Nov. 16, 2010 (Filing Services Canada) -- Proventure Income Fund (PVT.UN - TSX Venture), held a special meeting of unit holders (the "Meeting") in Calgary yesterday to obtain approval for certain aspects of Proventure's proposed restructuring. At the Meeting unit holders of Proventure approved, with 100% of units represented voting in favour, the resolution for the proposed restructuring by Proventure of its business affairs and/or discontinuance of certain of its activities, as necessary, prior to January 1, 2011 in order to qualify for the REIT Exemption (as defined in the Information Circular) to the SIFT Rules (as defined in the Information Circular) under the Income Tax Act (Canada) (the "Tax Act"). Implementation of the restructuring is conditional upon receipt of the final approval of the TSX Venture Exchange.
The other resolution presented at the Meeting to approve proposed amendments to Proventure's Declaration of Trust, which amendments were to ensure that Proventure units are considered equity under International Financial Reporting Standards ("IFRS"), was also approved by the unit holders of Proventure, with 100% of units represented voting in favour.
Timing
Proventure intends to complete the restructuring during the month of December. The information circular of Proventure dated October 1, 2010 (the "Information Circular") providing more comprehensive details on the proposed restructuring was filed on SEDAR at www.sedar.com on October 19, 2010 and mailed to Proventure's unit holders on October 21, 2010, in advance of the special meeting of unit holders.
Proposed Restructuring Actions
The following is qualified in its entirety by the disclosure that was included in the Information Circular but it is still currently contemplated that such restructuring by Proventure will include the following steps, among others:
* Creation of a Private Income Trust and transfer of certain assets to that Private Income Trust - As described in the Information Circular, certain assets held by Proventure must be disposed of by Proventure in order for Proventure to qualify for the REIT Exemption. Proventure has created a Private Income Trust to own such assets to be transferred out of Proventure, with such Private Income Trust to meet the qualifications under the Tax Act to be a mutual fund trust but not be a reporting issuer under applicable Canadian securities legislation nor have its securities listed for trading on a recognized stock exchange such that the Private Income Trust will not be subject to the SIFT Rules.
In order to qualify as a mutual fund trust under the Tax Act, the Private Income Trust must, among other conditions, have at least 150 unit holders each holding units of the Private Income Trust with a value of at least $500. In order to distribute its units and not become a reporting issuer under applicable Canadian securities legislation, the Private Income Trust can only sell its units under exemptions from the prospectus requirements of applicable Canadian securities legislation. Subject to the availability of an exemption from such prospectus requirements for each Proventure unit holder, it is intended that the Private Income Trust will allow each unit holder of Proventure to subscribe for a number of units of the Private Income Trust that is roughly proportionate to their current holdings in Proventure, subject to the minimum and maximum total offering size of 597,504 units and 848,884 units, respectively and subject further to a minimum subscription for 667 units for all investors of the Private Income Trust. For greater certainty and clarity, if a Proventure unit holder were to subscribe for a number of Private Income Trust units equal to 10% of the number of Proventure units held by such holder, that unit holder's holdings in the Private Income Trust will be roughly proportionate to that unit holder's holdings in Proventure. For example, if a Proventure unit holder holds 50,000 units in Proventure and that holder subscribes for 5,000 units of the Private Income Trust (being 10% of the holder's current holdings in Proventure) for an aggregate purchase price of $5,000 (being $1 per unit), that unit holder's holdings in the Private Income Trust will be roughly proportionate to that holder's holdings in Proventure.
Despite the foregoing, it must be noted that, to the extent that exemptions from the prospectus requirements are not available for each Proventure unit holder to acquire Private Income Trust units or that certain Proventure unit holders choose not to subscribe for units of the Private Income Trust, and to the extent that the Private Income Trust needs to raise additional capital or needs to have a greater number of unit holders in order to qualify as a mutual fund trust, the Private Income Trust may issue a greater or lesser number of units to any one Proventure unit holder or may issue units to persons who are currently not Proventure unit holders. The disposition of certain assets by Proventure to the Private Income Trust is considered a "related party transaction" under applicable Canadian securities legislation.
* Elimination of Certain Internal Debt Obligations - In order to qualify for the REIT Exemption, Proventure will also be required to eliminate certain promissory notes and preferred limited partnership units within the Proventure subsidiary organizational structure. This step does not require unit holder approval but will be significant from tax liability perspective (see "Significant Tax Consequences below) and additional information will be included in the Information Circular.
Approval of Related Party Transaction
As the individuals comprising the board of trustees of Proventure (the "Board") are the same as those individuals comprising the board of trustees of the Private Income Trust and as the controlling unit holder of Proventure, being Peter Lacey, beneficially owning or controlling, together with his associates and affiliates, 70.1% of the 7,638,477 issued and outstanding Proventure units (76.5% when taking into account the 2,089,230 units of Proventure Operating Limited Partnership held by Peter Lacey, together with his associates and affiliates, which are exchangeable at any time for units of Proventure), will also be the controlling unit holder of the Private Income Trust, anticipated to beneficially own or control together with his associates and affiliates, approximately 76.5% of the issued and outstanding units of the Private Income Trust upon completion of the transactions discussed herein, the Private Income Trust is considered a non-arm's length party of Proventure and the proposed sale of assets from Proventure to the Private Income Trust is considered to be a related party transaction. Proventure was required to and did obtain disinterested unit holder approval at the Meeting with respect to the resolution approving of the REIT Exemption related restructuring transactions (the "Related Party Transaction Resolution"). At the Meeting 100% of the votes cast on the Related Party Transaction Resolution was voted in favour of such resolution, and thereby approving the REIT Exemption related restructuring transactions. In seeking disinterested unit holder approval, the votes of Peter Lacey, Graham Drake, Gary Harris and Steven Collicutt, and the affiliates and associates of each of those individuals, were excluded in determining whether the Related Party Transaction Resolution had been approved by the requisite percentage of disinterested unit holders voting at the Meeting.
Significant Tax Consequences
As previously announced, and as described in the Information Circular, it is anticipated that the restructuring transactions detailed above, may result in significant adverse tax consequences to Proventure that Proventure will then allocate to its unit holders pursuant to the terms of Proventure's declaration of trust. Consequently, unit holders may incur significant adverse tax consequences pursuant to the aforementioned restructuring transactions unless the Proventure units are held in a type of tax-deferred account, such as a trust governed by a registered retirement savings plan, a registered retirement income fund, a registered education savings plan, a registered disability savings plan, a tax free savings account or a deferred profit sharing plan.
It is currently anticipated that:
1. the proposed sale of certain assets by Proventure to the Private Income Trust will result in an estimated taxable loss to Proventure of approximately $837,000 (or $0.11 per unit); and
2. the proposed distribution by Proventure Income Trust to Proventure of the units of Proventure Holdings Limited Partnership will result in taxable income to Proventure of approximately $3,081,909 (or $0.40 per unit);
meaning it is currently anticipated that the proposed restructuring transactions in aggregate will result in taxable income to Proventure of approximately $2,244,909 (or $0.29 per unit).
Unit holders may wish to consult with their tax advisors in this regard but they are strongly encouraged to consider holding their units in such a tax deferred account.
About Proventure
Proventure Income Fund is an open-ended mutual fund trust established under laws of the Province of Alberta. Proventure is in the commercial property development business and provides financing and leases real estate to Cervus Equipment Corporation. The units of Proventure Income Fund are listed on the TSX Venture Exchange and trade under the symbol "PVT.UN".
For further information, please contact:
Peter Lacey - President & CEO
of Proventure Income Fund
Telephone: (403) 567-0339
Fax: (403) 567-0392
Email: placey@cervuscorp.com
Randy Muth - Chief Financial Officer
of Proventure Income Fund
Telephone: (403) 567-0339
Fax: (403) 567-0392
Email: rmuth@cervuscorp.com
Forward Looking Information
This press release contains certain forward-looking information ("forward-looking information") within the meaning of applicable Canadian securities laws. Forward-looking information is often, but not always, identified by the use of words such as "anticipate", "believe", "plan", "intend", "objective", "continuous", "ongoing", "estimate", "expect", "may", "will", "project", "should" or similar words suggesting future outcomes. In particular, this press release includes forward-looking information relating to Proventure's intention to qualify for the REIT Exemption to the SIFT Rules, the completion of an offering of securities of that Private Income Trust, the ability of Proventure to complete the restructuring within the month of December, whether or not Proventure will actually proceed with the restructuring in light of the fact that final approval from the TSX Venture Exchange is required for the "related party transaction" and the anticipated tax liability to unit holders of Proventure. Proventure believes the expectations reflected in such forward-looking information are reasonable but no assurance can be given that these expectations will prove to be correct and such forward-looking information should not be unduly relied upon.
Forward-looking information is based on various assumptions. Those assumptions are based on information currently available to Proventure, including the current business and economic trends, and the opportunities this restructuring will provide for Proventure to qualify for the REIT Exemption to the SIFT Rules. You are cautioned that the preceding list of assumptions is not exhaustive.
Forward-looking information is not a guarantee of future performance and involves a number of risks and uncertainties some of which are described herein. Such forward-looking information necessarily involves known and unknown risks and uncertainties, which may cause Proventure's actual performance and financial results in future periods to differ materially from any projections of future performance or results expressed or implied by such forward-looking information. Such risks include Proventure's ability to obtain final approval from the TSX Venture Exchange with respect to, and its ability to complete, the restructuring. A further risk to the proposed restructuring is whether or not the Private Income Trust that will acquire certain assets from Proventure is able to complete a satisfactory offering of its securities such that it is able to qualify as a mutual fund trust under the Tax Act and such that it is able to raise sufficient capital to complete the acquisition of certain assets from Proventure. Any forward-looking information is made as of the date hereof and, except as required by law, Proventure assumes no obligation to publicly update or revise such information to reflect new information, subsequent or otherwise.
The TSX Venture Exchange does not accept responsibility for the adequacy or accuracy of this release.
Source: Proventure Income Fund (TSX-V: PVT.UN) http://www.cervuscorp.com
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