HALIFAX, Nov. 20, 2015 /CNW/ - GrowthWorks Atlantic Venture Fund Ltd. (the "Atlantic Fund") announced today that it has adopted, subject to shareholder ratification and any necessary regulatory approvals, a pro rata redemption policy (the "Pro Rata Redemption Plan") to distribute available cash generated from an orderly realization of value from dispositions in Atlantic Fund's venture portfolio. Under the Pro Rata Redemption Plan, Atlantic Fund will maintain funds for potential defensive follow-on investments (to preserve Atlantic Fund's rights and preferences) and projected liabilities and anticipated operating expenses.
Background – Strategic Review
On November 20th, 2014 Atlantic Fund's Board of Directors approved the suspension of sales and weekly redemptions of Atlantic Fund's Class A Shares and established a special committee (the "Strategic Review Committee" or "Committee") of directors independent of Atlantic Fund's manager to conduct a full review of strategic options aimed at realizing on the potential value of Atlantic Fund's venture portfolio and providing liquidity for shareholders. This review was commenced in light of a range of factors, including Atlantic Fund's cash position, actual and projected levels and timing of divestment activity, the prospects for generating exit values in excess of carrying values and the prospects for Atlantic Fund resuming weekly redemption processing and future capital raising.
Proposed Pro Rata Redemption Plan
The Committee reached its recommendation for a number of reasons with an overarching focus on maximizing potential returns to shareholders and ensuring fairness among all shareholders . In accepting the unanimous recommendation of the Committee, the Board of Atlantic Fund determined that the manner in which Atlantic Fund distributes available cash to shareholders should be changed from distributions by way of redemptions on a "first redemption request in, first paid out" basis to distributions by way of redemptions to all shareholders on a pro rata basis. The Board also concluded that Atlantic Fund should seek an orderly realization of its portfolio to maximize value for shareholders and adopt the Pro Rata Redemption Plan, subject to shareholder ratification and any necessary regulatory approval.
The key elements of the Pro Rata Redemption Plan are:
- Shareholders will be allocated from time to time a pro rata amount of available funds from dispositions in the venture portfolio that will be used as follows: (i) to redeem mature shares of a shareholder to the extent possible; and (ii) if any remaining balance, to redeem a portion of the shareholder's non-mature shares after they mature. All redemptions of shares from a specific pro rata allocation will occur at essentially the same NAV per share.
- The Board will determine, from time to time, the amount of available funds to process redemptions taking into consideration proceeds on dispositions of holdings in the venture portfolio not previously distributed while maintaining funds for potential defensive follow-on investments to preserve Atlantic Fund's rights and preferences and to cover projected liabilities and anticipated operating expenses of Atlantic Fund for the next 18 months.
- With the goal of ensuring that all shareholders share fairly in liquidity events given the fixed number of potential exit opportunities within the venture portfolio, redemption requests received by Atlantic Fund since halting the processing of redemptions in November 2014 will cease to be effective and Atlantic Fund will not process redemptions associated with those requests.
If ratified, the Pro Rata Redemption Plan will be administered with the Board's current expectation that it will likely require a time period of 3-5 years to maximize the potential value of the existing portfolio and distribute cash to shareholders as part of an orderly realization of value. During that time, it is expected that the Board will consider the next steps for Atlantic Fund which may include triggering certain phase out rules under LSIF legislation, termination of Atlantic Fund and/or a secondary sale of any remaining holdings. In conjunction with the Pro Rata Redemption Plan, Atlantic Fund intends to provide limited priority for processing redemptions in the very restricted circumstances of hardship dispositions such as death, terminal illness, disability, permanently unfit for work and mandatory de-registration of registered accounts.
Commenting on the Board's determinations, Rick Clarke, Chair of the Board stated: "I am pleased with the Strategic Review Committee's thorough review of all options to deliver liquidity for Atlantic Fund shareholders and the Board's decision to approve the proposed Pro Rata Redemption Plan. The Board believes there is significant value in Atlantic Fund's venture portfolio and, when company exits are realized, the Pro Rata Redemption Plan is the fairest system for providing liquidity to all shareholders."
Until Atlantic Fund's annual general meeting to be held on February 16, 2016, redemption requests by Atlantic Fund will continue to be placed in a queue for processing in the order they are received; however, as noted above, if shareholders approve the Pro Rata Redemption Plan, the Board does not expect Atlantic Fund to process redemptions associated with requests received since suspending redemptions in November 2014.
The Manager believes and the Board concurs with the view that the overall potential of Atlantic Fund's venture portfolio to provide value and meaningful liquidity through exit transactions remains strong and believes many of the portfolio companies are continuing to grow and mature, improving the prospects for cash-generating exits. Unfortunately, the timing of exit transactions are largely beyond the control of Atlantic Fund and, therefore, difficult to predict. As such, no assurance can be given as to the timing or amount of funds that will available for distribution to shareholders under the proposed Pro Rata Redemption Plan or otherwise or that Atlantic Fund will be able to complete an orderly realization of value. Furthermore, no assurance can be given that Atlantic Fund will receive shareholder approval or necessary regulatory approval of the proposed Pro Rata Redemption Plan.
FAQ's (frequently asked questions) regarding the Pro Rata Redemption Plan are available at www.growthworks.ca and details regarding the Pro Rata Redemption Plan, including required changes to the rights attached to Atlantic Fund's shares, will be included in the meeting materials that will be mailed to all Fund shareholders for the AGM in February.
Atlantic Fund's investments are primarily minority interests in private companies based in Atlantic Canada. Typically, the most common exit mechanism is a merger & acquisition transaction ("M&A") of a portfolio company and a strategic buyer. The other key exit mechanism is a secondary sale to a new financial investor. The timing of exit transactions is largely beyond the control of Atlantic Fund because it depends heavily on the M&A markets and Atlantic Fund has minority positions in its investee companies.
As at October 31, 2015, Atlantic Fund's Net Asset Value (NAV) was $22.9 million. The top five holdings of the venture portfolio are investments in IntroHive Services Inc., Azorus Inc., Virtual Marine Technology Inc., Impath Networks Canada Corporation, and Lymbix Inc., which total $17.3 million, or 75.5% of Atlantic Fund's NAV.
Forward Looking Statements: This press release contains forward looking statements which primarily relate to current and future assessments of Atlantic Fund's liquidity position, implementation of the proposed Pro Rata Redemption Plan including receiving shareholder ratification and any necessary regulatory approval, the timing of exits (also referred to as divestments) from Atlantic Fund's venture investment portfolio and Atlantic Fund's ability to complete an orderly realization of value, future economic and market conditions, including M&A and IPO market conditions and Atlantic Fund's ability to make follow-on investments and meet operating commitments. All forward looking statements are based on management's current beliefs and assumptions which are subject to numerous known and unknown risks, uncertainties and other factors that may cause the actual results, events or developments to be materially different from any future results, events or developments expressed or implied by such forward-looking statements. Such factors include, among others assessments of the timing of divestments from Atlantic Fund's venture investment portfolio, general economic and business conditions, including changing market conditions, changing governmental regulations, unforeseen developments, and other factors referenced in Atlantic Fund's filings with the Canadian securities regulators. Given these uncertainties, readers are cautioned not to place undue reliance on such forward-looking statements. Neither Atlantic Fund nor its manager assumes any obligation to update any forward-looking statements made in this press release.
SOURCE GrowthWorks Atlantic Venture Fund Ltd.
For further information: Reference: Peter Clark, President & CEO, GrowthWorks Atlantic Venture Fund Ltd., Suite 1502 - 1959 Upper Water Street, Halifax, Nova Scotia B3J 3N2, Tel: (506) 449-2969