CPVC Financial Corporation
TSX VENTURE : LHB

April 30, 2008 19:11 ET

CPVC Financial Increases Assets Under Administration

MONTREAL, QUEBEC--(Marketwire - April 30, 2008) -

THIS NEWS RELEASE IS NOT FOR DISTRIBUTION TO U.S. NEWSWIRE SERVICES OR FOR DISSEMINATION IN THE UNITED STATES, AND DOES NOT CONSTITUTE AN OFFER OF THE SECURITIES DESCRIBED HEREIN.

CPVC Financial Corporation ("CPVC Financial" or the "Corporation") (TSX VENTURE:LHB) today announced that it has entered into a formal purchase agreement in connection with the acquisition (the "Acquisition") by CPVC Financial from certain vendors of all of the issued and outstanding shares (the "GP I Shares") of CPVC General Partner LP I Inc. ("GP I").

About GP I

GP I owns all of the issued and outstanding shares of FIER CPVC Montreal Management Inc. ("Gestion FIER"), the general partner of FIER CPVC Montreal L.P. ("FIER CPVC"), an investment limited partnership located in Montreal, Quebec that has a term ending in December 2015. As at December 31, 2007, FIER CPVC had assets of $19 million consisting mainly of subordinated loans to small and medium size businesses located in the Province of Quebec.

Under the terms of the partnership agreement of FIER CPVC, the Corporation is entitled to annual administrative fees equal to the difference between its yearly expenses and 2% of the maximum capital contributions committed to by the limited partners of FIER CPVC of $15 million ($300,000 per annum).

Based on management prepared unaudited consolidated financial statements of GP I, as at December 31, 2007, GP I had assets of $17,501, liabilities of $45,630 and share capital deficit of $28,279. For the year ended December 31, 2007, GP I had revenue of $378,700 and expenses of $402,154 resulting in a net loss of $23,511, which is after payment of director fees of $180,000 and manager fees of $77,500, which fees will be substantially eliminated after the Acquisition.

The purpose of the Acquisition is that it is consistent with CPVC Financial's evolving business model. To date, CPVC Financial has used its own capital to make investments. In the future, it is expected that the majority of investments made by CPVC Financial will no longer be made directly by the Corporation, but will rather be made by investment limited partnerships managed by CPVC Financial. The Acquisition is consistent with this objective. This approach is designed to allow CPVC Financial to increase assets under management without dilution to its shareholders, while maximizing the Corporation's cash flows and their predictability over the long term which will ultimately allow the Corporation to maximize distributions to its shareholders.

Additional reasons for the Acquisition are that: (i) the additional predictable revenue stream resulting from the Acquisition will enable management of CPVC Financial to better plan its allocation of investment capital; and (ii) access to the additional capital of FIER CPVC to make investments will expand the number of opportunities available to CPVC Financial to invest its own capital.

About the Acquisition

CPVC Financial has entered into a non-arm's length share purchase agreement (the "Purchase Agreement") dated as of April 30, 2008 with Alain Lambert, Robert E. Brown, William L. Hess and Robert Milton (collectively, the "Vendors"), pursuant to which CPVC Financial has agreed to acquire the GP I Shares for a purchase price of $1,010,000 which will be paid in the form of secured non-convertible debentures of CPVC Financial.

Regulatory Requirements

The Acquisition is a non-arm's length transaction as Alain Lambert and William L. Hess, directors, officers and principal shareholders of CPVC Financial, as well as Robert E. Brown, a principal shareholder of CPVC Financial, are also Vendors. The related parties pursuant to the Acquisition, William L. Hess, Alain Lambert and Robert E. Brown, will not increase their shareholdings in CPVC Financial.

The Acquisition is a "related party transaction" within the meaning of TSX Venture Policy 5.9 (which incorporates Ontario Securities Commission Rule 61-501) ("Policy 5.9") and Quebec Securities Commission Regulation Q-27 ("Quebec Regulation Q-27") as certain of the Vendors are Related Parties. As a result, Ontario Securities Commission Rule 61-501 ("OSC Rule 61-501") and Quebec Regulation Q-27 provide that a "related party transaction", such as the Acquisition, must be approved by a majority of the votes cast by holders of securities, excluding holders of securities whose votes cannot be included for the purposes of minority approval, as that term is defined in OSC Rule 61-501. Under OSC Rule 61-501 and Quebec Regulation Q-27, as applied to the Acquisition, minority approval of the resolution concerning the Acquisition would require the approval by a majority of all the votes cast by minority shareholders.

The Acquisition is; however, exempt from the minority shareholder approval requirement pursuant to Section 5.7(2) of OSC Rule 61-501 and the equivalent exemption in Quebec Regulation Q-27. Pursuant to this exemption, if at the time the Acquisition is agreed to, neither the fair market value of the subject matter, nor the fair market value of the consideration for, the GP I Shares, exceeds 25% of the market capitalization of CPVC Financial. On March 31, 2008 (the last day of the month prior to execution of the Purchase Agreement), CPVC Financial had 75,993,616 common shares outstanding. The "market capitalization" of the CPVC Financial Shares was $0.0689 per share, which was determined by multiplying the number of outstanding CPVC Financial Shares by the simple average of the closing price of such shares on the twenty business days prior to March 31, 2008 calculated in accordance with Regulation 183(2) and (4) of the Securities Act (Ontario). Since the Purchase Price is less than 25% of this calculated market capitalization for CPVC Financial, the Acquisition is exempt from the requirement under OSC Rule 61-501 to obtain minority shareholder approval for the Acquisition.

Special Committee Review

After concluding on the advice of its advisors that the Acquisition is subject to the requirements of OSC Rule 61-501 and Quebec Regulation Q-27, the Board of Directors of CPVC Financial determined it was appropriate to form a special committee to consider the Acquisition and to determine if it would be in the best interests of CPVC Financial and its shareholders (the "Special Committee").

Based on disclosures made by each CPVC Financial director respecting his relationship to and interests in the Acquisition, it was determined that Ronald Keenan and Guy G. Lever were the only directors of CPVC Financial sufficiently independent and free from conflicts of interest to sit on the Special Committee. By unanimous resolution of the Board of Directors of CPVC Financial passed on January 21, 2008, the Special Committee was established with Ronald Keenan and Guy G. Lever as members to review and consider the Acquisition and determine whether the proposed Acquisition is in the best interests of CPVC Financial and its shareholders.

No member of the Special Committee is a Vendor pursuant to the Acquisition and no member of the Special Committee will benefit from the Acquisition in a manner that is different from the other shareholders of CPVC Financial.

For the purposes of discharging its mandate, the Special Committee was given the power and authority to establish its own procedures and to retain an independent valuation firm. The Special Committee was also granted all such powers as it reasonably required to discharge its mandate including, apart from its ability to retain an independent valuation firm, to retain such independent legal advisors as it considered necessary and to retain such other advisors as the Special Committee considered necessary or desirable, on such terms as the Special Committee considered appropriate. All directors, officers and employees of CPVC Financial were authorized and directed to make available any and all information regarding CPVC Financial that may be requested by the Special Committee from time to time during the course of the exercise of its mandate.

After considering a variety of factors, including the reasons for the Acquisition described herein and the independent valuation described below, the Special Committee has recommended the Acquisition for approval by the Board of Directors of CPVC Financial.

Independent Valuation

On January 25, 2008 the Special Committee retained Evans & Evans Inc. ("Evans") to prepare a comprehensive valuation report in connection with the proposed Acquisition. Evans was selected to perform the services for the Special Committee on the basis of its expertise in such matters. Evans has been involved in a significant number of transactions involving valuations. The Special Committee had discussions with representatives of Evans and together with Evans:

(i) settled the scope and terms of Evans' engagement, including the financial terms of the engagement;

(ii) reviewed and considered the approaches and analysis which Evans would use in the preparation of its valuation; and

(iii) reviewed and considered the Independent Valuation.

The Special Committee determined that in consideration of its services, Evans would be paid an aggregate of approximately $8,400 by CPVC Financial, and in addition Evans would be reimbursed for reasonable out of pocket expenses incurred by it in the performance of its services. It was also agreed that CPVC Financial would indemnify Evans in respect of certain liabilities which may be incurred by Evans in connection with the engagement.

No limitations were imposed by the Special Committee in connection with the provision by Evans of its report.

Evans is not an insider, Associate or Affiliate (as such terms are defined in the Securities Act (Alberta) of CPVC Financial, or GP I or any of their Associates or Affiliates. None of Evans or any of its affiliates is an associated or affiliated entity or insider of CPVC Financial and Evans is not acting as advisor to CPVC Financial or GP I in connection with the Acquisition. Evans has not been engaged within the last twenty-four months to perform financial advisory, investment banking, underwriting or other services, for or on behalf of GP I, nor had a material financial interest in any transactions involving GP I.

There have been no prior valuations of the GP I Shares.

Summary of Independent Valuation

The Evans Report was requested to provide a valuation of 100% of the issued shares of CPVC General Partner LP I Inc. ("GP I") as at March 31, 2008 (the "Valuation Date") based on certain assumptions. The purpose of the Evans Report is for inclusion in public disclosure documents of CPVC Financial in connection with the Acquisition.

For the purposes of the Evans Report, "fair market value" is defined as the highest price available in an open and unrestricted market between informed and prudent parties, acting at arm's length and under no compulsion to act, expressed in terms of cash.

The valuation of GP I refers to their "en bloc" value being the price at which all of the shares of GP I could be sold to one or more buyers at the same time.

After considering the GP I's operations, historical financial data, and financial projections of GP I, Evans believed the most appropriate methods in determining the range of the fair market value of GP I at the Valuation Date were the Discounted Cash Flow Method and the Comparable Transactions Method. Under the Discounted Cash Flow Method, Evans analyzed projections and discounted the expected cash flows of GP I using appropriate discount rates to arrive at the fair market value of GP I. With the Comparable Transactions Method, Evans reviewed certain comparable transactions within 12 months of the Valuation Date to derive a multiplier of Earning Before Interest, Taxes, Depreciation and Amortization ("EBITDA"). The multiplier was then applied to the EBITDA of GP I to arrive at a fair market value of GP I.

In undertaking the above valuation approaches, it was the opinion of Evans that the fair market value of GP I at the Valuation Date is in the range of CDN$980,000 to CDN$1,010,000.

Other

The completion of the Acquisition is subject to the approval of TSX Venture and all other necessary regulatory approval. The completion of the Acquisition is also subject to additional conditions precedent, including satisfactory completion of due diligence reviews by the parties and certain other usual conditions.

The TSX Venture Exchange Inc. has in no way passed upon the merits of the Acquisition and has neither approved nor disapproved the contents of this press release.

Contact Information

  • CPVC Financial Corporation
    Alain Lambert
    President and CEO
    (514) 395-1191