The Wine Collector

As mentioned in our previous post on January 17th, the secured creditor had indicated that they “will waive any right to these funds and has asked that these funds be paid to the sellers in those sales as soon as practical.”  The secured creditor was specifically referring to funds separately identified by Vinfolio for fixed price auction and Marketplace transactions completed from January 1, 2010 to January 15, 2010 (the payment period just prior to the Assignment for the Benefit of Creditors).

What’s a “completed” transaction?

• Marketplace – Completed transactions are based on the date the wine passed Vinfolio’s inspection after it was physically received (as evidenced by the date the seller was sent a “Sale Completed” email).
• Fixed price auctions - Completed fixed price auction sales measured are as of the date the sale was made and invoiced.

What’s authorized for payment?

Some good news! The secured creditor has just authorized checks from these transactions (as defined above) to be issued (although it may take until early next week for them to be processed and mailed).   The issuance of these checks will bring these Marketplace and fixed price auction transactions after December 31, 2009, current.  UPDATE ON JAN. 29: The Assignee has just informed us these checks will be mailed on Thursday or Friday of next week.

Payment for transactions completed after January 15, 2010 is being managed by the Assignee and, the funds are being segregated for payments owed to sellers (although processing will take longer than usual during the Assignment which took place on January 15).

Transactions on or before December 31, 2009

For those Marketplace and fixed price auction transactions completed on or before December 31, 2009 for which payments have not been made or for which checks did not clear, we are still reviewing the situation for how those transactions can be appropriately addressed.  We do not expect to be able to provide any further news on these transactions until next week at the earliest.

More information when available

As we’ve stated recently, we realize the situation has its challenges, but we are focused on minimizing disruptions to day-to-day operations.  We are working diligently to address issues that this situation has created and ask for your patience as we work through the process.  As more information becomes available, we will share it.  While this may mean that some questions won’t be answered immediately because they require more investigation or are not in our control, please understand that we are not ignoring these issues and continue to work toward resolutions.

Vinfolio (the “Company” or “Vinfolio”) entered into an Assignment for the Benefit of Creditors (“Assignment”) on Friday evening, January 15, 2010 to Vinfolio (assignment for the benefit of creditors), LLC (“Assignee”), an affiliated entity to Sherwood Partners, LLC (Sherwood”).  We wanted to provide some background on Sherwood and allow them to provide this communication to the Vinfolio customers and creditors.  Sherwood is an experienced and reputable firm that is capable of moving the Assignment process forward with great rapidity and for maximizing potential outcomes.  They’ve completed approximately 350 Assignments and are considered the premier Assignment company in the United States.

The following is information from the Assignee:

There has been some confusion on the Assignment process and there are many positive reasons why this process was chosen by the Company. Firstly, it allows the Company to select an Assignee who understands the business, industry and issues critical to the situation versus a court-appointed trustee who often does not.  The Assignee also has the ability to move with speed and flexibility to permit smart business choices.  An Assignment provides the capacity for controlled operations to be continued to maximize the value and allow for contractual obligations to be negotiated and resolved efficiently, and as important, the Assignment is cost effective.  Other forms of restructuring often involve significant professional fees that can cripple a business from moving forward and reduce recoveries for creditors.

We are currently operating the business and have retained more than 35 key Vinfolio employees to assist the Assignee, and the Assignee has received the approval of Vinfolio’s secured creditor to optimize potential outcomes.  These actions allow the business to continue to operate, for customer wines to be received into or shipped from the warehouse, and for customer’s wines to remain protected as they were prior to the Assignment.  The Assignee also expects to be able to ship and deliver wines sold.

We realize the situation has its challenges, but we are focused on minimizing disruptions to day-to-day operations, while the Assignee identifies a buyer and a transaction completed.  We are working diligently to address issues that this situation has created and we ask for your patience as we work through the process.

There has been a great deal of discussion regarding Vinfolio’s news in the past 48 hours.  We’re still mid-process on many of the issues relating to the Assignment.  We are getting a lot of inquiries and are trying to get answers to the most pressing questions everyone has posed.  But just as importantly, we need to be accurate in the information we release.  We will be releasing information, as we have it, rather than waiting for one large communication that answers all questions.  This may mean that some questions won’t be answered immediately because they require more investigation or are not in our control. 

1. We sincerely apologize to our customers, suppliers and users.  It’s been a very difficult process for us, and remains so.  We’re striving to maximize the odds for a positive outcome as quickly as possible.
2. It’s important for everyone to know that our operations continue as we undertake this process.   Our doors are open, and our lights are on.  Our warehouses continue to be safe and secure, climate control is active, wine is being received, shipped, and delivered, and staff are present.  We’re still here, and we’re doing our best to stay here.
3. We want to address the issue surrounding the returned checks.  After the checks were issued, the former secured creditor put a hold on our accounts without coordinating with us, which prevented issued checks from clearing.
4. The wine that you’ve stored with Vinfolio is your wine, not Vinfolio’s nor its creditors’.  Storage operations continue during the Assignment.  
5. As we go forward, if you buy wine, you own it whether you want us to ship it to you or you choose to leave it in Vinfolio storage for safekeeping.  
6. There were positive developments that happened on the day of the Assignment (Friday, Jan. 15th).  A group, including some of our significant customers, acquired the secured debt of the company.  This group is led by Jon Moramarco, The Managing Partner of BW 166 LLC. Jon was CEO of some major wine companies, including various divisions of Constellation Brands.  Many consider him to be one of the finest and most credible executives in the wine industry.  This new secured creditor has indicated a desire to see the business continue its mission and has acquired the secured debt to help align everyone’s (creditors’, customers’, employees’, users’) interest in this outcome.
7. From a financial perspective, the new secured creditor has indicated that for wine sold through the business’s Marketplace and fixed price auctions from January 1-15th, we should to be able to process payments, however, it could take a week or two before checks are issued.  For sales from January 16th onward, payments will resume on the normal payment schedule.  
8. Many have commented on the high quality of service that they’ve received from Vinfolio. That service has come from staff who have helped build what Vinfolio means to the user community.  It is their caring and attention to detail that has historically created the positive opinions that have generally existed about Vinfolio.  Like many businesses, there are fewer people working in the Vinfolio business today than there were a year ago.  All of these people had fully busy days prior to the news of last Friday and the items noted above have added to their workload.  We would appreciate when you talk to customer service at the Vinfolio business, that you please understand they are trying to do everything they can for you and are working to respond as quickly as possible.

So please bear with us, and we hope to be able to reach out again shortly to keep you informed and want to thank you for your support and patience.

After three years of very rapid growth -- placing it among the top 15 fastest growing private companies in the SF Bay area from 2006 to 2008, Vinfolio experienced a much more difficult sales environment during 2009.  A few weeks ago, we found ourselves in need of additional capital on a very near-term basis.  The company investigated several options but new capital could not be obtained on a necessarily compressed timetable.

Because of the situation, and to safeguard the interests of our customers and creditors (including for wine purchases, wine sales, and wine stored with Vinfolio), the board of directors and the shareholders of Vinfolio approved and undertook a form of restructuring known as an Assignment for the Benefit of Creditors (the “Assignment”) on Friday evening, January 15, to provide the business with the flexibility to develop the appropriate course of action going forward.

The Assignment is being managed by a leading third party firm of experts in such assignments (the “Assignee”).  It is important for you to know that key employees have been retained and our operations continue as we undertake this process.

Acquisition of Vinfolio Secured Debt

Also on Friday, January 15, a group including some of our significant customers acquired the secured debt of the company.  This group is led by Jon Moramarco, The Managing Partner of BW 166 LLC.  While the secured creditor cannot at this time officially speak for the business, they have given the following guidance to the Assignee for its operation of the Vinfolio business:

• According to Jon, “the Vinfolio business is a unique and valued asset to the community of wine collectors and wine enthusiasts. We want to see the business continue its mission and have acquired the secured debt to help align everyone’s (creditors’, customers’, employees’, users’) interest in this outcome.”
• The main value of the business is the goodwill of its customers and users.   The secured creditor wishes to take actions where feasible to preserve the goodwill.  Some of these include:
1. Commitments by the secured creditor group to fund the Vinfolio business in the near term while the Assignment process is ongoing.
2. Since January 1, 2010, the company has tracked funds from the sale of Marketplace and fixed priced auction items separate from other revenues.  The secured creditor will waive any right to these funds and has asked that these funds be paid to the sellers in those sales as soon as practical. 
3. During the Assignment process, this separation of funds and instructions from the secured creditor should continue.
4. The secured creditor has re-affirmed that they only have security in the assets owned by the company, and not in wines offered through the Marketplace or fixed price auctions, or wines stored by third parties with the business.

Speaking as the founder of Vinfolio, I’d like to apologize to you for this unexpected development and ask our loyal customers and users to be patient during the Assignment.  Your continued support will aid the Vinfolio business as we go forward.

I’m sure there will be many questions and we’ll try to provide answers through our Customer Service department (service@vinfolio.com).

Thank you for your continued support.