NOT FOR RELEASE OR DISTRIBUTION IN
OR INTO THE UNITED STATES.
JZ CAPITAL PARTNERS LIMITED
(the "Company" or "JZCP")
(a closed-end collective investment scheme incorporated with
limited liability under the laws of Guernsey with registered number 48761)
LEI: 549300TZCK08Q16HHU44
Recommended
Proposals to approve:
Amendments to the Company’s investment policy
The Company's proposed investments in the US Side-Car Fund
The Company's proposed disposal of its entire ownership interest
in
Xpress Logistics Solutions, Inc.
and
Notice of
Extraordinary General Meeting
4 October
2019
Unless otherwise defined herein,
capitalised terms used in this document have the meanings given to
them in the Circular of the Company dated 4
October 2019.
Further to the Company's announcement on 2 October 2019, the Company announces today that
it is posting a Circular to Shareholders containing details of a
revised investment policy for the purpose of enshrining the
Company's strategy of realising investments, paying down debt and
materially reducing commitments to new investments. As previously
announced, the strategy is intended to enable the Company to pay
down a substantial amount of debt and to return a substantial
amount of capital to Shareholders while also meeting the capital
requirements of the Company's portfolio in order to achieve NAV
growth.
In addition to containing details of the revised investment
policy, the Circular also convenes an Extraordinary General Meeting
of the Company to consider and, if thought fit, approve the
following proposals:
- the proposed amendments to the Company's investment policy (the
"Investment Policy Amendment Proposal");
- the Company's proposed investments in the previously announced
US Side-Car Fund (the "US Side-Car Fund Proposal"); and
- the Company's proposed disposal of its entire ownership
interest in one of its portfolio companies, Xpress Logistics (the
"Xpress Logistics Proposal"),
(together, the "Proposals").
The Company notes that the US Side-Car Fund is being launched
for the purpose of directing the bulk of any new US microcap
investments to it and is expected to be substantially funded by
third party limited partners with the Company's level of proposed
investments also being expected to put significantly less of a
burden on its future cash flows. Such investments are therefore
considered by the Board to be consistent with the Company's revised
investment policy and its strategy to materially reduce commitments
to new investments. Similarly, the Company's proposed disposal of
its ownership interest in Xpress Logistics is also considered by
the Board to be consistent with the Company's revised investment
policy and its strategy of raising further liquidity by achieving
realisations from existing investments. Both of these Proposals
would be considered Related Party Transactions of the Company and
accordingly Shareholder approval is required for each of them.
As Shareholder approval is required for each of the above
Proposals, an Extraordinary General Meeting of the Company is being
convened to be held at 1.00 p.m. on
24 October 2019. The Extraordinary
General Meeting will be held at the offices of Northern Trust
International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les
Banques, St Peter Port, Guernsey
GY1 3QL, Channel Islands. The
Notice convening the Extraordinary General Meeting, which contains
the Resolutions to be proposed at that meeting concerning the
Proposals, is set out at the end of the Circular being posted to
Shareholders.
Investment Policy Amendment
Proposal
Firstly, the Company is proposing to amend and restate its
investment policy to enshrine the Company's strategy of realising
investments, paying down debt and materially reducing commitments
to new investments.
The principal amendments to the Company's existing investment
policy relate to the Company's strategy and its implementation over
the next few years. The principal amendments are set out below:
- the strategy is to realise investments, pay down debt and
materially reduce commitments to new investments;
- the strategy is intended to enable the Company to pay down a
substantial amount of debt and to return a substantial amount of
capital to Shareholders while also meeting the capital requirements
of the Company's portfolio in order to achieve NAV growth;
- in implementing the strategy, the Company anticipates that no
meaningful capital will be dedicated to new investments other than
honouring its funding commitments and supporting its portfolio of
assets. In relation to its real estate investments, the Company
does not expect to make any new investments in this area other than
in its existing real estate portfolio; and
- as part of implementing the strategy, the Company intends to
concentrate on achieving realisations and working on its current
portfolio of assets to enhance values.
Save for those principal amendments as set out above, the
Company is not otherwise proposing to make any other changes to its
existing investment policy (including its corporate objective and
borrowing policy) and, as such, the existing investment policy
otherwise remains largely unchanged. The Company’s amended and
restated investment policy is set out in full in the Circular with
copies of the same being on display and available for inspection as
described in the Circular.
The Board considers that the amendments to the Company's
investment policy and the enshrining of the Company's strategy
therein (including with the intention of enabling the Company to
pay down a substantial amount of debt, return a substantial amount
of capital to Shareholders and also to meet the capital
requirements of the Company's portfolio) are in the best interests
of the Company and the Ordinary Shareholders.
The Company has previously voluntarily agreed that, in line with
Chapter 15 of the Listing Rules (with which the Company voluntarily
complies and insofar as the Listing Rules are applicable to the
Company by virtue of its voluntary compliance), it would not
materially alter its existing investment policy without the prior
approval of Shareholders. The Investment Policy Amendment Proposal
is considered to be a material change to the investment policy and
Shareholder approval is accordingly being sought for the proposed
amendments to the same.
As such, a Resolution is to be proposed at the Extraordinary
General Meeting in relation to the Investment Policy Amendment
Proposal and is being proposed to seek Shareholder approval for the
amended and restated investment policy to be approved and adopted
as the investment policy of the Company in substitution for, and to
the exclusion of, the Company’s existing investment policy.
US Side-Car Fund Proposal
Secondly, the Company is proposing to make investments in a new
US Side-Car Fund expected to be launched shortly by the Company's
Investment Adviser, JZAI, which is targeting approximately
US$500 million of aggregate capital
commitments for investments in the fund. The Company's proposed
investments in the US Side-Car Fund will be made jointly with
David Zalaznick and Jay Jordan (together, the JZAI Founders who are
the founders and principals of the Investment Adviser, JZAI) and
various members of the JZAI US microcap investment team (together
with the JZAI Founders, the US Side-Car Fund Principals), each as
Related Parties of the Company.
The Company's Investment Adviser, JZAI, intends to establish the
US Side-Car Fund, which will be a Delaware limited partnership. The general
partner of the US Side-Car Fund will also be a Delaware limited partnership of which JZAI (or
an affiliated entity) will be the general partner. The US Side-Car
Fund will be managed by JZAI (or an affiliated entity). The US
Side-Car Fund will be a US microcap buyout fund and is being
established to make new US microcap investments. Acquisitions are
intended to be made with a focus on buyouts and build-ups of
companies and in growth company platforms in the US microcap
market, generally with:
- enterprise values of between US$30
million and US$150
million;
- a focus on businesses generating or capable of generating
EBITDA of US$5 million to
US$20 million per annum; and
- principal offices and a majority of their operating assets
located in the United States or
revenues associated with persons located in or associated with
the United States.
The timing for the first closing of the US Side-Car Fund on
capital commitments by investors is anticipated to be in the fourth
quarter of the Company's current financial year. At or around the
time of the first closing, it is proposed that:
(i) the Company will undertake a capital commitment
to make investments in the US Side-Car Fund (through the general
partner of the fund) of up to approximately US$25 million; and
(ii) the US Side-Car Fund Principals will undertake a
capital commitment to make investments in the US Side-Car Fund
(also through the general partner of the fund) of up to
approximately US$25 million.
As such, the Company will be investing jointly with the US
Side-Car Fund Principals in the US Side-Car Fund in the proportions
of approximately 50:50. It is anticipated that the Company's
proposed investment will be called over a five-year period. With
respect to the balance of the targeted aggregate capital
commitments to the US Side-Car Fund, these amounts are expected to
be funded by other third party limited partners extending capital
commitments to make investments in the fund.
It is also noted that, at or around the time of the first
closing, the US Side-Car Fund will purchase from the Company one or
more US microcap warehoused investments which may be made by the
Company on the expectation that either all or a portion of them
will be sold to the US Side-Car Fund upon it being established. Any
such warehoused investments will be sold at the Company's cost plus
interest at a rate of 8 per cent. per annum and allocated fees and
expenses.
The Board considers that the Company's proposed investments and
participation in the US Side-Car Fund (and in particular that other
third party limited partners are expected to take up a larger
proportion of each US microcap investment going forward) are
consistent with the Company's amended and restated investment
policy (including its strategy to materially reduce commitments to
new investments) and are in the best interests of the Company and
the Ordinary Shareholders.
The US Side-Car Fund Proposal would be considered a Related
Party Transaction under Chapter 11 of the Listing Rules (with which
the Company voluntarily complies and insofar as the Listing Rules
are applicable to the Company by virtue of its voluntary
compliance). The US Side-Car Fund Principals comprise the JZAI
Founders and various members of the JZAI US microcap investment
team each being considered to be Related Parties of the Company.
The JZAI Founders are the founders and principals of the Company's
Investment Adviser, JZAI (which includes the JZAI US microcap
investment team) and are also substantial Shareholders of the
Company as they are entitled to exercise or to control the exercise
of 10 per cent. or more of the votes able to be cast at a general
meeting of the Company. The Company's proposed investments in the
US Side-Car Fund which involves the US Side-Car Fund Principals as
Related Parties of the Company would be considered to be
arrangements whereby the Company and its Related Parties invest in,
or provide finance to, another undertaking or asset. Accordingly,
the US Side-Car Fund Principals as Related Parties and the US
Side-Car Fund Proposal as arrangements between them would be
considered a Related Party Transaction of the Company under Chapter
11 of the Listing Rules (with which the Company voluntarily
complies and insofar as the Listing Rules are applicable to the
Company by virtue of its voluntary compliance) and Shareholder
approval is accordingly being sought. A fair and reasonable written
confirmation in a form prescribed by the Listing Rules has been
received in relation to the US Side-Car Fund Proposal.
As such, a Resolution is to be proposed at the Extraordinary
General Meeting in relation to the US Side-Car Fund Proposal and is
being proposed to seek Shareholder approval for the Company's
proposed investments in the US Side-Car Fund.
Xpress Logistics Proposal
Third and finally, the Company is also proposing to dispose of
its entire ownership interest in Xpress Logistics, a subsidiary of
one of the Company’s portfolio companies, U.S. Logistics. The
Company's proposed disposal of its ownership interests will in
effect be made to Capstone Logistics which is a portfolio company
of Resolute Fund III, being one of the funds managed by The Jordan
Company. David Zalaznick and
Jay Jordan (together the JZAI
Founders who are the founders and principals of the Company's
Investment Adviser, JZAI), each as Related Parties of the Company,
are also the founders of The Jordan Company (with Jay Jordan being the non-executive Chairman) and
have an economic interest in Resolute Fund III or its affiliated
funds.
On 26 September 2019, Xpress
Logistics entered into a merger agreement with Capstone in relation
to a proposed Merger between them. The Merger, if effected, will
have the effect of the Company realising its investment in Xpress
Logistics by disposing of its entire ownership interests as well as
its debt investments therein.
The shareholders of Xpress Logistics, including U.S. Logistics,
will receive for the Merger, in aggregate, Initial Consideration of
approximately US$45 million in cash
upon the Merger becoming effective, subject to closing adjustments.
Under the terms of the Merger, an amount of US$450,000 from the Initial Consideration will be
held in escrow to be released in accordance with final closing
adjustments to the Initial Consideration. The closing adjustments
will be made to reflect the amount of cash, indebtedness, working
capital and transaction expenses at the time of closing in respect
of Xpress Logistics and its subsidiaries, being the Priority
Express Business, as well as adjustments for certain minority
shareholder repurchases, equity appreciation rights and preferred
share redemptions relating to the Priority Express Business
required to effect the Merger. In addition, the shareholders of
Xpress Logistics may receive contingent Earn-Out Consideration of
up to, in aggregate, approximately US$5
million in cash based on certain adjusted EBITDA targets of
the Priority Express Business for the year ending 31 December 2019.
The Company holds a 37.74 per cent. ownership interest in Xpress
Logistics by way of both its 37.72 per cent. ownership interest in
U.S. Logistics (which owns 90.5 per cent. of Xpress Logistics) and
its 3.6 per cent. ownership interest directly in Xpress Logistics.
Accordingly, the Merger effectively involves the Company disposing
of its direct and indirect ownership interest in Xpress Logistics.
The Company expects to receive in connection with the Merger a
total amount of approximately US$16,939,000. Such amount includes: (i)
approximately US$8,000,000 (plus
unpaid interest) from the redemption by Xpress Logistics of certain
loan notes held by the Company; (ii) approximately US$7,747,607 (plus accrued dividends) pursuant to
the redemption of the Company's preferred interests in U.S.
Logistics; and (iii) approximately US$863,000 from the Initial Consideration,
subject to the final determination of the aforementioned closing
adjustments. In addition, the Company may receive potentially up to
approximately US$1,382,000 from any
Earn-Out Consideration that may be paid subject to the relevant
adjusted EBITDA targets being met. The proceeds that the Company
receives in connection with the disposal of its ownership interests
are intended to be used towards the implementation of the aims of
the amended and restated investment policy and for the Company's
general corporate purposes.
The portfolio company the subject of the disposal, Xpress
Logistics, is incorporated in Delaware and the Priority Express Business
comprising its subsidiaries includes one direct subsidiary,
Priority Express Courier, Inc., which in turn has a subsidiary,
Priority Express, Inc. both of which are incorporated in
Delaware. The Priority Express
Business was founded in 2005 and provides over 500 customers in the
healthcare and e-commerce end markets with expedited freight and
distribution services, scheduled routed delivery services and
on-demand delivery services. The business conducts its warehousing
and logistics activities in five cross docking facilities
strategically located across New
Jersey, Delaware,
New York, Connecticut, Virginia, Maryland, Pennsylvania and the Middle Atlantic region of
the United States and has a
network of more than 450 independent third party drivers for its
delivery functions. The Priority Express Business has adjusted
EBITDA of approximately US$4.5
million, revenue of approximately US$38.4 million and total gross assets of
approximately US$20.1 million for the
12 months ending 30 April 2019. These
figures, all of which are unaudited, are attributable to the whole
of the Priority Express Business and not the proportionate 37.7 per
cent. ownership interest held and proposing to be disposed of by
the Company through the Merger.
The Board considers that the proposed disposal by the Company of
its ownership interests in Xpress Logistics currently provides the
best opportunity to realise an attractive and certain value for its
ownership interests. The selection of Capstone as the preferred
bidder for Xpress Logistics was undertaken following a competitive
auction process managed by an investment bank and an assessment
that Capstone presented the superior offer. The Company's
Investment Adviser, JZAI, (for reasons explained below) has also
advised the Company that it considers the terms of the Xpress
Logistics Proposal are fair and reasonable as far as Ordinary
Shareholders are concerned. The Board considers that this
assessment is further supported by the participation of Edgewater
Growth Capital Partners (one of the Company's major Shareholders)
in the transaction as one of the other selling shareholders of
Xpress Logistics on the same terms as the Company. Accordingly, the
Board considers the Xpress Logistics Proposal to be in the best
interests of the Company and the Ordinary Shareholders. The Board
also notes that it considers the Xpress Logistics Proposal to be
consistent with the Company's amended and restated investment
policy and its strategy of raising further liquidity by achieving
realisations from existing investments.
The Xpress Logistics Proposal would be considered a Related
Party Transaction under Chapter 11 of the Listing Rules (with which
the Company voluntarily complies and insofar as the Listing Rules
are applicable to the Company by virtue of its voluntary
compliance). The JZAI Founders are the founders and principals of
the Company's Investment Adviser, JZAI, and are also substantial
Shareholders of the Company as they are entitled to exercise or to
control the exercise of 10 per cent. or more of the votes able to
be cast at a general meeting of the Company. Each of the JZAI
Founders is considered to be a Related Party of the Company. As
mentioned above, the counterparty to the Merger, Capstone, is a
portfolio company of Resolute Fund III which has a 94 per cent.
ownership interest in Capstone and is one of the funds managed by
The Jordan Company. The JZAI Founders, each as Related Parties of
the Company, are also the founders of The Jordan Company (with
Jay Jordan being the non-executive
Chairman) and have an economic interest in Resolute Fund III or its
affiliated funds. As such, the Xpress Logistics Proposal would be
considered a Related Party Transaction under Chapter 11 of the
Listing Rules (with which the Company voluntarily complies and
insofar as the Listing Rules are applicable to the Company by
virtue of its voluntary compliance) and Shareholder approval is
accordingly being sought.
Notwithstanding the foregoing, Shareholders should note that,
whilst the Listing Rules provide for written confirmation to be
obtained from a sponsor that the terms of a Related Party
Transaction are fair and reasonable as far as shareholders are
concerned, such a confirmation has not been received in relation to
the Xpress Logistics Proposal. Shareholders are reminded that the
Company also departed from the same requirement in relation to the
Deflecto and Water Treatment transactions last year and the
Avante-MERS and Orizon transactions earlier this year, all of which
were approved by Shareholders. The reason for this being the case
is because, as was the same for the aforementioned historic
transactions, whilst the Company has sought to obtain a fair and
reasonable written confirmation for the Xpress Logistics Proposal,
it has been unable to do so at a cost which can be justified
relative to its size and within the time constraints needed to be
met in order to transact on and complete the transaction on the
terms negotiated. The Company again reiterates its understanding
that the costs and time for obtaining such a confirmation can be
greater for a Related Party Transaction that concerns an
acquisition or disposal, such as the Xpress Logistics Proposal.
The Company has therefore decided to depart from the requirement
to obtain a fair and reasonable written confirmation on this
occasion but notwithstanding that, and as was also the case with
the historic transactions, the Company's Investment Adviser, JZAI,
has instead provided written confirmation to the Company that the
terms of the Xpress Logistics Proposal are fair and reasonable as
far as Ordinary Shareholders are concerned. JZAI has a selective
and disciplined approach to investing which is applied across all
investments including in the case of Xpress Logistics. In addition,
whilst the JZAI Founders do have an economic interest in Resolute
Fund III or its affiliated funds as described above, the Company
notes that the Merger and the selection of Capstone as the
preferred bidder for Xpress Logistics was undertaken following a
competitive auction process managed by an investment bank and an
assessment of Capstone as presenting the superior offer as
determined on the basis of price and ability to complete the Merger
in a short time frame with certainty. The Company also notes again
that Edgewater is participating in
the transaction on the same terms as the Company, which the Board
considers to provide additional support for JZAI's assessment that
the terms of the Xpress Logistics Proposal are fair and reasonable.
Shareholders are also reminded that the Company is not subject to,
but rather voluntarily complies with, the Listing Rules and, save
for the absence of a fair and reasonable written confirmation in a
form prescribed by the Listing Rules, the Xpress Logistics Proposal
is otherwise being treated in accordance with the Listing Rules
including in respect of the requirement to obtain Shareholder
approval.
As such, a Resolution is to be proposed at the Extraordinary
General Meeting in relation to the Xpress Logistics Proposal and is
being proposed to seek Shareholder approval for the Company's
proposed disposal of its ownership interests in Xpress
Logistics.
Notice of Extraordinary General
Meeting and Shareholder Circular
Notice is hereby given that the Extraordinary General Meeting of
the Company will be held at the offices of Northern Trust
International Fund Administration Services (Guernsey) Limited, Trafalgar Court, Les
Banques, St Peter Port, Guernsey
GY1 3QL, Channel Islands at
1.00 p.m. on 24 October 2019.
Further details of the Proposals are included in the Notice
convening the Extraordinary General Meeting and in the
Circular.
The Notice convening the Extraordinary General Meeting is being
distributed to members of the Company and will shortly be uploaded
to the Company's website at www.jzcp.com. Copies of the Circular
the Company is posting to Shareholders are available for viewing,
during normal business hours, at the registered office of the
Company at Trafalgar Court, Les Banques, St Peter Port,
Guernsey GY1 3QL and will shortly
be available for viewing at www.morningstar.co.uk/uk/nsm.
The Notice convening the Extraordinary General Meeting is also
included within the Circular.
For further information:
Ed Berry / Kit
Dunford
FTI Consulting |
+44 (0) 20 3727 1046 / 1143 |
David Zalaznick
Jordan/Zalaznick Advisers, Inc. |
+1 (212) 485 9410 |
Sam Walden
Northern Trust International Fund Administration Services
(Guernsey) Limited |
+44 (0) 1481
745385 |
About JZCP
JZ Capital Partners ("JZCP") is one of the oldest
closed-end investment companies listed on the London Stock
Exchange. It seeks to provide shareholders with a return by
investing selectively in US and European microcap companies and US
real estate. JZCP receives investment advice from Jordan/Zalaznick
Advisers, Inc. ("JZAI") which is led by David Zalaznick and Jay
Jordan. They have worked together for more than 35 years and
are supported by teams of investment professionals in New York, Chicago, London and Madrid. JZAI’s experts work with the existing
management of microcap companies to help build better businesses,
create value and deliver strong returns for investors. For more
information please visit www.jzcp.com.
Important Notice
This announcement is not an offering of securities. Any
securities offered have not been and will not be registered under
the US Securities Act and may not be offered or sold in
the United States absent
registration or an applicable exemption from registration
requirements.
This announcement also includes statements that are, or may be
deemed to be, “forward-looking statements”. These forward-looking
statements can be identified by the use of forward-looking
terminology, including the terms “believes”, “estimates”,
“anticipates”, “expects”, “intends”, “may”, “will” or “should” or,
in each case, their negative or other variations or comparable
terminology. These forward-looking statements relate to matters
that are not historical facts. By their nature, forward-looking
statements involve risks and uncertainties because they relate to
events and depend on circumstances that may or may not occur in the
future. Forward-looking statements are not guarantees of future
performance. The Company's actual investment performance, results
of operations, financial condition, liquidity, policies and the
development of its strategies may differ materially from the
impression created by the forward-looking statements contained in
this announcement. In addition, even if the investment performance,
result of operations, financial condition, liquidity and policies
of the Company and development of its strategies, are consistent
with the forward-looking statements contained in this announcement,
those results or developments may not be indicative of results or
developments in subsequent periods. These forward-looking
statements speak only as at the date of this announcement. Subject
to their legal and regulatory obligations, each of the Company, the
Investment Adviser and their respective affiliates expressly
disclaims any obligations to update, review or revise any
forward-looking statement contained herein whether to reflect any
change in expectations with regard thereto or any change in events,
conditions or circumstances on which any statement is based or as a
result of new information, future developments or otherwise.