Tree Island Wire Income Fund
TSX : TIL.UN

Tree Island Wire Income Fund

February 19, 2008 12:49 ET

Tree Island Letter Says Unitholders Should Not Hand Control to Futura

Unitholders Urged to Support Incumbent Board

VANCOUVER, BRITISH COLUMBIA--(Marketwire - Feb. 19, 2008) - Tree Island Wire Income Fund (the "Fund") (TSX:TIL.UN) today mailed a letter to unitholders and commented on new dissident information issued by The Futura Corporation in advance of a special meeting of unitholders on March 4, 2008. Futura requisitioned the meeting in an attempt to seize control of the Fund's Board of Trustees.

Tree Island also invites unitholders to visit the Fund's website (www.treeisland.com) for materials related to the special meeting, including a video explaining the issues underlying the proxy contest and a video on the Fund's business strategy.

"It is important for all unitholders to actively deliver their proxies, no matter how large or small their holdings, to prevent Futura from seizing control of the Fund without paying a premium to unitholders," said Keith Purchase, Chairman of the Board of Trustees of Tree Island.

The complete text of the letter to unitholders follows:

Dear Tree Island Wire Income Fund Unitholder,

By now you may have received proxy materials from a dissident unitholder known as The Futura Corporation ("Futura") who is seeking to replace five of the eight current members of your board of trustees (the "Board") and take control of Tree Island Wire Income Fund ("Tree Island" or the "Fund") by appointing five hand-picked nominees. Your Board is extremely concerned that Futura's circular is misleading and confirms our belief that Futura's only objective is to seize control of Tree Island without paying a control premium. You should not be fooled by Futura's assertion that it has no "present" intention of attempting to acquire Tree Island and no "current" intention of engaging in related party transactions with Tree Island, as such phrasing was clearly inserted to permit a change of intentions.

Given the success of Tree Island's strategy which is now being implemented, your Board understands why Futura would want to seize control of your Fund but believes that Futura should pay you for it. Your Board, in its unanimous opposition to Futura's attempts to steal control of the Fund without an appropriate payment to unitholders, has to date received broad based support from a significant number of unitholders for our strategy and opposition to Futura's attempts, but we need the support of other unitholders to ensure that the Futura attempt to seize control is defeated at the March 4 special meeting.

FUTURA SEEKS CONTROL WITHOUT PAYING YOU A PREMIUM

Tree Island has offered Futura representation on Tree Island's Board proportional to Futura's 19.9% ownership but Futura seeks control. Futura will indeed seize control if its five handpicked nominees are elected. Your Board believes such control, without a premium price paid for control, is not in your interests and is only in the interests of Futura. While Futura may say it is not attempting to take control and only seeks appropriate representation, it is self-evident that a 19.9% stake in your Fund does not warrant a majority of the Board seats and that five of eight seats on the Board constitutes control.

Among Futura's control-related proposals is its plan to institute a unit buyback. You should be concerned because Futura does not say whether it would tender its own units to such a buyback. If Futura does not tender, a unit buyback would be equivalent to a creeping takeover of the Fund by Futura, and contrary to the interests of unitholders other than Futura.

You should be aware that in its circular Futura again criticizes Tree Island's unitholder rights plan, which Futura opposed in 2006 when the plan was approved by a majority vote of unitholders. Your Board believes Futura would take the first opportunity to eliminate the plan and open the door even wider to a creeping takeover of Tree Island that would not be in the interest of unitholders other than Futura.

FUTURA'S HAND-PICKED NOMINEES COULD ADVERSELY IMPACT GOVERNANCE

Despite Futura's repeated assertions to the contrary, Futura's hand-picked nominees have no experience running a wire products business, no experience with international operations or in global supply chain management, including China and other parts of Asia, and little experience operating in the United States. Most of the Futura nominees have no experience as a board member of a Canadian publicly-traded income fund other than Futura-dominated CanWel Building Materials Income Fund ("CanWel").

Further, four of the five Futura nominees own no Tree Island units. Your Board believes this lack of experience and ownership demonstrates that the interests of these nominees are aligned with Futura rather than with all unitholders of Tree Island.

In Futura's circular Amar Doman's "principal occupation" is given as President and Chief Executive Officer of Futura. While the circular mentions that he is also Chairman of CanWel, it fails to disclose that he is CanWel's highest paid executive. His salary of $600,000 from CanWel in 2006, for work that is not his principal occupation, exceeded the $450,000 paid to CanWel's Chief Executive Officer.

In a news release subsequent to its information circular, Futura claims that Mr. Doman and Mr. Rosenfeld have agreed to receive only $1.00 annually as trustees of Tree Island. Given that Futura seeks control of the Board, the newly constituted Board could always vote to change such arrangement or authorize alternative payment schemes.

Futura again professes outrage at the normal, market-standard employment agreements between Tree Island and its senior executives. Meanwhile, Futura fails to disclose in its circular that CanWel has similar agreements, but with more lucrative terms, for Mr. Doman and other CanWel executives. For example, under a change of control of CanWel, Mr. Doman's part-time work entitles him to receive, at his sole option, a minimum $1.2 million severance payment based on his current salary. Tree Island's top executive would receive much less severance money and he does not have a sole-option clause.

FUTURA'S HAND-PICKED NOMINEES LACK INDEPENDENCE

Your Board believes four of Futura's five nominees have business relationships with Futura that may affect their judgment. Futura's circular acknowledges only that two of its nominees, Mr. Doman and Mr. Rosenfeld, have such relationships. But the circular omits pertinent facts. The following should help you as you consider how to cast your vote:

Amar Doman: President and Chief Executive Officer of Futura (principal occupation). Chair of Futura's 40%-owned CanWel. Has previously stated that he will declare himself Chair of Tree Island if his hand-picked nominees are elected. Conducts millions of dollars in related-party transactions with CanWel.

Harry Rosenfeld: Executive Vice President and Chief Financial Officer of Futura and former Senior Vice President of Congress Financial Corporation of Canada which was renamed Wachovia Capital Finance Corporation (Canada). Owns no units of Tree Island.

Wayne Ehgoetz: Director of Wachovia International Bank Corp. and a former president of Wachovia Capital Finance Corporation (Canada), the house bank for Futura and bank to Futura's 40%-owned CanWel. Owns no units of Tree Island.

Seigfried Thoma: Trustee of Futura's 40%-owned CanWel. Owns no units of Tree Island.

William Kushlick: Owns no units of Tree Island.

Your Board cannot understand how Futura expects anyone to believe that its nominees will act independently when they have been hand-picked by Futura, when four of five of its nominees have existing business relationships with Futura and when four of five have no ownership stake in Tree Island.

TREE ISLAND'S STRATEGY IS WORKING

Your Board and management believes in its three-step strategy, as described in its Trustees' circular issued on January 31, 2008. That strategy is working and investors are beginning to understand it.

Tree Island disputes the alarmist suggestion in the Futura circular regarding Tree Island's distribution level. The incumbent Board monitors the Fund's distribution level on an ongoing basis and is focused on maintaining distributions at $1 per unit on an annual basis. Notwithstanding the current difficult outlook for the business and the industry, the Board believes this level of distribution is appropriate and the Board is confident that the pursuit of Tree Island's strategy is the best way for the Fund to maintain this distribution.

Tree Island's unit price, after hitting a low in December 2007, has rebounded by over 40% to close at $5.12 on February 15, 2008. Your Board believes that this unit price improvement has occurred despite Futura and the costs and distraction it has imposed on Tree Island by requisitioning a special meeting.

Tree Island is facing severe external market challenges including competition from lower cost imports, rising raw material costs, a rising value for the Canadian dollar and especially a sharp decline in Tree Island's most important market, new United States housing construction. In Tree Island's core western United States market, annualized housing starts declined 61% from January 2006 to December 2007.

Despite this very challenging environment, Tree Island has outperformed its most comparable peer groups on a total return basis. Since January 1, 2006, Tree Island has delivered a total return in excess of the average for steel processing companies as well as the average for United States homebuilders, as set out below.

NOTE: To view the graph, please click the following link: http://media3.marketwire.com/docs/til0219a.pdf

The positive impact of Tree Island's strategy can be seen in the accompanying graph. It shows that United States housing starts have continued to plunge since the fourth quarter of 2006, when Tree Island implemented its strategy. However, because of the strategy, Tree Island's sales have dramatically rebounded.

NOTE: To view the graph, please click the following link: http://media3.marketwire.com/docs/til0219b.pdf

As outlined in more detail in its Trustees' circular, Tree Island estimates that its market challenges had a combined adverse impact of $25 million in the nine months ended September 2007 compared with the previous year. Tree Island's successful execution of its strategy has been a significant factor in enabling it to offset approximately $14 million of these adverse market impacts.

NOTE: To view the graph, please click the following link: http://media3.marketwire.com/docs/til0219c.pdf

A key contributor to Tree Island's financial performance has been the impact of the acquisition in July 2007 of Tree Island's Asian platform business from the China Baoan Group. This acquisition was completed, based on extensive due diligence, at an attractive value of 5.4 times historical EBITDA. When factoring in the synergies already implemented from this acquisition in 2007 which will result in savings in 2008 of $2.1 million, the acquisition multiple was only 3.5 times EBITDA. This acquisition was accretive to unitholders immediately after its completion in the third quarter of 2007, even excluding the synergies from facility consolidations. There are still further synergies to be realized from the acquisition that will add further financial upside such as lower materials costs, retention of key customers and industry consolidation benefits.

FUTURA HAS NO NEW STRATEGY

Your Board and management team is of the view that Futura continues to provide no strategy for Tree Island other than the strategy already being implemented by your current Board and management. Moreover, the Futura circular is disingenuous in claiming that Futura "sincerely" wishes to work with the current Tree Island executive team while at the same time asserting that Tree Island needs "the right leadership and a new approach." Tree Island's executive team believes the current approach is the right approach and will provide value to you.

As for Futura's circular, it incorrectly cites Futura's 40%-owned CanWel as a model for "maintaining unitholder value" while asserting that Tree Island unitholders have suffered "value destruction." The Futura circular fails to disclose CanWel's substantial destruction of unitholder value since its income fund IPO four years ago, with a total return to CanWel unitholders (distributions and unit price change combined) of negative 25%. In contrast, the total return for Tree Island unitholders since its 2002 income fund IPO has been positive 18%, even with Tree Island's recent market challenges which were challenges not faced by CanWel given its geographic and business focus. Further, CanWel has reduced its per unit distributions by 30% to a level substantially below Tree Island's current per unit distributions.

Based on CanWel's overall performance, you should be wary of Futura's claims that they would be better off under a Futura-dominated Board. CanWel's unit price plunge, distribution cut and negative total return since the income fund IPO, not to mention its related-party transactions with Futura and the lucrative compensation and severance for Mr. Doman as CanWel's part-time Chairman, all suggest that Futura's strategies are not necessarily beneficial, especially to other unitholders. Futura's claim that its sole motivation is that its investment in Tree Island be successful should serve as a warning since successful for Futura does not necessarily equate to successful for you.

THE CURRENT BOARD AND MANAGEMENT ARE ALIGNED WITH UNITHOLDERS IN SEEKING TO MAXIMIZE VALUE

Since the Fund's IPO in 2002, the Board has evaluated numerous strategic and financial alternatives for Tree Island, with the objective of maximizing value for all unitholders. The Board is committed to continuing to proactively review all such alternatives going forward on an ongoing basis.

The Board has been evaluating various corporate and capital structure alternatives available to maximize unitholder value. This review includes a review of alternatives for financing the operations of the business. A number of credible institutional investors have provided the Fund with expressions of interest to provide financing, and these alternatives are available to be pursued further. This review includes alternatives such as convertible debentures, convertible preferred shares, and other similar securities.

The review being pursued by the Board also includes the evaluation of alternatives available in the context of the upcoming changes to the tax treatment of income trusts which likely necessitates a conversion from the existing income structure by the end of 2010, when the tax advantages of the income trust structure will no longer exist.

In addition to the foregoing, the Board is also in the process of a comprehensive evaluation of alternatives available to maximize value regarding Tree Island's 52-acre waterfront property in Richmond, British Columbia. This includes the sale of 10 acres of land that is now surplus to the needs of Tree Island's operations, as well as other alternatives for the remaining lands.

The use of proceeds from any such financings or real estate sales could include the repayment of existing indebtedness, return of capital to unitholders (including a repurchase of units) and funding of accretive growth initiatives.

Your Board will continue its ongoing review of all strategic operations of Tree Island including asset sales, accretive mergers and acquisitions and any offers. Over the past several years, the Board has also had a number of discussions with parties that have considered an acquisition of the entire Fund. Your Board will continue to diligently explore these discussions as they arise, however, your Board will only put forward a transaction for the approval of unitholders that incorporates an appropriate control premium that recognizes the inherent value in the business.

Your Board is also committed to its plan to realize greater unit ownership by the Board. In December 2006, the Board approved unit ownership guidelines that require the trustees to acquire units of the Fund equivalent in value, calculated based on the unit purchase price, to three times the trustees' annual retainer within a period of five years. As a result of following good corporate governance practices and the observation of Fund imposed black-out periods on trading during times of strategic initiatives, certain of our new trustees have had little opportunity to acquire additional units since joining the Board. In 2006, the Fund adopted a phantom unit plan to provide long-term equity incentives to management that are aligned with the interests of unitholders who seek to maximize unit performance. The Fund is also considering an automatic purchase plan which may assist in the acquisition of units during black-out periods. Ultimately, the Fund takes unit ownership by the Board and management very seriously and will take whatever measures it deems most effective to further align the interests of the Board and management with that of our unitholders.

CONCLUSION

It is vital for you to fully understand what may happen to your investment if Futura seizes control of your Fund and your Board. For this reason, you are urged to carefully read our information circular and vote in support of the incumbent Board. Voting is a very quick and easy process that empowers you to state your position and protect your investment in your Fund.

Sincerely,

R. Keith Purchase, Chairman, Board of Trustees

The proxy to vote is BLUE

You can support the Fund's Board of Trustees by voting the enclosed BLUE form of proxy you received in the mail, with a VOTE AGAINST the resolution to remove certain of their members and to WITHHOLD your vote in connection with Futura's nominees.

You likely also will receive a proxy form in the mail from Futura. The Board recommends that you discard any such materials. By using the proxy form sent to you from Futura, you risk voting in favour of the proposals by Futura. Even if you have already voted using the dissident proxy you have every right to change your vote by simply executing the BLUE proxy as it is the later dated proxy that will be counted.

Your vote is extremely important - no matter how many or how few units you own, Unitholders must execute and vote their BLUE proxies on or before February 29, 2008 at 2:00 p.m. (Vancouver time) for their votes to be counted.

The Trustees' circular is available on SEDAR (www.sedar.ca) and the Tree Island website (www.treeisland.com). Questions and requests for assistance about the meeting may be directed to Georgeson Shareholder Communications Canada, Inc., the Proxy Solicitation Agent for the Fund, toll-free at 1-866-725-6498. Unitholders can also consult their broker or financial advisor for further information.

About the Fund

The Fund was launched on November 12, 2002, with the completion of an Initial Public Offering. There are 21,918,400 units of the Fund outstanding, representing a 100% ownership interest in Tree Island.

The Fund's performance depends entirely on the performance of Tree Island.

Tree Island Profile

Headquartered in Richmond, British Columbia, Tree Island Industries produces wire products for a diverse range of construction, agricultural, manufacturing and industrial applications. Its products include bright wire, stainless steel wire and galvanized wire; a broad array of fasteners, including packaged, collated and bulk nails; stucco reinforcing products, engineered structural mesh, fencing and other fabricated wire products. The company markets these products under the Tree Island, K-Lath, Halsteel, Tree Island Wire, Industrial Alloys and USA-Wire brand names. Tree Island also owns and operates a Hong Kong-based trading company that provides internationally sourced products to Tree Island and its customers worldwide.

Forward-Looking Statements

This press release contains forward-looking statements based on assumptions considered reasonable at the time they were prepared. Any statements that are contained herein that are not statements of historical fact may be deemed to be forward-looking statements. These statements speak only to the conditions in existence as of the date of this press release, and the Fund maintains no obligation to update such statements.

Forward-looking statements, by their nature, necessarily involve risks and uncertainties that could cause actual results to differ materially from those contemplated by the statements. Such risks and uncertainties include, but are not limited to, risks associated with operations such as competition, dependence on the construction industry, supplies of raw materials, dependence on key personnel, labour relations, regulatory matters, environmental risks, the successful execution of acquisition and integration strategies, foreign exchange fluctuations, the effect of leverage and restrictive covenants in financing arrangements, product liability, the ability to obtain insurance, energy cost increases, the ability to fund necessary future capital investments, and changes in tax legislation.

Contact Information

  • Tree Island Industries Ltd. - Corporate Contact
    Brian Irving
    Chief Financial Officer
    (604) 523-4516
    Email: birving@treeisland.com
    Website: www.treeisland.com
    or
    Longview Communications Inc.
    Alan Bayless
    Media Contact
    (604) 694-6035
    or
    Georgeson Shareholder Communications
    Unitholder information
    Toll Free: 1-866-725-6498