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Black Hills Estate Winery

30880 Black Sage Road
Oliver, B.C.

 

Planted in 1996 and has been producing increasingly better wine grapes with each vintage. Plantings include the Cabernet Sauvignon, Merlot and Cabernet Franc that go into our ultra-popular Nota Bene blend. Further, we grow a deep, luscious Carmenere grape on our site that goes into our single varietal Carmenere. We also grow crisp, ripe Sauvignon and Semillon grapes in our vineyard that are used to create our Alibi white blend. We also have approximately two acres that we use for the growing of our fresh and exciting Chardonnay varietal.

The tasting room of black hills has just recentely been seen open more often.
No wines are available for free tasting, but on rare occasions the hard to find Nota Bene is available for purchase.

The ownership of this winery is unique in that 300 Limited Partners each bought $25,000.00 shares. Each share entitles the owner to one case of Nota Bene for free per year as well as the right to purchase one additional case. Jason Priestly of 90210 fame is one of the figure head limited partners who is thought to have received his interest for free to attract interest in the project.

In 2011 more partnership units were sold to finance an expansion of the winery. These shares were priced at $30,000.00

2007 Nota bene release price $53.00/bottle

2008 Nota bene release price $53.00/bottle

2009 Nota bene release price $53.00/bottle

2010 Nota bene release price $53.00/bottle


About the Vinequest Wine Partners Limited partnership
The Vinequest Wine Partners Limited Partnership Ltd. was established in 2007 and successfully acquired the assets and operating business of Black Hills estate Winery (“Black Hills”) on Dec. 17, 2007. Vinequest wine Partners Limited Partnership is now doing business as Black Hills estate Winery.


Owner/Operator: Graham Pierce, Steve Carberry
Phone: 250-498-0666

 

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In September 2013 black hills announced a new wine club, below are the details

A Black Hills Estate Winery Wine Club membership is the perfect way to pamper yourself. It’s also a wonderful gift for loved ones, friends or business associates- or as a unique thank you gift for weddings, birthdays or anniversaries. A Wine Club membership affords you an abundance of exclusive benefits and perks at no membership fee, merely a commitment to receive direct shipment 3 times per year. Not only can you enjoy piece of mind in knowing that wine will automatically be delivered from our cellar to your door upon each release, saving you time and effort, but we will also keep you personally connected to our winery year round. It’s that simple!

There are 3 wine clubs for you to choose from:

  • Mixed Half-Case Club
  • Mixed Case Club
  • Red Only Wine Club

All membership to include:

  • Three annual deliveries per year right to your home or place of business anywhere in Canada.
  • Front of the line access to all wine releases including Nota Bene, Carmenere, special limited edition library releases, large format bottles and club only wine releases
  • Free Shipping for all Wine Club releases and case orders for Wine Club members
  • 15% discount on all wine re-orders from Black Hills Estate Winery within 30 days of each Wine Club Release
  • Complementary VIP Private Cabana Tasting for you and up to 3 guests each year when you visit Black Hills Wine Experience Centre. (Regular Value up to $200.00 per visit)
  • Invitations to exclusive Wine Members Only Events including our free ‘Winemakers Brunch Pick up Party’ every June. Two complimentary tickets per Wine Club Member ($200.00 value)
  • 50% reduced price tickets to the annual Nota Bene Release Party. Limit 2 per membership, 159.00 value (non-transferrable)
  • 15% discount on all winery event tickets and non-wine merchandise
  • Preferred pricing on Nota Bene releases
  • Special reduced rates for accommodation at Black Hills Partner Hotels in Osoyoos
  • Specially prepared recipes created by chefs paired to each of the Black Hills wines

When you buy a wine club membership as a gift, we will send you a Wine Club welcome letter that you can give to the lucky recipient. They will be thinking of you with a smile each time the wine arrives on their doorstep.

Thanks to Bill C-311, we can now offer wine club memberships and deliver wine to anyone, anywhere in Canada.below is a copy of the letter talking about the release of more partnership units in 2011

 

Investment Summary for
2011 Limited Partnership
Offering

Vinequest Wine Partners Limited Partnership

“Taking The ConTinual QualiTy evoluTion of BlaCk hills

esTaTe Winery To The nexT level”

Minimum Offering: 40 units @ $30,000 per unit for proceeds of $1,200,000

Maximum Offering: 140 units @ $30,000 per unit for proceeds of $4,200,000

Available to accredited Investors Only

Exclusivity of Offering: This offering will be made exclusively to existing Unit
Holders of the Partnership who are accredited investors until June 9, 2011. The
offering to Limited Partners is to be made on a first-come, first-served basis. If any
units remain after June 9, then they would be offered to accredited investors who are
currently outside of the Partnership.



Introduction Introduction
Vinequest Wine Partners Limited Partnership has been doing business as Black Hills Estate
Winery (“Black Hills”) since acquiring the business from the original owners on December 17,2007. In the three and one-half years since the acquisition, Black Hills has grown significantly
in sales, earnings, production volume and in the provision of quality customer experiences.

We have also made several significant steps forward in the quality of wine we produce. This is evidenced by the strong market
support we continue to enjoy for our premium-priced wine in spite of the recent economic climate. This progression of our quality
has been enabled by management practices we refer to as the ‘Continual Quality Evolution’ of our wine

B L A C K H I L L S E S TAT E W I N E R Y 2
BlaCk hills Wine revenue
BlaCk hills Company eBiTDa
year20032004200520062007200820092010$272,618$518,144$534,926$686,394$862,067$418,564$1,271,727$1,265,469$1,400,000$1,200,000$1,000,000$800,000$600,000$400,000$0$200,00year20032004200520062007200820092010$3,000,000$609,265$899,997$958,724$1,103,463$2,500,000$2,000,000$1,500,000$1,000,000$500,000$0$1,366,181$1,901,716$2,472,688$2,574,001

B L A C K H I L L S E S TAT E W I N E R Y
E X E C U T I V E S U M M A R Y 3
We are now at a juncture in the spring/summer 2011 where we
are in the fortunate position to take advantage of the economic
downturn and capitalize on some attractive opportunities
that have presented themselves. These opportunities will
enable us to take our continual quality evolution practice and
improve our wine quality to a completely new level. The first
opportunity is to take advantage of a property re-zoning that
we applied for and obtained in the fall 2010, and build a much-
needed addition to our existing winery building. Concurrent
with that will be the construction of a new retail wine shop
to take advantage of the strong sales growth from our winery
customer traffic. The last opportunity is to acquire a unique,
neighbouring vineyard property that produces first-class grapes
which are compatible varietals with our existing wine program.
This offering, then, has been put together to facilitate the
financing of these opportunities as follows:
• Construction of a 4,000 square foot addition to our existing
winery building
• Purchase of additional winemaking equipment to
significantly enhance the quality of the wine in future
vintages
• Construction of a new 1,200 square foot retail wine shop in a
superior location with better visibility and access to increase
on-site sales.
• Acquisition and enhancement of a first-class, established
15.0 acre vineyard, a neighbouring property to our existing
vineyard on Black Sage Road.
We emphasize that the financing detailed in this Executive
Summary is almost entirely for the purchase of physical
assets and land. If successful, the purchase of these assets will
enable cost savings, sales increases, operational efficiencies,
improvements in operating margins and qualitative
improvements. As such, we do not see this financing as being
dilutive to the Partnership.
ToTal Case proDuCTion BlaCk hills esTaTe Winery
year200320042005200620072008200920102011
2,2202,8543,2323,6304,4955,3206,3658,145$9,000$8,000$7,000$6,000$5,000$4,000$2,000$3,0006,634reTail selling priCe of noTa Bene
year200220032004200520062007200820092010201128.0028.0032.0032.0032.0036.9042.9052.9052.9052.90$20.00$30.00$40.00$50.00$60.00B L A C K H I L L S E S TAT E W I N E R Y
E X E C U T I V E S U M M A R Y 3
We are now at a juncture in the spring/summer 2011 where we
are in the fortunate position to take advantage of the economic
downturn and capitalize on some attractive opportunities
that have presented themselves. These opportunities will
enable us to take our continual quality evolution practice and
improve our wine quality to a completely new level. The first
opportunity is to take advantage of a property re-zoning that
we applied for and obtained in the fall 2010, and build a much-
needed addition to our existing winery building. Concurrent
with that will be the construction of a new retail wine shop
to take advantage of the strong sales growth from our winery
customer traffic. The last opportunity is to acquire a unique,
neighbouring vineyard property that produces first-class grapes
which are compatible varietals with our existing wine program.
This offering, then, has been put together to facilitate the
financing of these opportunities as follows:
• Construction of a 4,000 square foot addition to our existing
winery building
• Purchase of additional winemaking equipment to
significantly enhance the quality of the wine in future
vintages
• Construction of a new 1,200 square foot retail wine shop in a
superior location with better visibility and access to increase
on-site sales.
• Acquisition and enhancement of a first-class, established
15.0 acre vineyard, a neighbouring property to our existing
vineyard on Black Sage Road.
We emphasize that the financing detailed in this Executive
Summary is almost entirely for the purchase of physical
assets and land. If successful, the purchase of these assets will
enable cost savings, sales increases, operational efficiencies,
improvements in operating margins and qualitative
improvements. As such, we do not see this financing as being
dilutive to the Partnership.
ToTal Case proDuCTion BlaCk hills esTaTe Winery
year200320042005200620072008200920102011
2,2202,8543,2323,6304,4955,3206,3658,145$9,000$8,000$7,000$6,000$5,000$4,000$2,000$3,0006,634reTail selling priCe of noTa Bene
year200220032004200520062007200820092010201128.0028.0032.0032.0032.0036.9042.9052.9052.9052.90$20.00$30.00$40.00$50.00$60.00

Continual Quality
Evolution

The original Black Hills vineyard was planted in 1996 and
the first bottle of Nota Bene was produced in 1999. From
the beginning, the original owners made small tweaks and
improvements in the vineyard and in the winery with each
vintage. Their goal was to produce the best wine they could.
These owners had capital limitations but were open-minded to
ways of growing riper fruit or processing more flavourful wine.
This practice continued even as word spread in the marketplace
about Nota Bene, and the wine developed an intensely loyal
following.

When our Partnership took over in 2007, we embraced
this mindset and we coined the term ‘Continual Quality
Evolution’. At the same time we realized that any significant
departures in winemaking style were not only unnecessary but
also potentially damaging to our stellar reputation. Thus, we
adopted the “if it ain’t broke, don’t fix it” mantra to the outside
world.

However, from an internal perspective, we knew that this legacy
of continual quality evolution had to remain a constant factor
in our vineyard and winery practices. We know that we always
have to do everything we can to grow the best fruit and to craft
the best possible wine. This is the only way that we can stay
ahead of new competition in the marketplace. The Okanagan
wine industry is continually evolving and the marketplace is
forever changing with intense competition both from local and
international wineries. Resting on our laurels would be unwise
from a business perspective and demoralizing to the intense
ambition of our team.

Our solid financial position has enabled us to make
investments in the vineyard and the winery that the previous
owners were only unable to consider. Since 2007 we have
invested over $300,000 into improvements in the vineyard and
winery to further elevate the craft of fine wine making at Black
Hills Estate Winery.

furTher invesTmenTs in our vineyarD:


We have installed drip irrigation throughout our entire 27acre
vineyard to complement the original overhead system.
By developing a dual-irrigation system, our vineyard team
has more growing options at their disposal to ensure riper
fruit is being produced from the vines.

We planted a new acre of Syrah on an old sagebrush slope on
our property which added immediate value to our real estate
asset while providing us with grapes for
our new product line.

We successfully undertook a grafting program at our old
Chardonnay block and converted it into two additional acres
of Carmenere vines. This will help us meet the huge demand
we have in the Carmenere varietal plus produce a higher
yield for us at $50 per bottle vs. the $30 we received for
Chardonnay.
furTher invesTmenTs in our Winery


In the winery, out team has championed the adoption of new
techniques and equipment that enable a gentler and more
exacting processing of the grapes to help produce truer and
cleaner taste profiles in the wines.
This has been enabled by:


The purchase of world-class automatic berry sorting machine
and sorting table manned by temporary staff to cull out
substandard fruit

The purchase of key new winemaking equipment with
significantly gentler fruit handling characteristics, including
a conveyor, crusher/destemmer, press and pumps

The purchase of a Micro Ox unit to help enhance flavour
profiles of grapes.
furTher invesTmenTs in our people:


Concurrently with the above, we have invested in the
education of our key team members. Both our winemaker
and vineyard manager have taken external courses and
seminars to expand their view on best practices occurring
in the global wine businesses. As well, some of our team
members have visited other wine regions of the world
to expand our vision of customer service, viticulture and
winemaking practices that might be relevant to our business.
All of this has helped both with employee retention and has
ingrained a culture of continual quality evolution with our
operational team. This commitment has paid off.
Left to right: Winemaker Graham Pierce, President
Glenn Fawcett, Winegrower Steve Carberry


BLACK HILLS ESTATE WINERY
EXECUTIVE SUMMARY


Next steps along the path
of Continual Quality
Evolution

To further examine other practices that can continue our
legacy of our continual quality evolution, we have to address
the current situation. We are at a key juncture: we can take
significant steps forward in our wine quality if we can overcome
severe space limitations at our winery.

Current situation with our
winery

During the 2010 vintage we produced the case equivalent of
8,145 cases of wine. We are at full capacity with our existing
facility and now we are actually constrained in our operations.
We are literally bursting at the seams with our floor space
occupied by tanks, winemaking equipment, barrels, cases,
farming equipment, retail supplies and other necessary material.
This has created very tight working space for our winemaking
team, which is starting to compromise both safety and time
efficiency. Furthermore, we now have to rent off-site storage
space in Oliver to store case goods due to the lack of space
on-site.

At one time we believed our existing facility would be capable
of producing about 8500 cases of wine each year. With three
vintages in the bottle since we took control, we no longer feel
that that production level is viable or sustainable with our space
limitations. Lastly, there is no room for growth with our current
facility. Our original plan was to grow the production of our
winery to 11,000 cases per year within five to seven years. We
have no room to expand our production now or in the future
without a winery building expansion.

Given the issues that we face, we see two viable options:

1) Keep our existing winery as it is and reduce our annual

production by 1,100 cases so that we have sufficient space to

continue to operate a high quality operating environment,

or

2) Expand our winery building so that we can adapt to the

changes indicated above, maintain our current production

volume, and pursue other qualitative improvements.

Management is committed to the long-term growth model of
the Limited Partnership and we do not feel that the first option

is attractive at all. Thus upon the completion of this financing
we can execute the second option and build a 4,000 square foot
addition to our existing winery building.

CapaCiTy for fuTure expansion — a noTe on
proDuCTion volumes

We are currently selling each calendar year about the same
amount of wine that we make during the year. We have always
been sensitive to not over-supplying the market with our wine,
because that would impact our reputation for scarcity, and affect
our cult status.

Given the current slower economy, we do not see the need to
expand our production levels further in the short-term. Thus,
we are keeping production at current levels for 2011 until
economic growth indicators are positive again. This means that
we have no plans to increase the production of our Nota Bene,
Alibi, Carmenere, Viognier or Syrah beyond our 2010 levels.
Any future growth in our production will be driven by clear
market signals that any increased production will be readily
absorbed by buyers.

This being the case, this lull in our production growth gives
us the required time and bandwidth to be able to take on the
financing and construction of these facilities and vineyard
land now. The prices for these assets are lower and the access
to trades workers is better than a few years ago. Thus, we can
capitalize on the current economy by completing these projects
in 2011 and 2012. Once the infrastructure improvements are
complete, we can expand our production volume when the
market timing is right. Our capacity will be able to grow to
our peak target of 11,000 cases set by the Partnership. We will
be in a strong position to capitalize on the economic recovery
when it does happen and grow production to meet future
increases in demand.



Winery space & taking
our quality evolution to
the next level

Upon completion of the winery addition, our team plans to
implement the following for the overall benefit of the business
and to help us continue to improve and evolve the quality of
our wine in the future.

1) Implementation of a culling-out program for our barrels.

2) Increasing the turning capacity of our fermentation tanks

3)
Graduate our infrastructure so that we can do
homogenous blending

4) Construct purpose-built barrel storage room

5) Construct purpose-build on-site case goods storage room

The folloWing is a more DeTaileD explanaTion

of eaCh of These praCTiCes

1) The culling-out program for qualitative improvement

Most top wineries engage in the practice of culling out
substandard fruit in the vineyard and on the Crushpad before
processing begins. This ensures that only the best fruit goes
into the wine. Black Hills has been vineyard culling since 2000
and we commenced the practice of the additional crush pad
culling with the implementation of our automatic berry sorting
machine and sorting line in 2009.

Many of the top international wineries then engage in a
further practice called ’barrel culling,’ whereby they cull out
the substandard wine that has been aging in barrels at various
stages during the aging cycle. During barrel-aging, different
wine sometimes react with different barrels in unpredictable
ways. Invisible elements or variations in the barrel oak can
create differences that cannot always be anticipated. Culling
out substandard barrels ensures that only the best quality wine
goes into the blend or varietal being produced. The culled-out
wine is usually either put into a lower priced ’second label‘, sold
off as bulk wine to lower-end wineries, or in some cases simply
discarded.

Historically the barrel culling out has not been done by Black
Hills because virtually all of the barrels produced have gone
into the Nota Bene blend. Financial limitations did not allow

the previous owners the luxury of culling out full barrels
of wine from the blend. The prior thinking was that any
substandard barrels would get assimilated into the blend and
would not be perceptible when tasted.

However the culling out of sub-standard barrels is, in our
winemaker’s opinion, the single largest and most impactful
way we can make a further improvement in our wine quality.
Disposing of the substandard barrels will enable the wine to be
showcased in its best, most pure form without being dragged
down by substandard flavours. To implement this practice in
future vintages at Black Hills, we would anticipate culling
out between 10% and 20% of our barrel production so that
the wine remaining is even higher quality than in the past.
Fortunately, there is not a significant cost associated with a
cull-out program because we would generate revenue from the
sale of the culled-out wine either as bulk wine or as a second
label. This revenue would offset the increased production cost of
making more wine in the cull-out program.

As indicated earlier, it is the management’s intention to
stabilize the annual production of our winery at about 8,100
cases until the economy dictates otherwise. To facilitate a
culling-out program, we would need to increase production by
10 to 20% from current levels so that we can produce the same
volume today after the culling out takes place.

Currently, we simply do not have the capacity to increase our
production to facilitate the culling-out program. The winery
addition would allow us to be able to begin this important
qualitative practice.

2) Improving the turning capacity of our fermentation tanks.

We currently average about 2.5 turns per tank. With a higher
ratio, the winemaking team must sometimes rush through
the fermentation of one varietal to make room in the tank
for the next ripening grape varietal coming in. Top-quality
wineries elsewhere in the world often average of only 1.0 to 1.5
turns per tank. By lowering the turn ratio at Black Hills the
winemaking team has more quality options such as micro-ox,
maceration time, cold soak time, and variations in fermentation
time and temperature. Depending on the unique characteristics
of any given vintage or any individual grape varietal, different
techniques have to be applied at different times. A lower tank
turn ratio gives the winemaking team the time necessary to
customize each batch to create its best flavour potential.

To facilitate a lower tank turn ratio of an average of 1.5 turns
it will be necessary to purchase an additional five 60 hectolitre
fermentation tanks.


3) Graduate to homogenous blending

One of the surprising and unusual things about our winery
is the way Nota Bene wine has been historically blended. In
the absence of any large blending tanks, the wine has always
been transferred back and forth, or ‘racked’ between a series of
smaller fermentation tanks. During racking the winemaking
team would do its best to maintain the same percentage of
Cabernet Sauvignon, Merlot and Cabernet Franc in each of
the tanks. However, this does not guarantee total consistency
in the wine quality and taste from tank to tank. Most top-end
wineries have large-format blending tanks that enable virtually
all of the wine to be blended together in one large batch. This
gives greater consistency and creates a truly homogenous blend.

It would be impossible to follow this practice at Black Hills
with our current space limitations. The plans for our winery
addition include the space allocation for and purchase of two
very large (150hl) blending tanks. With those, we can produce a
totally homogenous Nota Bene blend, beginning with the 2012
vintage. Those large tanks will also be beneficial for providing
extra fermentation capacity for the winemaking operations
during the fall crush.

4) Constructing a purpose-built barrel room

Due to space limitations, currently we store all our Syrah and
some of our other red wine barrels in rooms that do not have
humidity control. This results in our losing about 5% of this
wine to evaporation or to absorption by dry barrels each year.
Some people in the wine business call this evaporation the
‘angels’ share’

We estimate that we lose $55,000 of wine annually due to
this ‘angels share’ evaporation. As well, this situation does not
present the best qualitative environment for the aging of our
high-quality wine. In our expanded facility, we plan to put all
the barrels in a purpose-built barrel storage room to allow for
better winemaking control and less evaporation of wine.

5) Construction of a purpose-built on site case goods
storage room

With our current winery set-up, we store some of our bottled
wine as case goods at our winery and some of it at a warehouse
in Oliver. We pay $51,000 annually in offsite costs related to
the storage, transportation and labour of handling this wine
each year.

Completion of the winery addition will let us store our
case goods in one purpose-built temperature controlled,
secure room. This will also save a significant amount of our
winemaking team’s time by not having to deal with having wine
stored in multiple locations.



B L A C K H I L L S E S TAT E W I N E R Y
E X E C U T I V E S U M M A R Y 8
Financial analysis for the building of the
winery addition
As detailed above, we firmly believe that there is a strong case for building an addition to our
winery for wine quality reasons. Based on Limited Partner feedback, we also feel that there is
broad support for a small financing for this purpose. The proceeds are being used primarily to
purchase assets, which has positive impact on the balance sheet. The timing of this building
addition in the current construction market is good, and we will be able to get access to top
trades and project management for good value.
The folloWing, Then, summarizes The
finanCial reTurn on The Winery BuilDing
aDDiTion
The approximate $1,081,345 required for the addition to the
base building will be recovered in the following ways:
• Savings of $51,000 annually in offsite costs we currently
incur with storage, transportation and time per year
• Savings of approximately $55,000 per year in evaporation
loss from substandard barrel storage
• Extra operating margin of $ 400,000 per year by
maintaining production volume. Without an addition, we
have to reduce our 2010 production level by 1,100 cases.
With the addition, we can sustain that level of production.
These 1,100 cases of red wine would have an approximately
gross retail value of $528,000 per year. The net margin on
this would work out to approximately $400,000 per year.
• Price point migration with continual quality evolution. It
is extremely difficult in the wine industry to predict what
impact investments in winemaking infrastructure will have
on the quality of the wine and what price point the market
will be willing to pay for it. However, if the improvements
recommended by management are implemented it is not
inconceivable that our wine might sell for a premium in
future years.
8
Financial analysis for the building of the
winery addition
As detailed above, we firmly believe that there is a strong case for building an addition to our
winery for wine quality reasons. Based on Limited Partner feedback, we also feel that there is
broad support for a small financing for this purpose. The proceeds are being used primarily to
purchase assets, which has positive impact on the balance sheet. The timing of this building
addition in the current construction market is good, and we will be able to get access to top
trades and project management for good value.
The folloWing, Then, summarizes The
finanCial reTurn on The Winery BuilDing
aDDiTion
The approximate $1,081,345 required for the addition to the
base building will be recovered in the following ways:
• Savings of $51,000 annually in offsite costs we currently
incur with storage, transportation and time per year
• Savings of approximately $55,000 per year in evaporation
loss from substandard barrel storage
• Extra operating margin of $ 400,000 per year by
maintaining production volume. Without an addition, we
have to reduce our 2010 production level by 1,100 cases.
With the addition, we can sustain that level of production.
These 1,100 cases of red wine would have an approximately
gross retail value of $528,000 per year. The net margin on
this would work out to approximately $400,000 per year.
• Price point migration with continual quality evolution. It
is extremely difficult in the wine industry to predict what
impact investments in winemaking infrastructure will have
on the quality of the wine and what price point the market
will be willing to pay for it. However, if the improvements
recommended by management are implemented it is not
inconceivable that our wine might sell for a premium in
future years.

B L A C K H I L L S E S TAT E W I N E R Y
E X E C U T I V E S U M M A R Y 9
onsiTe Wine shop sales over lasT 3 years)
Summary of financial return on building the addition
All told, these factors represent about
$106,000 in savings and an additional
$400,000 in operating margin. In total this
represents a total difference of $506,000 per
year. In turn, our $1,081,345 investment
in building the addition could be paid off
within 3 years of building it.
$350,000$300,000$250,000$200,000$150,000$100,000$50,000$02008 Sales2009 Sales 2010 SalesAs indicated previously, we have been very pleased with the
sales and progression of our on-site wine shop.
2008 Sales: $129,801
2009 Sales: $168,859
2010 Sales: $322,977
Since opening the wine shop to wine tourist traffic, we have
been pleasantly surprised by the positive reaction and the
spending patterns of our guests on our Wine Experience
program. We also believe that we are just scratching the
surface of the sales potential for our wine products on site.
We understand that several wineries in our region with more
advanced and established retail operations are doing close to
40% of their sales out of their wine shops. We are currently
at 12.9% of total sales. One source indicated the nearly
Burrowing Owl is doing over $2 million per year out of their
wine shop.
To help us better understand what our limitations might be,
we participated in a Mystery Shopper survey with the British
Columbia Wine Institute. The survey revealed that we had five
major weaknesses with our wine shop in its current location:
1) Our wine shop and our winery are not visible from Black
Sage Road. There is no curbside appeal for wine tourists
driving down this major road.
2) The entrance to our winery is intimidating, down a long,
steep road, and is seen as a deterrent by many. Several of
the mystery shoppers backed up and drove on to visit other
wineries.
3) Parking on Black Sage Road and walking down the
long stairs during a hot summer day was seen as another
deterrent to visit the wine shop.
4) After parking, the obscure entrance to the side of the
winery was not inviting, and created of confusion for
visitors prior to their arrival.
5) The wine shop space was small, felt institutional and was
not an inviting place to come and relax.
Concurrent with this, some staff took a few shifts monitoring
vehicle traffic on Black Sage Road during the summer. It was
The business case for building a new retail wine shop
$129,801$168,859$322,977
9
onsiTe Wine shop sales over lasT 3 years)
Summary of financial return on building the addition
All told, these factors represent about
$106,000 in savings and an additional
$400,000 in operating margin. In total this
represents a total difference of $506,000 per
year. In turn, our $1,081,345 investment
in building the addition could be paid off
within 3 years of building it.
$350,000$300,000$250,000$200,000$150,000$100,000$50,000$02008 Sales2009 Sales 2010 SalesAs indicated previously, we have been very pleased with the
sales and progression of our on-site wine shop.
2008 Sales: $129,801
2009 Sales: $168,859
2010 Sales: $322,977
Since opening the wine shop to wine tourist traffic, we have
been pleasantly surprised by the positive reaction and the
spending patterns of our guests on our Wine Experience
program. We also believe that we are just scratching the
surface of the sales potential for our wine products on site.
We understand that several wineries in our region with more
advanced and established retail operations are doing close to
40% of their sales out of their wine shops. We are currently
at 12.9% of total sales. One source indicated the nearly
Burrowing Owl is doing over $2 million per year out of their
wine shop.
To help us better understand what our limitations might be,
we participated in a Mystery Shopper survey with the British
Columbia Wine Institute. The survey revealed that we had five
major weaknesses with our wine shop in its current location:
1) Our wine shop and our winery are not visible from Black
Sage Road. There is no curbside appeal for wine tourists
driving down this major road.
2) The entrance to our winery is intimidating, down a long,
steep road, and is seen as a deterrent by many. Several of
the mystery shoppers backed up and drove on to visit other
wineries.
3) Parking on Black Sage Road and walking down the
long stairs during a hot summer day was seen as another
deterrent to visit the wine shop.
4) After parking, the obscure entrance to the side of the
winery was not inviting, and created of confusion for
visitors prior to their arrival.
5) The wine shop space was small, felt institutional and was
not an inviting place to come and relax.
Concurrent with this, some staff took a few shifts monitoring
vehicle traffic on Black Sage Road during the summer. It was
The business case for building a new retail wine shop
$129,801$168,859$322,977

absolutely incredible to see how many vehicles would slow
down at the entrance to Black Hills, take a look at the entrance,
and then continue on driving down the road to the next winery.
The fact that we had ample signage did not seem to have an
impact as over 70% of the vehicles we observed did not choose
to come in.

Both our board and management feel that we are not fully
capitalizing on the growing wine tourism market in the
South Okanagan. As indicated above, we still have significant
impediments with visibility of our winery and access to it.
The winery is not visible from Black Sage Road and the steep
driveway down to it is intimidating for many drivers. Further,
the appeal of our winery has frequently been hampered by the
cluttered appearance on the crush pad and inside the winery
necessitated by our storage issues. We all feel there is much
more opportunity for sales growth from our on onsite retail
activities.

Thus it is our belief that building a separate more attractive,
more functional retail facility, with better visibility, access
and curbside appeal is a practical and realistic way to increase
our on-site sales. Our management team feels that doing
so will generate an additional $250,000 per year in revenue
in 2012 and onwards. There is a further benefit of moving
the retail location away from the winery in that it stops the
vehicle traffic and human distractions that are imposed on our
winemaking and vineyard team in the current set-up.

projeCT BuDgeT

The projected budget for planning, constructing and fitting
out a new 1,200 square foot wine shop on Black Sage Road
is $569,525. Please see the Preliminary Project Budget: Wine
Shop in the appendices.

finanCial reTurn anD payBaCk

We made the conservative assumption that our gross retail
sales would increase by $250,000 per year in this new improved
location. The projected payback timeframe on the wine shop is
37 months. Please reference the appendices of this Executive
Summary for the Wine Shop Payback Analysis.


Summary of financial
analysis for the winery
addition and new wine
shop

Our team has met extensively with Nick
Bevanda, the original architect of our new
winery building. We have in turn worked
through detailed costing with Greyback
Construction, a very reputable company that
was the original construction manager for our
winery. Please refer to the appendices of this
Executive Summary entitled Project Budget
Winery Addition, Project Budget, Wine
Shop, and New Winery Equipment Required
Under Qualitative Addition. The following
summarizes the estimated project costs with
contingencies.

Project budget, winery addition $ 898,342.50
Project budget for Retail Wine Shop $ 569,525.00
New Winery equipment required $ 183,000.00
Total Requirement for Qualitative
Addition & wine shop $ 1,650,867.50

Business opporTuniTy: The Case for
purChasing The vineyarD properTy of gloria
marTin

Black Hills Estate Winery has conditionally entered into an
agreement to purchase the 15.0 acre vineyard owned by Gloria
Martin which is located at 30680 Black Sage Road. This
property is located just two lots to the south of us on Black
Sage Bench and is on virtually identical terroir to our original
Black Hills vineyard. The vineyard was planted about the same
time as our vineyard and grows the same coveted Cabernet
Sauvignon, Merlot and Cabernet grape varietals that we do.
It also has very good Syrah and Chardonnay grapes. It was
originally owned and planted by legendary Okanagan grower
Richard Cleave and has been well-maintained over the years.


During the last two years our vineyard manager Steve Carberry,
has been assisting the widowed owner with some growing/
consulting advice and we have been purchasing some of her
Syrah grapes for our program. Steve has come to know this
vineyard intimately and feels with some modifications in
irrigation and soil amendments that it could match the top
quality level of our own vineyard. We consider this is one
of the premier vineyard sites in the Okanagan Valley and we
are thrilled to have the opportunity to purchase it. The close
proximity of this vineyard to our own property and winery
make it very synergistic with our own operations. It is very easy
for our vineyard crew to get there to perform various tasks as
well as monitor its health and activity on a daily basis.

We have secured the property for a purchase price of $2.4
million, which we feel is a significant discount from the current
market value. We performed an independent appraisal and
value the property at between $2.8 million and $2.9 million.
The property comes with a 3,000 square foot equipment shed
that will be of immediate use for the farm storage needs of our
operation. It also comes with approximately $85,000 worth of
farm equipment that we can use. There is also an older 2,000
square foot residence on the site that serves no immediate
purpose for the business. However, the residence is highly
visible from Black Sage Road and could be an ideal location for
our future retail wine shop.

Under the terms of our accepted offer, we have until August
20, 2011 to arrange financing, and then we would close on the
property on November 15, 2011. This would give us the full
winter for pruning and planning so that all of the required
improvements we want to make to the vineyard will be in
place for the 2012 crop. Thus we feel that the grapes coming
off of the vines in 2012 will be top quality and suitable for the
premium Black Hills Estate Winery.

Gloria’s Vineyard


Gloria’s Vineyard


BlaCkhills
gloria marTin
properTy
BLACK HILLS ESTATE WINERY
EXECUTIVE SUMMARY


B L A C K H I L L S E S TAT E W I N E R Y
E X E C U T I V E S U M M A R Y 12
G L O R I A M A R T I N P R O P E R T Y V A L U A T I O N
Updated May 1, 2011
LAND Based on 2011 Comparables
Acres Planted 13.5
Value per planted acre $165,000.00
Value of Planted Land $2,227,500
Acres unplanted 1.5
Value unplanted $80.000.00
Value of unplanted land $120,000
Total Value Land $2,347,500
BUILDINGS
Working Shed
Total Sq. Ft 3,000
Value Per Foot $70.00
Value of Winery Building $210,000
Residence
Total Sq. Ft 2,000
Value per foot $100.00
Value of Residence 1 $200,000
Total Value of Buildings $410,000
TOTAL VINEYARD, WINERY & OFFICE EQUIPMENT
Vineyard Equipment $85,000
2 tractors 20,000 x 2 = 40,000
Sprayer 15,000
2 mowers 10,000 x 2 = 20,000
Spreader 10,000
ESTIMATED VALUE OF ALL ASSETS $2,842,500
R E q U I R E d I N V E s T M E N T T O b R I N G V I N E Y A R d U P
T O b L A c k H I L L s s T A N d A R d .
With his extensive familiarity of the property, our vineyard manager Steve
Carberry estimates that the property will require about $120,000 in capital
improvements to bring it up to the standard of our own vineyard.
B L A C K H I L L S E S TAT E W I N E R Y
E X E C U T I V E S U M M A R Y 12
G L O R I A M A R T I N P R O P E R T Y V A L U A T I O N
Updated May 1, 2011
LAND Based on 2011 Comparables
Acres Planted 13.5
Value per planted acre $165,000.00
Value of Planted Land $2,227,500
Acres unplanted 1.5
Value unplanted $80.000.00
Value of unplanted land $120,000
Total Value Land $2,347,500
BUILDINGS
Working Shed
Total Sq. Ft 3,000
Value Per Foot $70.00
Value of Winery Building $210,000
Residence
Total Sq. Ft 2,000
Value per foot $100.00
Value of Residence 1 $200,000
Total Value of Buildings $410,000
TOTAL VINEYARD, WINERY & OFFICE EQUIPMENT
Vineyard Equipment $85,000
2 tractors 20,000 x 2 = 40,000
Sprayer 15,000
2 mowers 10,000 x 2 = 20,000
Spreader 10,000
ESTIMATED VALUE OF ALL ASSETS $2,842,500
R E q U I R E d I N V E s T M E N T T O b R I N G V I N E Y A R d U P
T O b L A c k H I L L s s T A N d A R d .
With his extensive familiarity of the property, our vineyard manager Steve
Carberry estimates that the property will require about $120,000 in capital
improvements to bring it up to the standard of our own vineyard.

Gloria Martin — capital improvements for her property


Capital Item Estimated Cost
Approx 3000 interplants $ 10,000.00
Labour for Interplants $ 4,000.00
Drip Install for Vineyard $ 40,000.00
Retrofit of overhead irrigation $ 50,000.00
Filter and Backflow preventer $ 8,000.00
Soil ammendments $ 5,000.00
Plant 1/2 acre that has never been planted, 700 plants plus posts $ 3,000.00
ToTal esTimaTes CapiTal improvemenTs $ 120,000.00

Summary of pros and cons of purchasing


Martin property

pros


Avails us of first-class grapes starting in 2012 that we can use
in our winemaking activities for the purpose of our new high
quality cull-out program.

Provides a consistent steady supply of high-quality grapes
that we would control and have ESTATE ownership over.
As we have discovered, it is not realistic to think that we can
grow our first-class wine production using fruit that may be
of inconsistent quality from contract growers.

The grapes from this vineyard would enable us to expand our
wine production of Nota Bene or other wines should we elect
to do so in the future.

Purchasing this lets us make vineyard improvements to her
property, thereby significantly improving the quality of the
grapes it produces. This would include the installation of drip
irrigation and a retrofit of the antiquated overhead irrigation,
bringing significant improvement to her grape ripening.

These improvements would have an immediate impact on the
quality of the grapes coming from the vines and would be
noticed right away with the 2012 vintage.

This vineyard has the same varietals, same clones and same
age of vines as we have in our vineyard for Nota Bene. These
vines could quickly be producing at our quality level.

As we have discovered in recent years, we struggle to find
anyone growing grapes on the Black Sage Bench at the
calibre we need at Black Hills. Growers selling their grapes
by the ton have no motivation to grow to our standards.

We would save approximately $1,400 per ton for the cost
of the grapes coming from her property by growing them
ourselves versus paying her or another grower $3,000 per
ton. Her historical vineyard yield is about 55 tons, so at full
production this would represent an annual savings of close
to $77,000 per year in grape costs.

Close proximity of the Martin property to our vineyard make
vineyard operations synergistic. This is more time-effective
for our vineyard manager when directing efforts of crews
on both sites. It would be easy for equipment to be shared
between vineyards. There would be economies of scale by
owing both vineyards.

It’s easier to monitor the well-being and safety of this
vineyard than a remote site would be.

The Martin property has a 3000 square foot shed and
shop that would be ideal for our vineyard operations. This
would free up the shop space in our winery for other uses,
including potential revenue generating purposes for
private tastings or other Private events.

The Property has a highly visible and accessible location to
put our new wine shop on, which would be much superior to
anywhere on our existing property. Further, no vines would
have to be torn out to put the wine shop there.

This is an asset purchase of land which would likely not
depreciate. This would be seen as a positive development for
financing purposes.

Buying this property brings us one step closer to owning a
large contiguous piece of property on the Black Sage Bench.

Owning this vineyard makes us a more desirable acquisition
target.

This enables us to remain a true “estate” wine producer. With
the emergence of custom crush and private labels in the
Okanagan, there could be a U.S.-like consumer trending
towards more genuine “estate” experiences in the future.

Purchase comes with additional vineyard equipment such
as tractors and spreaders that will be of use to our existing
vineyard operation.
Cons


Will require the financing of approximately $2.4 million for
purchase of property plus $120,000 in improvements with
the sale of additional LP units and/or debt.

Means that our vineyard management team would have
more responsibilities (which management feels they are
ready for).

Means we would have to sell about 100 more units of the
LP over and above the 40 units we need to sell to finance
the winery addition. However, given that this is a real estate
and asset purchase the value of the business will increase
directly in proportion. Therefore, this would not be dilutive
to current Limited Partners.

B L A C K H I L L S E S TAT E W I N E R Y
E X E C U T I V E S U M M A R Y 15
The Offering/ LP Financing
Given our current working capital position, we feel that we can
finance this with a combination of an LP Unit Financing and
the use of $450,000 of our working capital.
Minimum Financing, 40 units, $1.2 million quality addition
to winery and construction of new retail wine shop
• Sell 40 LP units at $30,000 per unit for a total of $1,200,000.
We will conduct a preliminary reservation system for
Limited Partners, accepting the first 40 units that come
in from existing Limited Partners. If we do not have
sufficient interest from the existing Limited Partners to fully
subscribe this round, then we would go outside the Limited
Partnership to LP referrals and other contacts.
• We would launch this financing in late May and target to be
fully subscribed and closed by the end of June or early July
2011.
• This will enable to construction of a 4,000 sq. ft. addition to
the winery, expanded Crushpad for operations, purchase of
additional fermentation tanks as well as two large capacity
blending tanks, a large purpose build humidity controlled
barrel room, case good storage space and a separate 1,200 sq.
ft. retail building.
Maximum Financing, 140 units raising $4,200,000 to finance
the buildings detailed above as well as the purchase and
enhancements of the Martin property.
• Sell up to 140 LP units at $30,000 per unit to raise the full
amount required.
• We would accept the units on a first-come first served basis.
• If we sold an amount of units greater than the 40 unit
minimum but less than the 140 unit maximum, we would
pursue a possible partial mortgage financing on the Martin
property.
• The target would be to have the second round fully
subscribed and the property closed on the agreed upon
closing date of November 15, 2011.
• Once we have fully subscribed this offering, we would close
on the property. The upgrades would commence during the
winter/spring 2012.
• Upon closing, we would review our new property to
determine if that is where we want to construct our new
wine shop. Also, we would look at centralizing our shop and
farming operations at the shed location on the new property.
• If there was not sufficient interest in the LP Financing or
other financing to close on the property, then we would
simply cancel the Maximum Financing and terminate the
purchase of the property with our money back. We would
then simply proceed with the winery addition and retail shop
that was financed with Minimum Offering.
uniT summary
• We currently have 316 units outstanding in the Limited
Partnership. After completing the sale of another 40 units
Minimum Offering, we would have 356 units outstanding.
After successfully completing the Maximum Offering, we
would have 456 units outstanding.
• Based on feedback we received from Limited Partners on our
annual survey last year, we feel optimistic that most of this
offering will be subscribed by existing Limited Partners. This
is why we are offering this initially only to Limited Partners
for the first few weeks.
There are numerous synergies and time efficiencies with the
financing of the building additions and the financing of the
purchase of the Martin property. Both activities are highly driven
by our desire to make exceptional wine and are consistent with
our philosophy of continued quality evolution. Further, if we are
going to take the time and effort to do a financing, it is far more
time- efficient and cost effective to complete it all at once. There-
fore, we are undertaking the financing of the $1,081,345 winery
addition and wine shop at the same time that we pursue the
$2.52 million to purchase and improve the Martin property.
15
The Offering/ LP Financing
Given our current working capital position, we feel that we can
finance this with a combination of an LP Unit Financing and
the use of $450,000 of our working capital.
Minimum Financing, 40 units, $1.2 million quality addition
to winery and construction of new retail wine shop
• Sell 40 LP units at $30,000 per unit for a total of $1,200,000.
We will conduct a preliminary reservation system for
Limited Partners, accepting the first 40 units that come
in from existing Limited Partners. If we do not have
sufficient interest from the existing Limited Partners to fully
subscribe this round, then we would go outside the Limited
Partnership to LP referrals and other contacts.
• We would launch this financing in late May and target to be
fully subscribed and closed by the end of June or early July
2011.
• This will enable to construction of a 4,000 sq. ft. addition to
the winery, expanded Crushpad for operations, purchase of
additional fermentation tanks as well as two large capacity
blending tanks, a large purpose build humidity controlled
barrel room, case good storage space and a separate 1,200 sq.
ft. retail building.
Maximum Financing, 140 units raising $4,200,000 to finance
the buildings detailed above as well as the purchase and
enhancements of the Martin property.
• Sell up to 140 LP units at $30,000 per unit to raise the full
amount required.
• We would accept the units on a first-come first served basis.
• If we sold an amount of units greater than the 40 unit
minimum but less than the 140 unit maximum, we would
pursue a possible partial mortgage financing on the Martin
property.
• The target would be to have the second round fully
subscribed and the property closed on the agreed upon
closing date of November 15, 2011.
• Once we have fully subscribed this offering, we would close
on the property. The upgrades would commence during the
winter/spring 2012.
• Upon closing, we would review our new property to
determine if that is where we want to construct our new
wine shop. Also, we would look at centralizing our shop and
farming operations at the shed location on the new property.
• If there was not sufficient interest in the LP Financing or
other financing to close on the property, then we would
simply cancel the Maximum Financing and terminate the
purchase of the property with our money back. We would
then simply proceed with the winery addition and retail shop
that was financed with Minimum Offering.
uniT summary
• We currently have 316 units outstanding in the Limited
Partnership. After completing the sale of another 40 units
Minimum Offering, we would have 356 units outstanding.
After successfully completing the Maximum Offering, we
would have 456 units outstanding.
• Based on feedback we received from Limited Partners on our
annual survey last year, we feel optimistic that most of this
offering will be subscribed by existing Limited Partners. This
is why we are offering this initially only to Limited Partners
for the first few weeks.
There are numerous synergies and time efficiencies with the
financing of the building additions and the financing of the
purchase of the Martin property. Both activities are highly driven
by our desire to make exceptional wine and are consistent with
our philosophy of continued quality evolution. Further, if we are
going to take the time and effort to do a financing, it is far more
time- efficient and cost effective to complete it all at once. There-
fore, we are undertaking the financing of the $1,081,345 winery
addition and wine shop at the same time that we pursue the
$2.52 million to purchase and improve the Martin property.

UsE OF PROcEEds

SOURCE OF FUNDS
Assuming
$1.2M min. Offering

Current Offering (40 units @ $30,000)/(140 units @ $30,000 $1,200,000.00
Partial use of current working capital reserve $522,868.00
Partial Mortgage Funding Not Necessary

Total Source of Funds
$1,722,868.00

Assuming
$4.2M max. Offering
4,200,000.00
$227,868.00
Not Necessary
$4,472,868.00
USE OF PROCEEDS

Construction of addition to Winery Building $898,343.00 $898,343.00
Purchase of Winery Equipment for addition $183,000.00 $183,000.00
Construction of new wine retail shop $569,525.00 $569,525.00
Purchase of Gloria Martin’s Property Not Appl. $2,400,000.00
Vineyard Improvement to Gloria Martins Property Not Appl. $120,000.00
Less: Offering Costs, Due Diligence, Legal, Accounting 72,000.00 $252,000.00
Closing costs and Property Transfer Tax Not Appl. 50,000.00

Total Funds Required
$1,722,868.00 $4,472,868.00



Conclusion

In reviewing these materials we feel that it is important that the Limited Partners realize that
a building addition is not equal to a production expansion. To be clear, we are not advocating a
production expansion in the current economic climate. In summary, the purpose of this financing
is as follows:

1)
To build the winemaking facilities so that we have the space
to evolve and improve the quality of our wine

2)
Avail our winemaking team with the options and the capability
to continue our continued quality evolution, elevating
our wine quality so that we are regarded as the best wine in
Canada and worthy of a world-class designation.

3)
Build a new retail facility with better visibility and access
that enables us to significantly increase our on-site sales.

4)
Purchase a neighbouring vineyard that has outstanding
potential for producing world-class grapes for our future
needs.


forWarD looking sTaTemenTs

This summary contains certain forward-looking statements and forward-looking information which are based on the Partnership’s current internal expectations,
estimates, projections, assumptions and beliefs, including, among other things, assumptions with respect to future capital expenditures and cash flow. The reader
is cautioned that assumptions used in the preparation of such information may prove to be incorrect. The use of any of the words “anticipate”, “continue”, “estimate”,
“expect”, “may”, “will”, “project”,”plan”, “should”, “believe” and similar expressions are intended to identify forward-looking statements and forward-looking information.
These statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other factors that may cause actual results
or events to differ materially from those anticipated in such forward-looking statements or information.

The Partnership believes that the expectations reflected in those forward-looking statements and information are reasonable but no assurance can be given that
these expectations, or the assumptions underlying these expectations, will prove to be correct and such forward-looking statements and information included in this
summary should not be unduly relied upon. Such forward-looking statements and information speak only as of the date of this summary and the Partnership does
not undertake any obligation to publicly update or revise any forward-looking statements or information, except as required by applicable laws.