GrowthWorks Canadian Fund Ltd.

GrowthWorks Canadian Fund Ltd.

December 09, 2010 18:36 ET

GrowthWorks Canadian Fund Issues Merger Proposal to VenGrowth Funds

TORONTO, ONTARIO--(Marketwire - Dec. 9, 2010) - GrowthWorks Canadian Fund Ltd. ("Canadian Fund") announced today that its Board has approved a proposal whereby the following VenGrowth Funds would be merged into Canadian Fund, (the "GrowthWorks Proposal"):

  • The VenGrowth Investment Fund Inc.
  • The VenGrowth II Investment Fund Inc.
  • The VenGrowth III Investment Fund Inc.
  • The VenGrowth Advanced Life Sciences Fund Inc.
  • The VenGrowth Traditional Industries Fund Inc.

Canadian Fund is a GrowthWorks managed venture capital fund. Under the GrowthWorks Proposal, Canadian Fund would acquire the assets of each of the VenGrowth Funds in exchange for Class A shares of Canadian Fund. These shares would be distributed to Class A shareholders of the VenGrowth Funds in exchange for their Class A shares of the VenGrowth Funds.

On October 12, 2010, the VenGrowth Funds announced the proposed sale of the VenGrowth Funds' assets to Covington Fund II Inc. (the "Covington Proposal"). On November 11, 2010, GrowthWorks Ltd. ("GrowthWorks") issued a press release announcing its intention to formulate an alternative transaction proposal involving one or more GrowthWorks managed funds that would be significantly better for Class A shareholders of the VenGrowth Funds than the Covington Proposal. Delivering on its commitment, GrowthWorks formulated the GrowthWorks Proposal. The Board of Canadian Fund approved the GrowthWorks Proposal based on a recommendation from a special committee of five directors, each of whom is independent of the manager of Canadian Fund.

The structure of the GrowthWorks Proposal is similar to that of the Covington Proposal but with significant improvements for VenGrowth Fund Class A shareholders, as summarized in the following table:

Item   Covington Proposal1   GrowthWorks Proposal
Ability to redeem all shares at closing 2   Yes, at a 40% discount   Yes, at a 30% discount
Ability to redeem all shares 18 months after closing 2   No   Yes, at a 20% discount
Discount free redemptions during the 4 years post-merger for shareholders who do not elect to redeem at the discounts noted above, beginning after the first anniversary of closing for The VenGrowth Advanced Life Sciences Fund   10% a year   15% a year
Incentive participation or "IPA" payments on particularly successful venture divestments of former VenGrowth Fund investments   20%   15%
Manager to contribute $5 million towards any payments required to be made to the managers of the VenGrowth Funds on closing   Yes   Yes 3
Estimated recurring management expense ratio (MER)4   Higher   Lower
Portfolio size and venture portfolio diversification on closing   ~ $425 million 50-55 investments   ~ $600 million, 113 investments
Cross-investment holdings of merging funds (number and est. % of VenGrowth Funds' venture NAV)   2 (12%)   6 (42%)
1 Based on publicly available information.
2 For suspended VenGrowth Funds shareholders, subject to limits, formulated to be $60 million for both Covington and Canadian Fund.
3 Reduced proportionately if fewer than all of the VenGrowth Funds are merged into Canadian Fund.
4 Based on a comparison of the estimated post-merger MER for a new series of Canadian Fund Class A shares to be distributed to VenGrowth Fund Class A shareholders and the estimated ongoing MER of Covington Fund II Inc., after giving effect to the completion of the Covington Proposal.

The GrowthWorks Proposal also offers a number of significant benefits to Class A shareholders of Canadian Fund, including greater diversification, enhanced liquidity, lower IPA on investments acquired from the VenGrowth Funds and cost savings.

Canadian Fund today delivered the GrowthWorks Proposal to the boards of the VenGrowth Funds. C. Ian Ross, Chair of the Canadian Fund Board said, "Combining these funds and their substantial venture portfolios offers significant benefits for all shareholders. The proposal provides key advantages for VenGrowth Fund shareholders over the Covington Proposal. We look forward to the opportunity to engage with the independent directors of the VenGrowth Funds to discuss and ultimately conclude this transaction."

The VenGrowth Funds have entered into an asset purchase agreement dated October 8, 2010 with Covington Fund II Inc. ("Covington") in respect of the Covington Proposal. The VenGrowth Funds issued a press release on November 25, 2010, announcing that the required shareholder approvals had been obtained by the VenGrowth Funds and Covington. However, the VenGrowth Funds have indicated that the Covington Proposal remains subject to court, regulatory and other approvals. If the Covington Proposal receives those remaining approvals and is concluded, the GrowthWorks Proposal will not proceed.

The GrowthWorks merger transaction remains subject to the settlement and execution of a definitive merger agreement and other conditions customary for a transaction of this nature, including shareholder, court and regulatory approvals. There can be no assurance that the merger contemplated by the GrowthWorks Proposal will be completed on the basis proposed or at all.

Commissions, trailing commissions, management fees and expenses all may be associated with investment fund purchases. Please read Canadian Fund's prospectus before investing. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated. Canadian Fund purchased the assets of Canadian Science and Technology Growth Fund Inc. and Capital Alliance Ventures Inc. in 2005, First Ontario Labour Sponsored Investment Fund Ltd. in 2006, ENSIS Growth Fund Inc. in 2008 and Canadian Medical Discoveries Fund Inc. in 2009, in each case in exchange for Class A shares. ENSIS is a registered trademark of ENSIS Capital Corporation.

Contact Information

  • GrowthWorks Canadian Fund Ltd.
    David Levi
    President & Chief Executive Officer
    (416) 934-7700
    www.growthworks.ca