GrowthWorks Canadian Fund Ltd.

GrowthWorks Canadian Fund Ltd.

March 18, 2011 08:00 ET

GrowthWorks Canadian Fund Offers Better Deal and Seeks Support from VenGrowth Shareholders for Merger Proposal

TORONTO, ONTARIO--(Marketwire - March 18, 2011) - GrowthWorks Canadian Fund Ltd. ("GrowthWorks" or "GrowthWorks Canadian Fund") announced today it is soliciting support agreements from Class A shareholders of the following VenGrowth funds (the "VenGrowth Funds"):

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.

for its proposed merger* of the VenGrowth Funds into GrowthWorks Canadian Fund, as that proposal may be amended from time to time (the "GrowthWorks Proposal"). Full details are contained in an information circular (the "Circular") filed by GrowthWorks Canadian Fund with Canadian securities regulatory authorities on www.sedar.com and posted at www.growthworks.ca.

GrowthWorks Canadian Fund is one of Canada's oldest and largest retail venture capital (RVC) funds. It has successfully completed a number of merger transactions with other RVC funds and is seeking to improve the situation for Class A shareholders of the VenGrowth Funds ("VenGrowth Shareholders").

The filing of the Circular is yet another step by GrowthWorks to bring forward a significantly better deal for VenGrowth Shareholders than the previously proposed merger into Covington Fund II Inc. announced in October, 2010 (the "Covington Proposal"). The Covington Proposal was recommended to VenGrowth Shareholders by the boards of the VenGrowth Funds (the "VenGrowth Board") after a lengthy strategic review. GrowthWorks Ltd. and upset VenGrowth Shareholders brought some very troubling aspects of the Covington Proposal to the attention of the Ontario Superior Court and the Ontario Securities Commission, including large, previously undisclosed "consulting" fees payable by the manager of Covington Fund II to a numbered company owned by four VenGrowth directors. Ultimately, the Ontario Securities Commission required a new shareholder vote to be conducted after proper disclosure to shareholders of the undisclosed consulting fee arrangements. On December 17, 2010, the VenGrowth Funds announced the Covington Proposal would not proceed.

A Better Deal for Class A Shareholders

The GrowthWorks Proposal offers a number of important advantages for VenGrowth Shareholders over the Covington Proposal, including:

- significantly better redemption opportunities - greater venture portfolio diversification
- more penalty-free redemptions - proven life sciences expertise
- lower MER
- lower "Incentive Participation Amount" for the manager
- a manager that has never had a managed fund go off redemption

GrowthWorks' manager will also contribute up to $5 million towards any termination fees required to be paid to the VenGrowth Fund managers, directly reducing the burden on Class A share values. The Covington Fund II manager made a similar offer under the Covington Proposal, but only after GrowthWorks Ltd. entered the fray and put this improvement on the table.

GrowthWorks Canadian Fund has delivered performance well above the RVC peer group average since 2002 when its current manager started, driven by a number of highly successful divestments.

A Choice for VenGrowth Shareholders

David Levi, President and CEO of GrowthWorks, said, "We are now going directly to VenGrowth Shareholders with our better merger proposal and a process designed to get them the better deal, not just the one preferred by the VenGrowth Board, which so strongly backed the inferior Covington Proposal last time."

The VenGrowth Board has announced that it is conducting a second review process. Mr. Levi commented, "Because of what happened last time, we have no confidence the VenGrowth Board will maximize value for the VenGrowth Funds' Class A shareholders any better the second time around. After all, it's exactly the same people. Last time, those directors approved $28 million in termination and other payments for the VenGrowth Fund managers, and chose not to tell shareholders about the lucrative manager to manager consulting payments. We believe most VenGrowth directors have conflicting interests or divided loyalties that work to dilute the level of concern for the interests of Class A shareholders. Yet it's the Class A shareholders who put up essentially all the money in the VenGrowth Funds."

GrowthWorks has submitted its proposal to the VenGrowth Board but has declined to sign the onerous, highly restrictive legal agreement the VenGrowth Board required as a condition to the VenGrowth Board considering the GrowthWorks Proposal. This kind of agreement simply confirms the VenGrowth Board's intent to strictly control the agenda for its own purposes and restrict the information that can flow to Class A shareholders. Mr. Levi also said, "Given GrowthWorks Ltd.'s role in exposing the undisclosed lucrative manager to manager compensation in the VenGrowth Board-backed Covington Proposal, it's hard to see how the same directors could ever, really, give GrowthWorks a fair shake in their process. For all these reasons, GrowthWorks has decided to go directly to VenGrowth Shareholders with a process designed to ensure they get the better deal. We believe the shareholders deserve to have a choice on how to best protect their interests. After all, it's their money."

Support Agreements - Getting the Better Deal

Given what happened last time, GrowthWorks urges VenGrowth Shareholders to act now to avoid being steered into another deal arranged by the VenGrowth Board.

If VenGrowth Shareholders instead provide their support to the GrowthWorks Proposal by delivering the yellow support agreement ("Support Agreement") accompanying the Circular, they will get the benefit of the better deal: either the GrowthWorks Proposal or any "Superior Proposal" as described below.

VenGrowth Fund shareholders who sign and return the Support Agreement will authorize GrowthWorks Canadian Fund, on their behalf, to (i) requisition and call shareholder meetings of the VenGrowth Funds to vote on the GrowthWorks Proposal, (ii) vote in person or by proxy in favour of resolutions to approve the GrowthWorks Proposal and other matters to facilitate completion of the GrowthWorks Proposal, and vote against any matters that may impede the GrowthWorks Proposal, and (iii) if the investor is not the registered holder of the VenGrowth Fund shares, authorize and direct the registered holder to execute requisition forms, proxies and other documents and vote as instructed by GrowthWorks Canadian Fund on the investor's behalf.

Support agreements are a common feature of many corporate transactions in Canada. GrowthWorks is showing some innovation by seeking Support Agreements generally from VenGrowth Shareholders, as technical provisions associated with RVC funds do not permit a traditional takeover bid to be made.

The Support Agreement includes provisions to ensure shareholders get the benefit of any "Superior Proposal" that may be presented and any improvements made to the GrowthWorks Proposal. If the VenGrowth Board recommends an alternative transaction proposal, a "Class A Shareholder Committee" composed of three recognized, independent businesspersons will review the alternative proposal and determine whether or not the overall financial terms and expected financial outcomes of the alternative proposal are superior for Class A shareholders to those of the GrowthWorks Proposal. The Support Agreements will be suspended if the alternative proposal is determined to be superior and GrowthWorks does not match or better it. This is designed to ensure VenGrowth Shareholders get the best deal presented.

More Protection for Class A Shareholder Interests

GrowthWorks also proposes the following key measures to better serve Class A shareholder interests:

  • Introducing a more robust conflicts standard for the VenGrowth Board, to avoid conflicting financial interests affecting decision-making to the detriment of Class A shareholders;
  • Fostering greater independence on the VenGrowth Board, by electing three new Class A shareholder elected directors, each of whom is independent of the sponsors and managers of the VenGrowth Funds and GrowthWorks;
  • Forming an independent "Class A Shareholder Committee" to represent the interests of supporting VenGrowth Class A shareholders by assessing any alternative proposal recommended by the VenGrowth Board; and
  • Conducting an independent legal and financial review of any termination fees claimed by the VenGrowth managers to be payable under existing agreements - with a view to minimizing them and reducing the impact on value of the Class A shares.

Conclusion

Mr. Levi concluded by saying, "GrowthWorks is here for the long term. We are committed to working with VenGrowth Shareholders to realize a more positive outcome for their VenGrowth Fund investments. It's now up to shareholders. They can either leave matters with the VenGrowth Board to carry forward again, or they can give their support to GrowthWorks and get the better deal."

* The GrowthWorks Proposal contemplates a merger transaction under which GrowthWorks Canadian Fund would acquire the assets of the VenGrowth Funds in exchange for GrowthWorks Canadian Fund Class A shares that would be distributed to VenGrowth Fund shareholders. The merger proposal was first delivered to the VenGrowth Board in December 2010, and subsequently updated on March 14, 2011. The merger proposal remains subject to conditions customary for a transaction of this nature, including shareholder, court and regulatory approvals, all as described in the Circular. There can be no assurance that the merger contemplated by the GrowthWorks Proposal will be completed on the basis proposed or at all.

The information in this press release is fully qualified by, and is subject to, the more detailed information contained in the Circular and Support Agreement.

Commissions, trailing commissions, management fees and expenses all may be associated with investment fund purchases. Please read GrowthWorks Canadian Fund's prospectus before investing. Investment funds are not guaranteed, their values change frequently and past performance may not be repeated.

Contact Information

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