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| Saskatchewan Chicken Industry Investment Fund (SCIIF)
Investment Policy The investment policy of the Fund is established as a guide to ensure the consistent application of investment decisions and the ongoing monitoring of investments. Policy is approved and established by the Board of Directors and the Board of Directors must approve any revisions to the policy. Until such changes are approved, parties providing services to or committees of the Fund must strictly adhere to the policies in place.
The Chicken Farmers of Saskatchewan and the Saskatchewan Agri-Food Council signed a Memorandum of Understanding (“MOU”) dated December31, 1999 to implement a plan to permit expansion of the broiler/roaster chicken industry in Saskatchewan. To help achieve this vision, the framework for the Saskatchewan Chicken Industry Investment Fund was outlined in the MOU. It was anticipated that the fund would be required to help finance the increase in primary processing capacity required by the expansion. However, the expansion occurred without requiring an investment by the Fund. With the concurrence
of the signatories to the MOU, the purpose of the Fund has been
expanded. The Fund plans to make investments into the Saskatchewan
chicken industry that will help to achieve the long-term growth
and survival of the industry. The anticipated impact on the Saskatchewan
chicken industry must be evident prior to any investment being made. The investee businesses will be substantially based in Saskatchewan and must operate within the parameters of Canada’s national supply management system. The investee business must facilitate the growth and/or survival of the Saskatchewan Broiler/Roaster Chicken industry. The investments made by the fund must demonstrate an appropriate return on the investment as well as a recapture of the original value of the investment over a reasonable period of time. The return on the investment will vary depending upon the circumstances of the investment and may be measured in varying ways. The Fund will attempt to diversify its investments to reduce risk. However, the relatively small size of the Fund means that in order for the Fund to contribute meaningfully to the growth and/or survival of the industry, ideal levels of diversification may not be possible. The Fund will not be limited by investment type. All types of direct investment will be considered provided that they directly contribute to the growth and/or survival of the Saskatchewan Chicken Industry. The Fund may diversify its investments according to stage of development, by investing in businesses that are in the start-up, growth, and mature stages. Start-up stage businesses are those that have developed a product or service or are introducing a new technology, but have not yet reached the commercialization stage. Growth stage businesses include those that have entered into the commercialization of their products or services and are generating growing sales revenue and require financing to expand and grow. Mature stage investments include businesses with stable cash flow that require financing for retrofit activities or expansion capital.
The particular form of the Fund’s investments are selected and negotiated after taking into account the investment criteria and guidelines of the Fund, the long-term requirements of the investee business, the stage of development of the investee business, the investee business’s requirements, the ability to negotiate down-side protection and tax considerations. The Fund will attempt to diversify its investment portfolio through the use of such instruments, among others, as common shares, convertible debentures, convertible preferred shares, debt with equity participation, funded loan guarantees and bridge loans. There may also be other occasions where the investment may be through direct or indirect ownership of assets that are leased to businesses using them to expand the industry. Where the Fund makes an investment by way of a loan, such investment will be secured by a charge over the businesses’ assets but may be subordinated to other lenders’ security. The Fund may guarantee loans of eligible businesses and in such circumstances the making of such loans would permit the growth and development of the business without the Fund being the primary investor or where the Fund would risk having its investment in an eligible business diluted. The Fund will be limited to direct investments in the Saskatchewan Chicken Industry and will not invest in other pooled investments except for the management of cash reserves. Ideally, the aggregate of loan guarantees should not exceed 10 percent of the Fund’s total assets at the time each loan guarantee is provided. The Fund will maintain a liquid reserve of 25% of the guaranteed amount of any loan guarantees. The Fund will maintain liquid reserves in high-quality government and corporate debt obligations. It is not the intention of the Fund to maintain a controlling interest in any investee business. Any investment made will not result in the Fund having a controlling interest or greater than 49% of the ownership of the business. In the situations where the investment is by way of a debt instrument, the investment into the specific project will not exceed 75% of the project amount with the remaining 25% to come from other sources of funding, preferably the owners of the investee business. To the extent possible, investments will be diversified by the expected holding period of the investment. Generally, the average holding period is expected to be five to eight years. The Fund may choose to refinance its investment through an arm’s length third party where the expected return can be achieved in a shorter time frame. All investment recommendations must include a strategy for realization on investments made. Possible exit strategies include the following:
The approval process for SCIIF investments is more complicated than for other venture capital funds. The main reasons for the additional complexity are to ensure that (i) the Fund only invests in projects that are consistent with its objectives and (ii) there is maximum shareholder/producer input. The SCIIF Board operates independently from the signatories to the MOU and is responsible for reviewing project proposals and recommending worthy projects for shareholder approval. Producer/shareholders approve all projects for funding. Three independent trustees, two appointed by the signatories and one appointed by the other two trustees, ensure that the project is consistent with the Fund’s objectives and that the producer vote was conducted fairly. The major steps in the approval process are outlined below:
Investment requests received by the Fund are expected to span a range of potential opportunities. With that diversity, the Fund may require the expertise of an equally diverse range of professionals including appraisers, valuators, consultants, etc. Investment opportunities may also come from members of the board of directors of the Fund or from parties that may not operate at arms length with the Fund or its directors. To assist in
mitigating any risk to the Fund that may arise from this situation
and to ensure that appropriate decisions are screened prior to the
investment opportunity reaching the Board of Directors, an Investment
Committee will be established. To allow the Investment Committee and the Saskatchewan Chicken Industry Producers the opportunity to effectively assess a potential investment decision, specific information on the business, its owners/managers and the proposed project will be required. As part of completing the initial review of the investment request, a checklist of certain key policies of the Fund is included within the Appendix. The following information will be required for all requests for investments: Business Data
Proposed Investment
Impact Analysis on Saskatchewan Chicken Industry
Historical Financial Data
Business Plan
An investment decision of the Fund will require a certain level of due diligence regardless of the size of the investment. As the investment increases, the level of due diligence will likely increase given the potential impact the investment would have on the Fund. All requests
for investment will require the investee business to provide a non-refundable
fee of 3% of the investment amount requested to a minimum of $5,000.
The fee will be payable to the Fund prior to the initiation of the
comprehensive investigation of the proposed investment that follows
the initial screening. The fee will serve to compensate the Fund
for the work involved in assessing the investment in a comprehensive
manner. Should an investment not move past the initial screening
stage, the investee business will not incur any charges payable
to the Fund. The application fee may be waived or refunded in whole
or in part, at the discretion of the Board. The Investment Committee will be made up of three (3) individuals appointed by the SCIIF board. It will be the responsibility of the Investment Committee to oversee the due diligence process. The majority of the Investment Committee must approve investments meeting the investment criteria of the fund. In assessing the merits of an investment, a majority of the Investment Committee must agree that the potential investment is to be taken to the registered producers for consideration. Should a simple majority not be obtained, the investment request will be rejected. For investments
to be considered by the registered producers, the Investment Committee
will be responsible for preparing an investment summary that compares
the investment request to the policies of the Fund. The summary
will clearly show pertinent details of the investment to allow the
registered producers to make an informed decision. When an investment request is received by the Fund, the Board of Directors will complete a cursory review of the request prior to the request being reviewed further by the Trustees and the Investment Committee. The cursory review is intended to keep the Board of Directors informed of investment opportunities, allow the Board of Directors the opportunity to decide whether or not to send the proposal to the Trustees and the Investment Committee and to more effectively guide the due diligence process if and when a proposal is passed on to the Investment Committee. The request will first be sent to the Trustees to determine its consistency with the MOU. If the proposal is determined to be consistent with the MOU, it will be forwarded to the Investment Committee. In carrying out its initial screening of prospective investments, the Investment Committee will investigate and consider the following with respect to each investee business:
Where it is considered advisable, the Investment Committee will engage other professionals with particular expertise for assistance and advice with respect to investment opportunities. If following initial screening, the Investment Committee determines that an investment opportunity is viable and a more detailed investigation is merited, it will generally enter into a confidentiality agreement and a non-binding memorandum of understanding with the applicant that sets out the Investment Committee’s requirements. Upon the above being completed, the Investment Committee will commence a comprehensive investigation of the proposed investment. This investigation and resulting report will include an assessment of risk, proposed structure of the investment, estimate of future investment requirements and expected return, and a review of the investee business against the initial screening criteria. If the Fund and the eligible business are not at arm’s length, the depth of the due diligence review should be adjusted to protect the interests of the Fund and also the investee business from any subsequent allegations regarding the appropriateness of the investment. The Investment Committee will prepare an investment memorandum for each investment recommended. The investment memorandum will be presented to the Board. The Board may approve the investment proposal, reject the investment proposal or refer the investment proposal back to the Investment Committee for further review. If the Board approves the investment, it will then be presented to the registered producers to consider final approval. The industry
members or the Board, as applicable, will consider the proposal
and, where appropriate, will approve, reject or return the investment
proposal to the Investment Committee for further review and evaluation.
Upon approval by the registered producers in the industry, a commitment
will be given to the investee business and the necessary contracts
will be executed in accordance with the proposed structure of the
investment. The Board has the authority to recommend investments to the registered producers for all investments made by the Fund. The Board is also responsible for the establishment of investment policies and the implementation of appropriate procedures with respect to the investment process. Prior to an investment proposal being presented
to the registered producers for approval, a majority of the Board
must vote in favour of the investment proposal. Before any money in the Fund can be invested, class A shareholders will be given the opportunity to vote on the investment opportunity on the basis of one-producer, one-vote. The proposed investment will only go ahead if at least 60 per cent of voting shareholders vote in favour of the proposed investment. Once the registered
producers have approved an investment and the Trustees have completed
their final review, the Executive of the Board will provide direction
to legal counsel for the Fund to draft an appropriate letter of
offer. The letter of offer will include all pertinent details of
the approval and will be reviewed by the Investment Committee prior
to being issued to the investee business.
The Executive of the Board will monitor each of the Fund’s investments on a continual basis. The Executive of the Board or the Fund may require that a representative of the Fund be appointed as a director or observer to the board or other governing body of an investee business. On at least an annual basis, the investee business will be required to provide certification of its ongoing compliance with regulatory issues. The Executive of the Board will prepare, for review by the Board, an annual summary of each investment made by the Fund, which addresses the status of the investment performance against goals, compliance with terms or investment covenants, new factors of relevance and any other circumstances that may affect the value of the investment. If The Executive of the Board becomes aware that the terms and conditions of the investment are not being strictly adhered to, the Board of Directors must be notified immediately as to the nature of the matter and a recommended course of action. If at any time it becomes evident that the investment has become at risk such that it is unlikely to be fully collected, within 30 days of becoming aware of the situation, the registered producers must be notified in writing of the nature of the situation and the action plan being taken by the Fund to minimize its loss.
The Fund will have surplus cash resources on deposit at any given time with those monies being available for future investment or for reserves relative to loan guarantees. The Executive of the Board will be responsible for maintaining a suitable amount in the Fund’s day to day operating account to meet business expenses anticipated over the near term. Funds in excess of those required to meet day-to-day operating needs will be maintained in high quality government or corporate debt obligations. The holding period for those investments will be typically less than two years to ensure that funds are accessible to make potential investments as the opportunities arise. The Executive of the Board will be responsible for selecting an Investment Advisor to assist the Fund in managing the surplus funds. The performance of the Investment Advisor will be reviewed on an annual basis with the results of the review provided to the Board of Directors at the next board meeting following the conclusion of the review.
The investment policy of the Fund is established as a guide to ensure the consistent application of investment decisions and the ongoing monitoring of investments. Policy is approved and established by the Board of Directors and the Board of Directors must approve any revisions to the policy. Until such changes are approved, parties providing services to or committees of the Fund must strictly adhere to the policies in place.
APPENDIX A. Application For Investment - Click Here B. Investment Recommendation Checklist
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