Hello fellow VRS shareholders,
This is a letter i am working on which will be submitted to various departments. Before sending however, I wanted feedback, if possible. It's rather long and I have stayed away from personal attacks but rather focused on the facts. If the table doesn't read it can be found on page 7 of the latest financial statements on Sedar.com.
Thanks
Oh and please do not cut and paste as I don't think it's a very effective way of communications. If we start doing that they will just toss them in file 13.
Dear,
At first sight it might appear as though the latest offer is above board and well intentioned. However by looking at the table below it is easy to see how Allen Vanguard’s management manipulated figures as to so give the impression that there is little or no shareholder value. Allen Vanguard’s main assets are in its proprietary technologies for which it has patents and trademarks which have been valued under the heading Intangibles. Similar companies such as drug companies, many household brands we use such as Coke, guard these intangibles with the utmost care as they have a long life span and should provide steady income over a similarly long life span (20 years in Canada.)
Goodwill on the other hand is the above average earnings power that a well managed company should earn over the price it paid. Anyone can open a burger joint but when you put the double golden arches you are paying a portion for that Goodwill. When goodwill decreases it can either be due to a poorly managed company or an outdated technology or product. In the case of Allen Vanguard, that isn’t the case. Terrorism is here. The concerns have not diminished. Nor, even despite the economic downturn, have budgets for defense spending been slashed.
Exhibit 2 below shows how Allen Vanguard has over inflated its impairment charges to the tune of five hundred and fifteen million dollars in less than a year. That amount translates into roughly four dollars and thirty three cents per share. It also indicates that Intangibles which stood at 340 Million at the end of 2007 are now worth a mere 75 Million. Similarly, Goodwill which stood at 375 Million at the end of 2007 is now a lowly 67 Million. That is roughly 22% and 18% respectively. In other words, Allen Vanguard has effectively dealt away 80% of the company’s main assets. All this in less than a year. Worse still is that there has been no independent valuation by an unrelated third party which would evaluate assets not only on their present value but on future earnings potential. I use the example of a diamond mine. It is the world’s largest diamond find but the developer has no money to fund the project so he decides to sell it. He will look to sell it not on the value he has on his books or earnings, which may well be negative since he may have incurred a lot of exploration costs but rather on the future potential of the project. The same is true of Allen Vanguard. Management has failed on several fronts:
First, they said in their initial discussion they would seek shareholder approval. According to the latest new release there has been no such overture. See Exhibit 1 and 1A below:
Second, and more importantly, they have completely discounted the fact that these intangibles and goodwill will have a long lived life full of earnings potential. By circumventing the continuation of Allen Vanguard as a public company, they are attempting to satisfy their main creditors, potential unnamed buyer and perhaps keep their management position at the expense of shareholders. The term “all stakeholders” which they used on several news releases includes shareholders. How can the cancellation of all shares, options, warrants, etc benefit shareholders?
Finally, there was no need to conclude a deal that would not benefit all concerned parties as covenants had already been put in place which would have allowed the syndicate of Lenders to increase ownership through the various lending covenants (warrants, SAR’s, top up warrants) which were already in place and which can be found on the company’s web site or Sedar.
In short, this fire-sale is solely at the expense of the shareholders and as such demands that:
The Board of Governors immediately terminates the employment contract with David Luxton and convenes to choose a new CEO who will act in the interest of all concerned parties.
Hire an independent appraiser to properly evaluate the correct value of Intangibles and Goodwill as they are carried in the books and to hire a forensic accounting firm to examine the effects of several large adjustments to non-cash balance sheet and income statement items of Allen-Vanguard over the last year and first two quarters of 2009.
Render the Versa deal null and void with Allen-Vanguard to continue as a public company and operating as a going concern.
That the trading of shares in Allen-Vanguard (VRS.TO) be reviewed for market manipulation. Anyone who has watched this stock closely from the time the Tailwind-Allen-Vanguard merger was announced knows the market was being manipulated and that the price Allen Vanguard was trading at was in no way indicative of its true net worth.
Sincerely yours,
xxx
EXHIBIT 1
News release via Canada NewsWire, Ottawa 613-563-4465
Attention Business/Financial Editors:
Allen-Vanguard announces termination of arrangement agreement with
Tailwind Financial and execution of exclusivity agreement with new U.S.
investor
OTTAWA, April 6 /CNW Telbec/ - Allen-Vanguard Corporation (the "Company"
or "Allen-Vanguard") (TSX: VRS) of Ottawa, Canada announced today that the
arrangement agreement in respect of the previously announced plan of
arrangement among Allen-Vanguard, Tailwind Financial Inc. and AV Acquisition
Corp. (the "Arrangement") has been terminated and that the Arrangement will
therefore not proceed.
At the same time, Allen-Vanguard announced that it has entered into an
exclusivity agreement with an unrelated U.S. investor for a period of three
weeks ending April 24, 2009, during which time the investor will undertake
discussions with Allen-Vanguard's stakeholders and perform due diligence with
the objective of entering into a binding agreement pursuant to which
Allen-Vanguard would be taken private. Any such transaction would be subject
to the approval of Allen-Vanguard shareholders and other customary conditions.
The Company also announced that C$14.1 million in subscription receipts
raised and held in escrow under the rights offering results announced March
24, 2009 will be returned to receiptholders as provided in the Company's
rights offering prospectus.
Forward looking statements
This press release may contain forward-looking statements, which reflect
Allen-Vanguard's current expectations regarding future events, its strategy,
expected performance and condition. Forward-looking statements include
statements that are predictive in nature, that depend upon or refer to future
events or conditions, or that include words such as "expects," "anticipates,"
"plans," "believes," "estimates" or negative versions thereof and similar
expressions. In addition, any statement that may be made concerning future
performance, strategies or prospects, and possible future acquisitions or
dispositions, is also a forward-looking statement. Forward-looking statements
are based on current expectations and projections about future events and are
inherently subject to, among other things, risks, uncertainties and
assumptions about the Company and economic factors. Forward-looking statements
are not promises or guarantees of future performance, and actual events and
results could differ materially from those expressed or implied in any
forward-looking statements made about the Company. Any number of important
factors could contribute to these digressions, including, but not limited to,
general economic, political and market factors in North America and
internationally, interest and foreign exchange rates, global equity and
capital markets, business competition, technological change, changes in
government regulations, unexpected judicial or regulatory proceedings, and
catastrophic events. We stress that the above-mentioned list of important
factors is not exhaustive. We encourage you to consider these and other
factors carefully before making any investment decision and we urge you to
avoid placing undue reliance on forward-looking statements. Further, you
should be aware that the Company disclaims any obligation to publicly update
or revise any such forward-looking statements whether as a result of new
information, future events or otherwise, prior to the release of the next
Management Discussion and Analysis to be released by the Company or except as
required by law.
About Allen-Vanguard
Allen-Vanguard Corporation supports the mission of military and homeland
security forces around the world with leading proprietary solutions for
protection and counter-measures against hazardous devices of all kinds,
whether chemical, biological, radiological or explosive (CBRNE), including
improvised explosive devices (IEDs) and remotely controlled IEDs (RCIEDs).
Allen-Vanguard equipment is in service in more than 120 countries. Products
include Electronic Counter-Measures ("ECM") equipment for jamming remote
detonation of terrorist devices, specialty security equipment for Explosive
Ordnance Disposal ("EOD"), remote intervention robots for hazardous
applications, and personal protective wear for use in dealing with explosive
and bio-chemical agents. Allen-Vanguard is the developer and/or sole,
worldwide licensee of proprietary technologies such as the Med-Eng bomb suit,
the Defender (TM) and Vanguard (TM) Mk2 bomb disposal robots, and the
Universal Containment System and CASCAD Foam system for blast mitigation and
decontamination of bio-chemical warfare agents. Professional services
encompass counter-IED intelligence, training and advisory services, including
the Triton (TM) Report on terrorist incidents around the world. The Company
operates globally through its wholly-owned subsidiaries under the names
"Allen-Vanguard", "Med-Eng" and "Hazard Management Solutions". Head office
operations are located in Ottawa, Ontario, Canada, with manufacturing
operations in Stoney Creek and Pembroke, Ontario; Ogdensburg, New York;
Tewkesbury, U.K.; and Cork, Ireland; The Company has professional services
operations in Shrivenham, UK, Canada and in the U.S. in Arlington, Virginia,
plus sales offices in Canada, the U.S., the U.K. and Asia. Allen-Vanguard's
shares are listed on The Toronto Stock Exchange (TSX) under the symbol "VRS".
To find out more about Allen-Vanguard Corporation (TSX: VRS), visit our
website at www.allen-vanguard.com.
%SEDAR: 00018026E
/For further information: Robin Sundstrom, Allen-Vanguard Corporation,
(647) 822-8111, ir(at)allenvanguard.com/
(VRS.)
CO: ALLEN-VANGUARD CORPORATION
CNW 07:00e 06-APR-09
EXHIBIT 1A
News release via Canada NewsWire, Ottawa 613-563-4465
Attention Business Editors:
Allen-Vanguard executes binding agreement with affiliate of Versa
Capital Management to go private
<<
- Allen-Vanguard to continue as going concern with stable capital
structure, significantly strengthened liquidity and financial
position and no interruption of operations or supplier relationships
- Transaction will result in revised multi-year credit agreement and
retirement of a portion of Allen-Vanguard's senior debt
- Allen-Vanguard's senior lenders will make new revolving credit and
documentary credit facilities available to it
>>
OTTAWA, Sept. 12 /CNW Telbec/ - Allen-Vanguard Corporation (TSX: VRS)
("Allen-Vanguard" or the "Company") of Ottawa, Canada, Versa Capital
Management, Inc., a Philadelphia-based private equity investment firm, and the
Company's senior lenders (the "Lenders") today announced the execution of an
agreement pursuant to which Allen-Vanguard will become a 100%-owned affiliate
of investment partnerships managed by Versa Capital Management, Inc.
(collectively, "Versa").
Versa will provide both equity and debt capital to Allen-Vanguard. This
will permit the restructuring and reduction of Allen-Vanguard's existing
senior secured credit facilities and their replacement with a multi-year
credit agreement and afford the Company significant flexibility to pursue its
business plan. Certain of the Lenders will make available a new revolving
credit facility and documentary credit facility to Allen-Vanguard.
The transaction agreement provides that the Company's obligations to
trade creditors shall be unaffected and will continue to be paid or satisfied
in the ordinary course. Similarly obligations to employees also will be
unaffected. All shares, options, restricted stock, warrants and other
securities in Allen-Vanguard and any related rights will be cancelled on
closing of the transaction, with no consideration paid to holders. Closing of
this transaction is subject to closing conditions customary for a transaction
of this nature, including any required regulatory or court approvals.
"This announcement marks the end of an exacting, year-long process of
recapitalizing the Company in order to execute our business plan going
forward," said David E. Luxton, President and CEO of Allen-Vanguard. "This
process took place during a period of extremely difficult credit and equity
markets, and a concurrent decline in the Company's financial performance.
While we received several overtures during this past year, Versa was the only
party able to conclude definitive terms. Under Versa's ownership,
Allen-Vanguard will continue to conduct its business in the ordinary course,
with management and the new board focused on global business opportunities.
This follows the progress that we have made over the last year to right-size
the Company, to expand and diversify the Company's proprietary products and
services, and to serve major customers around the world, who continue to rely
on the Company's leading and proprietary technologies."
"We are very pleased to have come to an agreement with Allen-Vanguard and
its Lenders. Allen-Vanguard possesses the world's leading technologies in the
counter-terrorism market and we are, ourselves, deeply committed to the
provision of these mission-critical technologies," said Gregory L. Segall,
Managing Partner of Versa Capital Management, Inc. "This recapitalization is a
substantial accomplishment for Allen-Vanguard, and we look forward to working
with members of the management team as they return their full focus to
executing their business plan in concert with key partners, customers and
other stakeholders."
There are no plans to move the Company's head office from Ottawa, Ontario
or its operations in Canada, the United States or the United Kingdom.
EXHIBIT 2
ALLEN-VANGUARD CORPORATION
Notes to Consolidated Interim Financial Statements
(in thousands, except per share information)
Three months and nine months ended June 30, 2009 and 2008
(Unaudited)
4. GOODWILL (continued)
(a) CICA section 3064 requires Goodwill to be tested on an annual basis or more frequently if
events or changes in circumstances indicate that the asset may be impaired. The Company
performed an impairment test at March 31, 2009 and at June 30, 2009, and its annual impairment test
at September 30, 2008, whereby the carrying amount of goodwill was compared to the discounted
future cash flows expected from its use. Impairment tests involve a significant degree of judgement,
as expectations concerning future cash flows and the selection of an appropriate discount rate are
subject to considerable risks and uncertainties. At March 31, 2009, management concluded that
impairment had occurred, and consequently, the Company reduced the carrying value of goodwill
through a charge to operations in the amount of $3,949 for the three month period ended March 31,
2009. At June 30, 2009, management concluded that further impairment had occurred, and
consequently, the Company reduced the carrying value of goodwill through a charge to operations in
the amount of $11,343 for the three month period ended June 30, 2009. For the year ended
September 30, 2008, the Company recorded an impairment loss of $253,723.
5. INTANGIBLE ASSETS
Accumulated Net book
June 30, 2009 Cost amortization value
Electronic systems technology $ 18,005 $ 1,691 $ 16,314
Personal protection systems technology 33,355 8,391 24,964
Customer orders 51,002 51,002 -
Customer lists and relationships 18,415 10,130 8,285
Technical drawings and patents 3,265 1,375 1,890
Brand value 21,940 896 21,044
Proprietary intelligence database 1,069 219 850
Proprietary course curriculum 1,803 370 1,433
Assembled sales agent network 250 121 129
$ 149,104 $ 74,195 $ 74,909
Accumulated Net book
September 30, 2008 Cost amortization value
Electronic systems technology $ 22,541 $ - $ 22,541
Personal protection systems technology 95,260 4,829 90,431
Customer orders 51,002 51,002 -
Customer lists and relationships 66,216 4,680 61,536
Technical drawings and patents 3,125 1,200 1,925
Brand value 28,707 845 27,862
Proprietary intelligence database 1,069 138 931
Proprietary course curriculum 1,803 235 1,568
Assembled sales agent network 250 102 148
$ 269,973 $ 63,031 $ 206,942
11
5. INTANGIBLE ASSETS (continued)
CICA section 3064 requires long-lived assets to be tested for recoverability whenever events or
changes in circumstances indicate that their carrying amount may not be recoverable. The Company
performed an impairment test at March 31, 2009 and at June 30, 2009, and its annual impairment
test at September 30, 2008, whereby the carrying amount of intangible assets was compared to the
discounted future cash flows expected from their use. Impairment tests involve a significant degree
of judgement, as expectations concerning future cash flows and the selection of an appropriate
discount rate are subject to considerable risks and uncertainties. At March 31, 2009, management
concluded that impairment had occurred, and consequently the Company reduced the carrying value
of intangible assets through a charge to operations in the amount of $2,100 in the three month period
ended March 31, 2009. The asset deemed to be impaired was Brand value (ES trademarks). At June
30, 2009, management concluded that further impairment had occurred, and consequently the
Company reduced the carrying value of intangible assets through a charge to operations in the
amount of $118,942 in the three month period ended June 30, 2009. The assets deemed to be
impaired were ES technology ($4,537), ES customer relationships ($18,358), ES brand value
($4,700), PPS technology ($61,904) and PPS customer relationships ($29,443). For the year ended
September 30, 2008, the Company reduced the carrying value of intangible assets through a charge
to loss in the amount of $126,273. The assets deemed to be impaired were ES technology ($47,768),
ES customer relationships ($35,938), ES brand value ($20,314) and PPS trademarks ($22,253). |
