ fees for a total of $500,000 in cash and, at the request of XMS, Bespoke B LP issued 83,333 of profits interests directly to Ms. Koederitz in connection with XMS’ forfeiture of the same amount, for work she performed for on behalf of XMS prior to being elected as a director of the Company. Ms. Koederitz’s compensation was not pursuant to any contract or agreement with XMS, BCAC or VWE regarding compensation for the services she provided to BCAC.

Investor Rights Agreement

In connection with the consummation of the merger and other transactions, the Roney Investors, the Rudd Investors, the Sebastiani Investors and the Sponsor (collectively referred to as the Major Investors) and all other holders of Legacy VWE capital stock entered into the investor rights agreement, which provides for, among other things, voting agreements, resale restrictions and registration rights, and possible redemption of shares of the Company’s common stock relating to the PPP Note and downward Merger Consideration adjustments in excess of the Adjustment Escrow Deposit.

The Specified Investors will have significant influence in determining the outcome of matters requiring shareholder approval as well as the election of directors due to the investor rights agreement, the rights set out therein and the relative ownership of the Company’s common stock by the Specified Investors following closing of the transactions. Subject to its terms, the investor rights agreement and the rights set out therein with respect to election of directors may extend until the 2028 Annual Meeting.

Voting Agreements. The Sponsor and the Legacy VWE investors party to the investor rights agreement (collectively referred to as the Specified Investors) agreed therein to act in concert with respect to voting their shares of the Company’s common stock. Such agreement covers voting with respect to directors and, for the Major Investors, voting with respect to other matters.

Subject to the terms of the investor rights agreement, until the 2028 annual meeting of shareholders of the Company (the “2028 Annual Meeting”), the Roney Representative may designate up to five individuals, at least two of whom will qualify as independent directors under applicable Nasdaq listing requirements (collectively, the Roney Nominees), for inclusion by the Company and its board of directors, acting through the nominating and governance committee of the board of directors, in the slate of nominees recommended to shareholders for election as directors at any annual or special meeting of the shareholders at which directors are to be elected. Notwithstanding this agreement, if the combined beneficial ownership of the Roney Investors, the Rudd Investors and the Sebastiani Investors over which the Roney Representative has control:

 

•

(A) is reduced by at least 50%, but less than 75%, from that owned on the closing date of the merger (excluding reductions to the extent due to (1) the sale of shares in which the Roney Representative has no pecuniary interest or (2) issuances unrelated to a Material Stock Acquisition) and (B) represents at least the Minimum Number, the Roney Representative will, without further action, only be entitled to designate up to three Roney Nominees;

 

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(A) is reduced by at least 75% from that owned on such closing date (excluding reductions to the extent due to due to (1) the sale of shares in which the Roney Representative has no pecuniary interest or (2) issuances unrelated to a Material Stock Acquisition) and (B) represents at least the Minimum Number, the Roney Representative will, without further action, only be entitled to designate up to two Roney Nominees; and

 

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•

represents less than the Minimum Number, the Roney Representative will, without further action, no longer have any nomination rights hereunder.

Likewise, until the 2028 Annual Meeting and subject to the terms of the investor rights agreement, the Sponsor may designate all but two of the remaining directors, at least one of whom so designated will qualify as an independent director under applicable Nasdaq listing requirements (collectively, the Sponsor Nominees), for inclusion by the Company and its board of directors, acting through the nominating and governance committee of the board of directors, in the slate of nominees recommended to shareholders for election as directors at any annual or special meeting of the shareholders at which directors are to be elected. Notwithstanding this agreement, if the beneficial ownership of the Sponsor:

 

•

(A) is reduced by at least 50%, but less than 75%, from that owned on the closing date of the merger (excluding reductions to the extent due to issuances unrelated to a Material Stock Acquisition) and (B) represents at least the Minimum Number, the Sponsor will, without further action, only be entitled to designate up to two Sponsor Nominees;

 

•

(A) is reduced by at least 75% from that owned on such closing date (excluding reductions to the extent due to issuances unrelated to a Material Stock Acquisition) and (B) represents at least the Minimum Number, the Sponsor will, without further action, only be entitled to designate up to one Sponsor Nominee; and

 

•

represents less than the Minimum Number, the Sponsor will, without further action, no longer have any nomination rights under the investor rights agreement.

The two members of the board who are neither Roney Nominees nor Sponsor Nominees will be individuals who qualify as independent directors under Nasdaq and TSX listing requirements and are nominated by the Nominating and Governance Committee and the entire board of directors. If and when the Company’s securities are no longer listed on the TSX and the terms of these Nominating Committee Nominees expire, then the two positions on the board that would be filled by Nominating Committee Nominees will instead be filled by two additional Sponsor Nominees.

The “Roney Representative” as defined in the investor rights agreement is Patrick A. Roney or, if he is not then living or is incapacitated, the trustee of the Rudd Trust, the SLR Trust and the Rudd Foundation that owns a plurality of the total shares of common stock then held by them.

A “Material Stock Acquisition” as defined in the investor rights agreement means a transaction in connection with which Parent issues shares of common stock representing more than 35% of such stock then outstanding.

“Minimum Number” as defined in such agreement means 4% of the shares of the Company’s common stock outstanding as of the relevant date or such lower percentage to which the Roney Representative or Sponsor, as applicable, may agree (such agreement not to be unreasonable withheld) upon the request of the other.

In furtherance of the nomination rights provided for in the investor rights agreement, such agreement also provides that: (i) in connection with each meeting or consent solicitation of at or by which directors are to be elected, the Company’s board of directors (including any committee thereof) will nominate and recommend for election and include such recommendation in a timely manner in any proxy statement, consent solicitation or other applicable announcement to shareholders, and the Specified Investors will vote for each Roney Nominee and Sponsor Nominee; and (ii) the Company, acting through its board of directors (including any committee thereof), will fill any vacancy of a Roney Nominee or a Sponsor Nominee on the board with a Roney Nominee or a Sponsor Nominee, respectively.

With respect to voting on matters other than the election of directors, the investor rights agreement provides as follows for the period beginning on the closing date of the merger and ending the earlier of seven years from

 

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that date and the date on which the Roney Investors cease to own, in the aggregate, 10% or more of the Company’s outstanding common stock. During that period, each Major Investor will irrevocably appoint the Roney Representative as such Major Investor’s proxy, to the fullest extent of such Major Investor’s rights with respect to the shares of the Company’s common stock owned by such Major Investor as of the closing date or thereafter acquired, to vote each such shares at each annual or special meeting of shareholders on all matters other than, in the case of Sponsor, certain reserved matters. Such reserved matters are (a) the issuance of equity or the adoption of any equity plan, (b) any merger, consolidation or other business combination transaction to which the Company is a party (other than such a transaction resulting in a change of domicile, without more), (c) any transaction pursuant to which any executive officer, director or affiliate of the Company has an interest that is different from, or in addition to, the interests of the Company’s shareholders generally, (d) any amendment of the Company’s articles of incorporation or bylaws (other than an amendment that does not discriminate by its terms against any class, series or group of shareholders or any particular shareholder or adversely affect shareholder rights in a significant respect), and (e) any matter as to which Sponsor is advised in writing by a nationally recognized law firm that the failure to exercise independent judgment would be a breach of any law, exchange listing requirement, fiduciary duty or contract.

Upon consummation of the transactions, the Specified Investors beneficially owned approximately 48.7% of the Company’s common stock.

Resale Restrictions. Pursuant to the investor rights agreement, the Major Investors (other than the Sebastiani Investors) agreed that they will not, for 18 months following the closing of the merger, sell, offer to sell, contract or agree to sell, pledge, grant any option to purchase or otherwise dispose of, directly or indirectly, establish or increase a put equivalent position or liquidate or decrease a call equivalent position, enter into any swap or other arrangement that transfers to another any of the economic consequences of ownership of the Company’s common stock or otherwise hedges such consequences, including any short sale or any purchase, sale or grant of any right with respect to such stock or any security that includes, relates to or derives value from such stock (in each case, subject to certain exceptions set forth in the investor rights agreement). After that, approximately 94% of such investors’ shares will be released from the lock-up in equal amounts monthly over a 17-month period. Any remaining shares held by such investors will be released from the lock-up on the date that is 35 months following the closing of the merger. All other Legacy VWE investors party to the investor rights agreement (including the Sebastiani Investors but excluding Wasatch) agreed that they will not, for six months after the closing of the merger, sell, offer to sell, contract or agree to sell, pledge, grant any option to purchase or otherwise dispose of, directly or indirectly, establish or increase a put equivalent position or liquidate or decrease a call equivalent position, enter into any swap or other arrangement that transfers to another any of the economic consequences of ownership of the Company’s common stock or otherwise hedges such consequences, including any short sale or any purchase, sale or grant of any right with respect to such stock or any security that includes, relates to or derives value from such stock (in each case, subject to certain exceptions). After that, approximately 83% of their shares will be released from the lock-up in equal amounts monthly over a five-month period. Any remaining shares held by such other Legacy VWE investors will be released from the lock-up on the date that is 11 months after the closing of the merger.

Modification or Amendment. The investor rights agreement may be amended and the Company may take action therein prohibited, or omit to perform any act therein required to be performed by it, if and only if the Company has obtained the consent of each Major Investor holding at least 5% of the outstanding shares of the Company’s common stock and, during the Roney Director Designation Period, the Roney Representative, but the resale restrictions described above cannot be amended without the prior written consent of any Major Investor that would be adversely affected by the amendment.

Registration Rights. Under the investor rights agreement, (i) Wasatch and (ii) after the initial 18-month lock-up period provided for in the investor rights agreement, the Sponsor or any Major Investor holding not less than 10% of the shares of the Company’s common stock held by all Legacy VWE Investors in the aggregate, may demand to sell all or a portion of their registrable securities in an SEC-registered offering up to six times, in

 

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the case of Wasatch and such Major Investors, and up to three times, in the case of the Sponsor, in each case subject to certain minimum requirements and customary conditions. The investor rights agreement also provides the Sponsor and all holders of Legacy VWE capital stock party thereto with “piggy-back” and Form S-3 registration rights, subject to certain minimum requirements and customary conditions. The investor rights agreement also provides that the Company will pay certain expenses relating to such registrations and indemnify the registration rights holders against (or make contributions in respect of) certain liabilities which may arise under the Securities Act. Approximately 27 million shares of the Company’s common stock issued to Legacy VWE shareholders in connection with the merger are expected to be covered by the registration rights provisions of the investor rights agreement.

 

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DESCRIPTION OF SECURITIES TO BE REGISTERED

Your rights as stockholders are governed by Nevada law and our Articles of Incorporation (“articles of incorporation”) and Bylaws (“bylaws”). We urge you to read the applicable provisions of Nevada law and our articles of incorporation and bylaws carefully and in their entirety because they contain important information with respect to your rights as a holder of our common stock or our warrants.

The following is a description of the material terms of, and is qualified in its entirety by, the articles of incorporation and bylaws, each of which became effective upon the Closing Date.

Authorized Capital Stock

The Company’s authorized capital stock consists of 200,000,000 shares of the Company’s common stock, no par value per share, and 2,000,000 shares of preferred stock, no par value per share. A total of 60,461,611 shares of common stock were issued and outstanding as of October 1, 2021. No shares of preferred stock are issued or outstanding. Unless the Company’s board of directors determines otherwise, the Company will issue all shares of its capital stock in uncertificated form.

Common Stock

Listing. The Company’s common stock is listed on Nasdaq under the symbol “VWE.” The Company’s common stock and warrants are listed on the TSX under the symbols “VWE.U” and “VWE.WT.U”, respectively.

Voting. Each holder of the Company’s common stock will be entitled to one vote for each share owned of record on matters submitted to a vote of holders of the Company’s common stock. Holders of the Company’s common stock will not be entitled to cumulative voting in the election of directors.

Dividends. Holders of the Company’s common stock will be entitled to receive dividends if, as, and when declared by the Company’s board of directors out of funds legally available therefor, subject to the dividend and liquidation rights of any preferred stock that may be issued and subject to any dividend restrictions that may be contained in the Company’s future credit facilities. The Company has no current plans to pay dividends on its common stock. Any decision to declare and pay dividends in the future will be made at the sole discretion of the Company’s board of directors and will depend on, among other things, the combined company’s results of operations, cash requirements, financial condition, contractual restrictions and other factors that the Company’s board of directors may deem relevant. Because we are a holding company and have no direct operations, the Company is only be able to pay dividends from funds it receives from its subsidiaries.

Liquidation. Subject to the rights of the holders of any series of preferred stock, shares of the Company’s common stock will be entitled to receive the assets and funds of the Company available for distribution in the event of any liquidation, dissolution or winding up of the affairs of the Company, whether voluntary or involuntary.

Other Terms. The Company’s common stock will have no preemptive rights and no redemption, sinking fund or conversion provisions. The rights, preferences and privileges of the holders of the Company’s common stock will be subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock that the Company may designate in the future.

Transfer Agent and Registrar. The transfer agent and registrar for our common stock is Continental Stock Transfer and Trust Company.

Preferred Stock

The articles of incorporation will authorize the Company’s board of directors to establish one or more series of preferred stock (including convertible preferred stock). Unless required by law or by Nasdaq, the authorized

 

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shares of preferred stock will be available for issuance without further action by the Company’s shareholders. The Company’s board of directors may determine, with respect to any series of preferred stock, the designation, powers, preferences and relative participating, optional or other special rights, if any, and the qualifications, limitations or restrictions thereof, of that series, including, without limitation:

 

•

the number of shares of the series and the designation to distinguish the shares of such series from the shares of all other series;

 

•

the voting powers, if any, and whether such voting powers are full or limited in such series;

 

•

the redemption provisions, if any, applicable to such series, including the redemption price or prices to be paid;

 

•

whether dividends, if any, will be cumulative or noncumulative, the dividend rate of such series, and the dates and preferences of dividends on such series;

 

•

the rights of such series upon the voluntary or involuntary dissolution of, or upon any distribution of the assets of, the Company;

 

•

the provisions, if any, pursuant to which the shares of such series are convertible into, or exchangeable for, shares of any other class or classes or of any other series of the same or any other class or classes of stock, or any other security, of the Company or any other corporation or other entity, and the rates or other determinants of conversion or exchange applicable thereto;

 

•

the right, if any, to subscribe for or to purchase any securities of the Company or any other corporation or other entity;

 

•

the provisions, if any, of a sinking fund applicable to such series; and

 

•

any other relative, participating, optional, or other special powers, preferences or rights and qualifications, limitations, or restrictions thereof.

The Company could issue a series of preferred stock that could, depending on the terms of the series, impede or discourage an acquisition attempt or other transaction that some, or a majority, of the holders of the Company’s common stock might believe to be in their best interests or in which the holders of the Company’s common stock might receive a premium for your common stock over the market price of the common stock. Additionally, the issuance of preferred stock may adversely affect the rights of holders of the Company’s common stock by restricting dividends on the common stock, diluting the voting power of the common stock or subordinating the liquidation rights of the common stock. As a result of these or other factors, the issuance of preferred stock could have an adverse impact on the market price of the Company’s common stock.

Annual Shareholder Meetings

The bylaws provide that annual meetings of shareholders will be held wholly or partially by means of remote communication or at such place, within or without the State of Nevada, at such date and time as may be determined by the Company’s board of directors, the chief executive officer or the chairman of the Company’s board of directors and as will be designated in the notice of such meeting.

Anti-Takeover Effects of Nevada Law and Provisions of the Company’s Articles of Incorporation and Bylaws

Certain provisions of Nevada law and the articles of incorporation and bylaws could make the following more difficult:

 

•

acquisition of the Company by means of a tender offer;

 

•

acquisition of the Company by means of a proxy contest or otherwise; or

 

•

removal of the Company’s incumbent officers and directors.

 

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These provisions, summarized below, could have the effect of discouraging certain types of coercive takeover practices and inadequate takeover bids. These provisions may also encourage persons seeking to acquire control of the Company to first negotiate with the Company’s board of directors.

Filling Vacancies. The bylaws provide that, subject to the articles of incorporation, the rights of holders of any series of preferred stock and the investor rights agreement, vacancies and newly created directorships resulting from any increase in the number of directors or any vacancy on the Company’s board of directors may be filled by a majority of the directors then in office, even if less than a quorum, and the directors so chosen will hold office until the next annual election and until their successors are duly elected and will qualify, and will not be filled by the stockholders; provided, that: (a) for so long as the Roney Representative has a right to nominate one or more Roney Nominees, any vacancy resulting from the death, resignation, removal, disqualification or other cause in respect of any Roney Nominee, including the failure of any Roney Nominees to be elected, will be filled only by the Roney Representative; (b) for so long as Sponsor has a right to nominate one or more Sponsor Nominees pursuant to the investor rights agreement, any vacancy resulting from the death, resignation, removal, disqualification or other cause in respect of a Sponsor Nominee will be filled only by Sponsor; (c) for so long as the Roney Representative has the right to nominate one or more Roney Nominees, vacancies resulting from an increase in the number of directors will be filled so that the number of Roney Nominees, as a percentage of the total number of directors, remains the same; and (d) for so long as Sponsor has the right to nominate one or more Sponsor Nominees, vacancies resulting from an increase in the number of directors will be filled so that the number of Sponsor Nominees, as a percentage of the total number of directors, remains the same. Any director elected to fill a vacancy not resulting from an increase in the number of directors will hold office for the remaining term of his or her predecessor.

Removal. The bylaws provide that, subject to any provisions of applicable law and the articles of incorporation, any or all of the directors may be removed, until the Sunset Date, only for cause and, following the Sunset Date, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors; provided, however, that (a) no Roney Nominee may be removed from office unless such removal is directed or approved by the Roney Representative pursuant to the investor rights agreement so long as the Roney Representative is entitled to designate Roney Nominees and (b) no Sponsor Nominee may be removed from office unless such removal is directed or approved by Sponsor pursuant to the investor rights agreement so long as Sponsor is entitled to designate Sponsor Nominees.

Requirements for Advance Notice of Shareholder Nominations and Proposals. The bylaws establish advance notice procedures with respect to shareholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. In order for any matter to be “properly brought” before a meeting, a shareholder will need to comply with advance notice requirements and provide the Company with certain information and the matter must constitute a proper matter for stockholder action. Generally, to be timely, a shareholder’s notice must be received at the Company’s principal executive offices not later than the close of business on the 90th day, nor earlier than the close of business on the 120th day, prior to the first anniversary the preceding year’s annual meeting. The bylaws provide that the principal executive offices of the Company shall be located at 937 Tahoe Boulevard, Incline Village, Nevada, unless and until they are located at such other place within or without the State of Nevada as the board of directors of the Company may determine. The bylaws also specify requirements as to the form and content of a shareholder’s notice. The bylaws allow the board of directors or the chairman of any meeting of shareholders to adopt rules and regulations for the conduct of such meeting, which may have the effect of precluding the conduct of certain business at a meeting if the rules and regulations are not followed. These provisions may also defer, delay or discourage a potential acquirer from conducting a solicitation of proxies to elect the acquirer’s own slate of directors or otherwise attempting to influence or obtain control of the Company.

Special Meetings of the Shareholders. The bylaws provide that, unless otherwise prescribed by law or the articles of incorporation, special meetings of shareholders of the Company may be called only by the secretary of

 

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the Company at the direction of the board of directors, by the chairman or the chief executive officer of the Company. At any annual meeting or special meeting of shareholders, only such business will be conducted or considered as has been brought before such meeting in the manner provided in the bylaws. The Company’s bylaws will prohibit the conduct of any business at a special meeting other than as specified in the notice for such meeting.

No Cumulative Voting. The articles of incorporation do not authorize cumulative voting.

Undesignated Preferred Stock. The authorization of undesignated preferred stock in the articles of incorporation will make it possible for the board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control of the Company.

Authorized but Unissued Capital Stock. Nevada law does not require shareholder approval for any issuance of authorized shares. However, Nasdaq’s listing requirements, which apply so long as the Company’s common stock remains listed on Nasdaq, require shareholder approval of certain issuances equal to or exceeding 20% of the then outstanding voting power or then outstanding number of shares of common stock. Additional shares that may be used in the future may be issued for a variety of corporate purposes, including future public offerings, to raise additional capital or to facilitate acquisitions. The Company’s board of directors may generally issue preferred shares on terms calculated to discourage, delay or prevent a change of control of the Company or the removal of the Company’s management. Moreover, the Company’s authorized but unissued shares of preferred stock will be available for future issuances without shareholder approval and could be utilized for a variety of corporate purposes, including future offerings to raise additional capital, to facilitate acquisitions and employee benefit plans. One of the effects of the existence of unissued and unreserved common stock or preferred stock may be to enable the Company’s board of directors to issue shares to persons friendly to current management, which issuance could render more difficult or discourage an attempt to obtain control of the Company by means of a merger, tender offer, proxy contest or otherwise, and thereby protect the continuity of the Company’s management and possibly deprive the Company’s shareholders of opportunities to sell their shares of common stock at prices higher than prevailing market prices.

Amendment of Articles of Incorporation or Bylaws. Until the Sunset Date, the amendment of any of the provisions of the articles of incorporation or bylaws described above will require the affirmative vote of holders of at least two-thirds of the voting power of all the then-outstanding shares of the Company’s capital stock entitled to vote generally in the election of directors, voting together as a single class. After the Sunset Date, the amendment of such provisions will require the affirmative vote of holders of a majority of the voting power of all the then-outstanding shares of the Company’s capital stock entitled to vote generally in the election of directors, voting as a single class.

Acquisition of Control Shares. In addition, the NRS contains provisions governing the acquisition of a controlling interest in certain Nevada corporations. Nevada’s “acquisition of controlling interest” statutes (NRS 78.378 through 78.3793, inclusive) contain provisions governing the acquisition of a controlling interest in certain Nevada corporations. These “control share” laws provide generally that any person that acquires a “controlling interest” in certain Nevada corporations may be denied voting rights, unless a majority of the disinterested shareholders of the corporation elects to restore such voting rights. These laws will apply to the Company as of a particular date if the Company were to have 200 or more shareholders of record (at least 100 of whom have addresses in Nevada appearing on the Company’s stock ledger at all times during the 90 days immediately preceding that date) and do business in the State of Nevada directly or through an affiliated corporation, unless the articles of incorporation or bylaws in effect on the tenth day after the acquisition of a controlling interest provide otherwise. These laws provide that a person acquires a “controlling interest” whenever a person acquires shares of a subject corporation that, but for the application of these provisions of the NRS, would enable that person to exercise (1) one-fifth or more, but less than one-third, (2) one-third or more, but less than a majority or (3) a majority or more, of all of the voting power of the corporation in the election of directors. Once an acquirer crosses one of these thresholds, shares which it acquired in the transaction taking it over the threshold and within the 90 days immediately preceding the date when the acquiring person acquired or

 

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offered to acquire a controlling interest become “control shares” to which the voting restrictions described above apply. These laws may have a chilling effect on certain transactions if the articles of incorporation or bylaws are not amended to provide that these provisions do not apply to the Company or to an acquisition of a controlling interest, or if the Company’s disinterested shareholders do not confer voting rights in the control shares.

Combinations with Interested Stockholders. Nevada’s “combinations with interested stockholders” statutes (NRS 78.411 through 78.444, inclusive) provide that specified types of business “combinations” between certain Nevada corporations and any person deemed to be an “interested stockholder” of the corporation are prohibited for two years after such person first becomes an “interested stockholder” unless the corporation’s board of directors approves the combination (or the transaction by which such person becomes an “interested stockholder”) in advance, or unless the combination is approved by the board of directors and sixty percent of the corporation’s voting power not beneficially owned by the interested stockholder, its affiliates and associates. Furthermore, in the absence of prior approval, certain restrictions may apply even after such two-year period. For purposes of these statutes, an “interested stockholder” is any person who is (1) the beneficial owner, directly or indirectly, of 10% or more of the voting power of the outstanding voting shares of the corporation or (2) an affiliate or associate of the corporation and at any time within the two previous years was the beneficial owner, directly or indirectly, of 10% or more of the voting power of the then-outstanding shares of the corporation. The definition of the term “combination” is sufficiently broad to cover most significant transactions between a corporation and an “interested stockholder.” These laws generally apply to Nevada corporations with 200 or more stockholders of record. A Nevada corporation may elect in its articles of incorporation not to be governed by these particular laws, but, if such election is not made in the corporation’s original articles of incorporation, then the amendment (1) must be approved by the affirmative vote of the holders of stock representing a majority of the outstanding voting power of the corporation not beneficially owned by interested stockholders or their affiliates and associates and (2) is not effective until 18 months after the vote approving the amendment and does not apply to any combination with a person who first became an interested stockholder on or before the effective date of the amendment. The Company has not made such an election in its articles of incorporation.

Choice of Forum Provisions

The articles of incorporation provide that, unless the Company consents in writing to the selection of an alternative forum: (a) the Second Judicial District Court, in and for the State of Nevada, located in Washoe County, Nevada, will, to the fullest extent permitted by law, be the sole and exclusive forum for (i) any derivative action, suit or proceeding brought on behalf of the Company, (ii) any action, suit or proceeding asserting a claim of breach of a fiduciary duty owed by any director, officer, employee or stockholder of the Company to the Company or to its stockholders, or (iii) any action, suit or proceeding arising pursuant to any provision of the Nevada Revised Statutes Chapter 78 of the State of Nevada, as amended, or the bylaws or the articles of incorporation of the Company (as either may be amended or restated from time to time); and (b) subject to the foregoing, the federal district courts of the United States will be the exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act. Such articles further provide that, if any action the subject matter of which is within the scope of clause (a) of the immediately preceding sentence is filed in a court other than the courts in the State of Nevada (a “foreign action”) in the name of any stockholder, such stockholder will be deemed to have consented to (1) the personal jurisdiction of the state and federal courts in the State of Nevada in connection with any action brought in any such court to enforce the provisions of clause (a) of the immediately preceding sentence and (2) having service of process made upon such stockholder in any such action by service upon such stockholder’s counsel in the foreign action as agent for such stockholder. Such articles further provide that any person or entity purchasing or otherwise acquiring or holding any interest in any security of the Company will be deemed to have notice of and consented to these provisions of the articles. Nevertheless, such provisions of the articles do not apply to suits brought to enforce any liability or duty created by the Securities Act, the Exchange Act, or any other claim for which the federal courts of the United States have exclusive jurisdiction. The articles provide that, unless the Company consents in writing to the selection of an alternative forum, the federal district courts of the United States will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for the resolution of any complaint asserting a cause of action arising under the Securities Act.

 

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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information known to the Company regarding the beneficial ownership of our common stock as of October 1, 2021 by:

 

•

each person known to the Company to be the beneficial owner of more than 5% of outstanding common stock;

 

•

each of the Company’s executive officers and directors; and

 

•

all of the Company’s executive officers and directors as a group.

Beneficial ownership for the purposes of the following table is determined in accordance with the rules and regulations of the SEC. A person is a “beneficial owner” of a security if that person has or shares “voting power,” which includes the power to vote or to direct the voting of the security, or “investment power,” which includes the power to dispose of or to direct the disposition of the security, or has the right to acquire such securities within 60 days.

Unless otherwise noted, the business address of each of the following entities or individuals is c/o Vintage Wine Estates, Inc., 937 Tahoe Boulevard, Suite 210, Incline Village, NV 89451. Unless otherwise indicated, the Company believes that each person named in the table below has sole voting and investment power with respect to all shares of Company common stock beneficially owned by them.

A total of 60,461,611 shares of common stock were issued and outstanding as of October 1, 2021.

 

Name and Address of Beneficial Owner		Number of Shares of Common Stock				% of Total Voting Power
Executive Officers and Directors of the Company
Patrick Roney(1)(7)(11)(12) (13)(14)			37,426,950				54.7	%
Terry Wheatley			—				—
Katherine DeVillers			—				—
Jeff Nicholson			—				—
Paul Walsh			—				—
Mark W.B. Harms(2)			37,426,950				54.7	%
Robert L. Berner III(2)			37,426,950				54.7	%
Candice Koederitz			—				—
Jon Moramarco			—				—
Timothy Proctor			—				—
Lisa Schnorr			—				—
Jonathan Sebastiani(3)			1,134,946				1.9	%
All Directors and Executive Officers as a Group (12 Persons)			37,426,950				54.7	%
Five Percent or More Holders
Roney Trust(4)(11)(14)			6,516,072				10.8	%
Laura G. Roney(5)(11)			6,516,072				10.8	%
Rudd Trust(6)(12)(14)			7,600,117				12.6	%
Darrell D. Swank(6)(7)(12)(13)			9,799,980				16.2	%
Steven Kay(6)(7)(12)(13)			9,799,980				16.2	%
Wasatch Advisors, Inc.(8)			14,558,244				24.1	%
Bespoke Sponsor Capital LP(2)			37,426,950				54.7	%
Paradice Investment Management LLC(15)			3,960,400				6.6	%
Major Investors(9)			31,874,727				46.6	%
Specified Investors(10)			37,426,950				54.7	%

 

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(1)

Patrick Roney shares voting power and dispositive power with his wife, Laura G. Roney, over the 6,516,072 shares owned by the Roney Trust. In his capacity as the Roney Representative (as defined in the Prospectus), Patrick Roney has voting power over all shares owned by the Specified Investors pursuant to and for the purposes specified in the investor rights agreement, including for the purpose of voting for the Roney Nominees. Mr. Roney disclaims beneficial ownership of all such shares except to the extent of his pecuniary interest therein.

(2)

Mark W.B. Harms and Robert L. Berner III share voting and dispositive power over (i) the 6,000,000 shares and (ii) the 8,000,000 shares underlying the warrants owned by Bespoke Sponsor Capital LP (the “Sponsor”). The Sponsor also has voting power over all shares owned by the Specified Investors pursuant to and for the purposes specified in the investor rights agreement, including for the purpose of voting for the Sponsor Nominees. The address of the Sponsor is c/o Bespoke Capital Acquisition Corp., 595 Burrard Street, Suite 2600, Three Bentall Centre, Vancouver, BC V7X1L3. Each of Messrs. Harms and Berner disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

(3)

Jonathan Sebastiani has sole voting and dispositive power over the 684,881 shares owned by Sonoma Brands II, LP, the 410,715 shares owned by Sonoma Brands VWE Co-Invest, L.P. and the 39,350 shares owned by Sonoma Brands II Select, L.P. Mr. Sebastiani disclaims beneficial ownership of such shares except to the extent of his pecuniary interest therein.

(4)	Patrick Roney and his wife, Laura Roney, are co-trustees of the Roney Trust and share voting and dispositive power over the shares to be owned by the Roney Trust.

(5)	Laura Roney shares voting and dispositive power with her husband, Patrick Roney, over the shares owned by the Roney Trust.

(6)	Darrell D. Swank and Steven Kay are co-trustees of the Rudd Trust and share voting and dispositive power over the shares owned by the Rudd Trust. The address of the Rudd Trust is c/o LRIco Services, LLC, 2416 E. 37th St. N., Wichita, KS 67219.

(7)

Includes (i) 7,600,117 shares owned by the Rudd Trust and (ii) 2,199,863 shares owned by the SLR Trust. Darrell D. Swank and Steven Kay are co-trustees of these trusts and share voting and dispositive power over the shares held by such trusts. Patrick Roney also is co-trustee of the SLR Trust, with such power over that trust. All of the trustees disclaim beneficial ownership of all such shares. The address of Mr. Swank is c/o LRIco Services, LLC, 2416 E. 37th Street N., Wichita, KS 67219. The address of Mr. Kay is 100 The Embarcadero, Penthouse, San Francisco, CA 94105-1291.

(8)	Based on information contained in the Schedule 13G filed by Wasatch Advisors, Inc. on July 12, 2021, reporting sole dispositive and voting power over 14,558,244 shares. The address of such shareholder is 505 Wakara Way, 3rd Floor, Salt Lake City, UT 84108.

(9)	The “Major Investors” are the Sponsor, the Roney Trust, Sean Roney, the Rudd Investors, Sonoma Brands II, L.P., Sonoma Brands II Select, L.P., and Sonoma Brands VWE Co-Invest, L.P.

(10)	The “Specified Investors” are the Major Investors and all other stockholders party to the investor rights agreement, excluding Casing & Co. f/b/o Wasatch Microcap Fund.

(11)	“Roney Trust” means the Patrick A. Roney and Laura G. Roney Trust.

(12)	“Rudd Trust” means Marital Trust D under the Leslie G. Rudd Living Trust U/A/D 3/31/1999, as amended (as successor to the Leslie G. Rudd Living Trust U/A/D 3/31/1999, as amended).

(13)	“SLR Trust” means the SLR Non-Exempt Trust U/A/D 4/21/2018 (as successor to the SLR 2012 Gift Trust U/A/D 12/31/2012). Patrick Roney, Darrell D. Swank and Steven Kay are co-trustees of the SLR Trust. They disclaim beneficial ownership of all shares held by such trust.

(14)

Each of the Rudd Trust and the SLR Trust (collectively, the “Rudd Investors”) and the Roney Trust and Sean Roney (who owns 423,729 shares) (collectively, the “Roney Investors”) is a party to an Amended and Restated Voting Agreement effective as of June 7, 2021 (the “Voting Agreement”). Under the Voting Agreement, Patrick Roney may determine how all shareholders party to such agreement shall vote, act or consent.

(15)

Based on information contained in the Schedule 13G filed by Paradice Investment Management LLC on June 9, 2021, reporting shared dispositive power over 3,960,400 shares and shared voting power over 2,624,118 shares. The address of such shareholder is 250 Fillmore Street, Suite 425, Denver, Colorado 80206.

 

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SELLING STOCKHOLDERS

This prospectus relates to the resale by the Selling Stockholders from time to time of up to 10,000,000 shares of our common stock pursuant to registration rights granted to those Selling Stockholders. The Selling Stockholders may from time to time offer and sell any or all of our common stock set forth below pursuant to this prospectus and any accompanying prospectus supplement. When we refer to the “Selling Stockholders” in this prospectus, we mean the persons listed in the table below, and the pledgees, donees, transferees, assignees, successors, designees and others who later may come to hold any of the Selling Stockholders’ interest in our common stock other than through a public sale.

The following table sets forth and the accompanying footnotes are based primarily on information provided to us by the Selling Stockholders indicating our common stock they wished to be covered by this registration statement and eligible for sale under this prospectus. A Selling Stockholder may have sold or transferred some or all of the common stock indicated below with respect to such Selling Stockholder and may in the future sell or transfer some or all of the common stock indicated below in transactions exempt from the registration requirements of the Securities Act rather than under this prospectus. We cannot advise you as to whether the Selling Stockholder will in fact sell any or all of such common stock. For purposes of this table, we have assumed that the Selling Stockholder will have sold all of our common stock covered by this prospectus upon the completion of the offering. We have based percentage ownership on 60,461,611 shares of common stock outstanding as of October 1, 2021.

We have determined beneficial ownership in accordance with the rules of the SEC and the information is not necessarily indicative of beneficial ownership for any other purpose. Unless otherwise indicated below, to our knowledge, the persons and entities named in the tables have sole voting and sole investment power with respect to all securities that they beneficially own, subject to community property laws where applicable.

Information for each additional Selling Stockholder, if any, will be set forth by prospectus supplement to the extent required prior to the time of any offer or sale of such Selling Stockholder’s shares pursuant to this prospectus. Any prospectus supplement may add, update, substitute, or change the information contained in this prospectus, including the identity of each Selling Stockholder and the number of shares registered on its, his, her or their behalf. A Selling Stockholder may sell or otherwise transfer all, some or none of such shares in this offering. See “Plan of Distribution.”

 

		Number of Shares Beneficially Owned Before Sale of All Shares of Common Stock Offered Hereby								Number of Shares of Common Stock to be Sold in the Offering				Number of Shares Beneficially Owned After Sale of All Shares of Common Stock Offered Hereby
Name and Address of Beneficial Owner		Number				%				Number				Number				%
Wasatch Small Cap Growth Fund(1)			5,500,000				9.1	%			5,500,000				—				0	%
Wasatch Ultra Growth Fund(2)			4,500,000				7.4	%			4,500,000				—				0	%

 

(1)

Consists of 5,500,000 shares of common stock held by Wasatch Small Cap Growth Fund. JB Taylor, Ken Korngiebel & Ryan Snow have voting and investment power with respect to the shares owned by Wasatch Small Cap Growth Fund. The address for the beneficial owners is 505 Wakara Way, 3rd Floor, Salt Lake City, Utah 84108.

(2)	Consists of 4,500,000 shares of common stock held Wasatch Ultra Growth Fund. John Malooly has voting and investment power with respect to the shares owned by Wasatch Ultra Growth Fund. The address for the beneficial owners is 505 Wakara Way, 3rd Floor, Salt Lake City, Utah 84108.

 

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SHARES ELIGIBLE FOR FUTURE SALE

The Company currently has 200,000,000 shares of common stock authorized and 60,461,611 shares of common stock issued and outstanding. All of the shares of common stock issued in connection with the transactions will be freely transferable by persons other than by the Company’s affiliates without restriction or further registration under the Securities Act, subject to any lock-up restrictions. Shares of common stock held by the Company’s affiliates will be “control securities” and thus will be subject to the resale provisions of Rule 144 in addition to any lock-up restrictions. Sales of substantial amounts of our common stock in the public market could adversely affect prevailing market prices of our common stock. The Company’s common stock is listed on Nasdaq under the symbol “VWE”. The Company’s common stock (including shares of the Company’s common stock issued in the merger) and warrants are listed on the TSX under the symbols “VWE.U” and “VWE.WT.U”, respectively.

Lock-up Agreements

In connection with the consummation of the transactions, the Roney Investors, the Rudd Investors, the Sebastiani Investors and the Sponsor (collectively referred to as the Major Investors) and all other holders of Legacy VWE capital stock entered into the investor rights agreement. Pursuant to the investor rights agreement, the Major Investors (other than the Sebastiani Investors) agreed that they will not, for 18 months following the closing of the merger, sell, offer to sell, contract or agree to sell, pledge, grant any option to purchase or otherwise dispose of, directly or indirectly, establish or increase a put equivalent position or liquidate or decrease a call equivalent position, enter into any swap or other arrangement that transfers to another any of the economic consequences of ownership of the Company’s common stock or otherwise hedges such consequences, including any short sale or any purchase, sale or grant of any right with respect to such stock or any security that includes, relates to or derives value from such stock (in each case, subject to certain exceptions set forth in the investor rights agreement).

After that, approximately 94% of such investors’ shares will be released from the lock-up in equal amounts monthly over a 17-month period. Any remaining shares held by such investors will be released from the lock-up on the date that is 35 months following the closing of the merger. All other Legacy VWE investors party to the investor rights agreement (including the Sebastiani Investors but excluding Wasatch) will agree that they will not, for six months after the closing of the merger, sell, offer to sell, contract or agree to sell, pledge, grant any option to purchase or otherwise dispose of, directly or indirectly, establish or increase a put equivalent position or liquidate or decrease a call equivalent position, enter into any swap or other arrangement that transfers to another any of the economic consequences of ownership of the Company’s common stock or otherwise hedges such consequences, including any short sale or any purchase, sale or grant of any right with respect to such stock or any security that includes, relates to or derives value from such stock (in each case, subject to certain exceptions). After that, approximately 83% of their shares will be released from the lock-up in equal amounts monthly over a five-month period. Any remaining shares held by such other Legacy VWE investors will be released from the lock-up on the date that is 11 months after the closing of the merger.

Rule 144

All of the Company’s common stock currently outstanding, other than those shares of common stock registered pursuant to the Registration Statement on Form S-4 filed in connection with the transactions and those shares of common stock registered pursuant to the registration statement of which this prospectus forms a part, will be “restricted securities” as that term is defined in Rule 144 under the Securities Act and may be sold publicly in the United States only if they are subject to an effective registration statement under the Securities Act or pursuant to an exemption from the registration requirement such as those provided by Rule 144 and Rule 701 promulgated under the Securities Act. However, Rule 144 is not available for the resale of securities initially issued by shell companies (other than business combination related shell companies) or issuers that have been at

 

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any time previously a shell company. Rule 144 does include an important exception to this prohibition if the following conditions are met:

 

•

the issuer of the securities that was formerly a shell company has ceased to be a shell company;

 

•

the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act;

 

•

the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and

 

•

at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.

As a result, certain Company stockholders will only be able to sell their shares of common stock, as applicable, pursuant to and in accordance with Rule 144 without registration one year after the Company’s filing of current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company. However, if any such Company stockholders remain one of our affiliates, they will only be permitted to sell a number of securities that does not exceed the greater of:

 

•

1% of the then outstanding equity shares of the same class which, immediately after the merger, which was 604,616 as of September 24, 2021; or

 

•

the average reported weekly trading volume of the Company’s common stock during the four calendar weeks preceding the date on which notice of the sale is filed with the SEC.

Rule 701

In general, under Rule 701 of the Securities Act as currently in effect, each of VWE’s employees, consultants or advisors who purchases equity shares from the Company in connection with a compensatory stock plan or other written agreement executed prior to the completion of the merger is eligible to resell those equity shares in reliance on Rule 144, but without compliance with some of the restrictions, including the holding period, contained in Rule 144. However, the Rule 701 shares would remain subject to lock-up arrangements and would only become eligible for sale when the lock-up period expires.

Registration Rights

Under the investor rights agreement, (i) Wasatch and (ii) after the initial 18-month lock-up period described above under “ —Lock-up Agreements,” the Sponsor or any Major Investor holding not less than 10% of the shares of the Company’s common stock held by all VWE Investors in the aggregate may demand to sell all or a portion of their registrable securities in an SEC-registered offering up to six times, in the case of the VWE Investors, and up to three times, in the case of the Sponsor, in each case subject to certain minimum requirements and customary conditions. The investor rights agreement will also provide the Legacy VWE shareholders party thereto with “piggy-back” and Form S-3 registration rights, subject to certain minimum requirements and customary conditions. The investor rights agreement also provides that the Company will pay certain expenses relating to such registrations and indemnify the registration rights holders against (or make contributions in respect of) certain liabilities which may arise under the Securities Act.

29,426,950 shares of the Company’s common stock issued to Legacy VWE shareholders in connection with the merger are to be covered by the registration rights provisions of the investor rights agreement.

 

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PLAN OF DISTRIBUTION

We are registering the offer and sale, from time to time, by the Selling Stockholders of up to 10,000,000 shares of common stock, no par value per share. We will not receive any of the proceeds from the sale of our common stock by the Selling Stockholders.

Each Selling Stockholder of the securities and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the principal trading market for such securities or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling securities:

 

•

ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;

 

•

block trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the block as principal to facilitate the transaction;

 

•

purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

 

•

an exchange distribution in accordance with the rules of the applicable exchange;

 

•

privately negotiated transactions;

 

•

in underwritten transactions;

 

•

settlement of short sales;

 

•

in transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities at a stipulated price per security;

 

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through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

 

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distribution to members, limited partners or stockholders of Selling Stockholders;

 

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“at the market” or through market makers or into an existing market for the shares;

 

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a combination of any such methods of sale; or

 

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any other method permitted pursuant to applicable law.

The Selling Stockholders may also sell securities under Rule 144 under the Securities Act, provided that the Selling Stockholders meet the criteria and conform to the requirements of that rule, or any other exemption from registration under the Securities Act, if available, rather than under this prospectus.

Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the Subscriber of securities, from the Subscriber) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with applicable FINRA rules.

In connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

 

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The Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute the securities.

The Company is required to pay certain fees and expenses incident to the registration of the shares of common stock to be offered and sold pursuant to this prospectus by the Selling Stockholders. The Company has also agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act or the Exchange Act. The Selling Stockholders will bear all commissions and discounts, if any, attributable to their sale of securities. Additionally, in certain underwritten offerings, the Selling Stockholders and the Company shall bear the expenses of the underwriter pro rata in proportion to the respective amount of shares of common stock each is selling in such offering.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each Subscriber at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

Certain of our stockholders have entered into lock-up agreements. See “Shares Eligible For Future Sale —Lock-up Agreements.”

 

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EXPERTS

The consolidated financial statements of Vintage Wine Estates, Inc. as of June 30, 2021 and 2020, and for the years then ended included in this prospectus have been audited by Moss Adams LLP (“Moss Adams”), an independent registered public accounting firm, as stated in their report included herein. Such consolidated financial statements have been so included in reliance upon the report of such firm given upon their authority as experts in accounting and auditing.

 

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LEGAL MATTERS

Parsons Behle & Latimer will pass upon certain legal matters for us in connection with the securities offered by this prospectus.

WHERE YOU CAN FIND MORE INFORMATION

We have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of our common stock offered by this prospectus. This prospectus, which constitutes a part of the registration statement, does not contain all of the information set forth in the registration statement, some of which is contained in exhibits to the registration statement as permitted by the rules and regulations of the SEC. For further information with respect to us and our common stock, we refer you to the registration statement, including the exhibits filed as a part of the registration statement. Statements contained in this prospectus concerning the contents of any contract or any other document is not necessarily complete. If a contract or document has been filed as an exhibit to the registration statement, please see the copy of the contract or document that has been filed. Each statement is this prospectus relating to a contract or document filed as an exhibit is qualified in all respects by the filed exhibit. The SEC maintains an Internet website that contains reports, proxy statements and other information about issuers, like us, that file electronically with the SEC. The address of that website is www.sec.gov.

 

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