JZ Capital Partners Ltd - Proposed Investment in the Secondary Fund for the Purpose of Investing in Follow-on Flex Pack and Proposed Return of Capital and Notice of Extraordinary General Meeting

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION FOR THE PURPOSES OF THE MARKET ABUSE REGULATION (EU) NO. 596/2014, WHICH FORMS PART OF UK LAW BY VIRTUE OF THE EUROPEAN UNION (WITHDRAWAL ACT) 2018, AS AMENDED (MAR).

JZ CAPITAL PARTNERS LIMITED (the "Company")

(a closed-ended investment company incorporated with limited liability under the laws of Guernsey with registered number 48761)

LEI 549300TZCK08Q16HHU44

Proposed Investment in the Secondary Fund
for the Purpose of Investing in Follow-on Flex Pack

and

Proposed Return of Capital

and

Notice of Extraordinary General Meeting

18 April 2024

Unless otherwise defined herein, capitalised terms used in this announcement have the meanings given to them in the Circular of the Company dated 18 April 2024.

Flex Pack Proposal

JZ Capital Partners Limited, the London listed fund that has investments in US and European microcap companies and US real estate, announces today that it is proposing to enter into an agreement with JZHL Secondary Fund LP (the "Secondary Fund"), pursuant to which the Company would invest up to approximately US$20.5 million into the Secondary Fund, with the Secondary Fund to use such amount, together with additional amounts invested by other investors in the Secondary Fund, to make an investment into a newly incorporated company ("Follow-on Flex Pack") that will be a related company of, and incorporated in a parallel structure to, ACW Flex Pack, LLC ("Existing Flex Pack") (the "Flex Pack Proposal"). The purpose of Follow-on Flex Pack will be to make acquisitions that are complementary to the business of Existing Flex Pack.

The Secondary Fund directly (and the Company indirectly by virtue of its Special LP Interest in the Secondary Fund) holds an existing interest in Existing Flex Pack, along with a number of other US microcap portfolio companies. The proposed investment by the Company in the Secondary Fund for the purpose of investing in Follow-on Flex Pack would therefore be made in accordance with the Company's published investment policy and, specifically by making complementary acquisitions to the business of Existing Flex Pack, to support and maximise the value of its existing investment directly in the Secondary Fund (through its Special LP Interest) and indirectly in Existing Flex Pack. Further details of the Flex Pack Proposal, as well as details of the required Shareholder approval and related Notice of Extraordinary General Meeting and Circular are set out at below.

Proposed Return of Capital

Separately, the Company is also today pleased to announce that it intends to commence returning capital to Shareholders initially in an amount of approximately US$40 million as soon as possible.

The Company currently considers the most appropriate form and mechanism to effect this initial return of capital will be via a redemption of its Ordinary Shares which will require the approval of the Company's Shareholders. As such, subject to the Company finalising the relevant details and documentation in respect of the proposed redemption, as well as it later obtaining any necessary Shareholder approvals, the Company intends to distribute the aforementioned approximate amount to Shareholders, which it expects will take place by the end of July 2024.

The Company's approach with respect to this initial return of capital is similarly in line with its investment policy and specifically the strategy of realising the maximum value of investments and, after the repayment of all debt, returning capital to Shareholders, subject always to retaining sufficient funds to cover existing obligations and support certain existing investments to maximise their value. The Company will make further announcements in relation to the proposed initial return of capital (including the obtaining of any necessary Shareholder approvals) as soon as possible.

With respect to any potential further returns of capital in the longer term, the Company remains committed to its investment policy and the strategy as stated immediately above. To that end, the Company will continue to assess its ability to make further returns of capital to Shareholders (as well as the manner in which they are made), and will seek to do so as and when it has sufficient cash reserves that are not otherwise required to support its existing investments to maximise value and/or to meet its existing obligations such as operational expenses.

Notice of Extraordinary General Meeting

Shareholders are advised that the proposed investment by the Company into the Secondary Fund for the purpose of investing in Follow-on Flex Pack 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 therefore Shareholder approval is required for the Flex Pack Proposal which will be sought at an Extraordinary General Meeting of the Company.

Accordingly, notice is hereby given that an 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 11.00 a.m. on 8 May 2024. The Notice convening the Extraordinary General Meeting, which contains the Resolution to be proposed at that meeting concerning the Flex Pack Proposal, is set out at the end of the Circular which is being posted to Shareholders.

For the avoidance of doubt, any necessary Shareholder approvals that are required in connection with the aforementioned proposed initial return of capital do not form part of the Notice of Extraordinary General Meeting and are instead intended to be sought and obtained at a later time if and as required.

Further Details of the Flex Pack Proposal

Background on the Secondary Fund

As mentioned above, the Company is proposing to enter into an agreement with the Secondary Fund, pursuant to which the Company would invest up to approximately US$20.5 million into the Secondary Fund.

The Secondary Fund holds interests in certain US microcap portfolio companies, including Existing Flex Pack, which were sold to it by the Company around three and a half years ago. That sale, as a Related Party Transaction, was approved by Shareholders at the time, with the Company receiving consideration comprising US$90 million in cash and a special limited partner interest in the Secondary Fund (the "Special LP Interest") in respect of which additional aggregate distribution proceeds of US$160.5 million have so far been received by the Company. The Company's remaining interest in the Secondary Fund pursuant to the Special LP Interest, based on pro forma financials as at 29 February 2024, is valued at approximately US$30.1 million.

The Secondary Fund continues to be managed by an affiliate of the Company's investment manager, Jordan/Zalaznick Advisers, Inc. (the "Investment Adviser" or "JZAI") and an affiliate of JZAI also continues to serve as the general partner of the Secondary Fund.

The investors in the Secondary Fund similarly remain as being certain funds and accounts managed by Hamilton Lane Advisors, L.L.C. ("Hamilton Lane"), and separately JZHL GP LLC, which is comprised of other secondary investors including David W. Zalaznick and John (Jay) Jordan II (together, being the "JZAI Founders", who are the founders and principals of JZAI) (or their respective affiliates) and various members of the JZ US microcap investment team (the "Other SF Investors"). Each of Hamilton Lane and the Other SF Investors hold interests in the Secondary Fund of approximately 90.9 per cent. and 9.1 per cent., respectively.

The Company's interest in the Secondary Fund is limited to its Special LP Interest held by a wholly owned subsidiary of the Company. The Special LP Interest entitles the Company to certain distributions from, and certain other rights and obligations in respect of, the Secondary Fund and relates to the Secondary Fund's interests in certain US microcap portfolio companies, including Existing Flex Pack. Any distributions to be received by the Company as a result of its Special LP Interest are subject to an agreed distribution waterfall which provides that, once the other investors in the Secondary Fund have received their initial required distributions determined by reference to their respective contributions to the Secondary Fund and amounting to approximately US$132.6 million, in aggregate, the Company is entitled to receive, as distributions from the Secondary Fund: (i) 95 per cent. of all distributions until it has received distributions equal to US$67.6 million; and (ii) thereafter, 37.5 per cent. of all distributions. Based on the distributions received to date by the other investors in the Secondary Fund as well as those received by the Company, the Company is now entitled to 37.5 per cent. of all remaining distributions pursuant to its Special LP Interest.

Proposed Investment into the Secondary Fund

The Company is now proposing to make an investment in the Secondary Fund of up to approximately US$20.5 million for the purpose of investing in Follow-on Flex Pack.

The proposed investment by the Company in the Secondary Fund for the purpose of investing in Follow-on Flex Pack would be made in accordance with the Company's investment policy to support and maximise the value of its existing investment directly in the Secondary Fund (through its Special LP Interest) and indirectly in Existing Flex Pack (in which the Secondary Fund holds an existing interest and which will be a related company of, and incorporated in a parallel structure to, Follow-on Flex Pack) by making complementary acquisitions to the business of Existing Flex Pack. The proposed investment will not however affect the Company's rights with respect to its Special LP Interest, and such interest will therefore continue to entitle the Company to receive distributions from the Secondary Fund in the manner described above, notwithstanding such investment.

The Company's proposed investment will also be undertaken alongside Hamilton Lane and the Other SF Investors with each of them investing up to approximately US$11.6 million and US$1.2 million, respectively, in the Secondary Fund for the same purpose(s), at the same time(s) and in all material respects on the same terms and conditions (except for their proportionate levels of investment and distributions) alongside the Company. The aggregate amount to be invested by the Company, Hamilton Lane and the Other SF Investors in the Secondary Fund is therefore expected to be up to approximately US$33.3 million, which may be made and funded in one or more tranches of investment. The investors' respective proportionate interests will therefore be 61.5 per cent. for the Company, 35 per cent. for Hamilton Lane and 3.5 per cent. for the Other SF Investors, with the amounts invested by each of them for any tranche of investment to be undertaken on a pro-rata basis in accordance with their respective proportionate interests. Accordingly, each of the investors will be entitled to receive any distributions relating to the Secondary Fund's interest in Follow-on Flex Pack in those proportions, noting that the Secondary Fund's interest itself in Follow-on Flex Pack (as also further explained below) will equate to a 45 per cent. interest. As such, the Company will be entitled to receive approximately 27.7 per cent. of any distributions from Follow-on Flex Pack on the basis of its look-through interest via the Secondary Fund.

For the avoidance of doubt and notwithstanding that the proposed investment will not affect the Company's rights with respect to its Special LP Interest, following the investment, the Company will be entitled to receive: (i) 37.5 per cent. of all remaining distributions from the Secondary Fund (which includes the Secondary Fund's interest in certain US microcap portfolio companies, including its approximately 45 per cent. interest in Existing Flex Pack, which corresponds to the Company having an approximately 16.9 per cent. economic interest in Existing Flex Pack on a look-through basis) pursuant to its Special LP Interest; and (ii) 61.5 per cent. of any distributions from the Secondary Fund relating to its 45 per cent. interest in Follow-on Flex Pack (which corresponds to approximately 27.7 per cent. of any distributions from Follow-on Flex Pack on the basis of the Company's look-through interest via the Secondary Fund).

Investment by the Secondary Fund into Follow-on Flex Pack

The amount of the Company's proposed investment, together with the additional amounts to be invested by the other investors in the Secondary Fund (equating to an aggregate investment amount of up to US$33.3 million), will be used by the Secondary Fund to make an investment into Follow-on Flex Pack. Such aggregate investment amount will (as noted above) give the Secondary Fund a 45 per cent. interest in Follow-on Flex Pack and so the Company, on account of its 61.5 per cent interest in the Secondary Fund relating to Follow-on Flex Pack, will have a 27.7 per cent interest in Follow-on Flex Pack on the basis of its look-through interest via the Secondary Fund. Accordingly, the Company will be entitled to receive 61.5 per cent. of any distributions from the Secondary Fund relating to its 45 per cent. interest in Follow-on Flex Pack, and which will correspond to it receiving approximately 27.7 per cent. of any distributions from Follow-on Flex Pack on the basis of the Company's look-through interest via the Secondary Fund.

The remaining 55 per cent. interest in Follow-on Flex Pack will be held by the other existing investors in Existing Flex Pack, with those investors making their respective investments in nearly identical proportions to their existing interests in Existing Flex Pack subject only to minor adjustments. The total amount to be invested in Follow-on Flex Pack by all investors including the Secondary Fund will therefore be up to approximately US$74.0 million.

It is expected that Follow-on Flex Pack would use the aggregate amount invested by all investors including the Secondary Fund (and of which up to approximately US$20.5 million would be invested by the Company via the Secondary Fund's investment) for the purposes of (a) making acquisitions which are complementary to the business of Existing Flex Pack, including one such business that has already been identified and for which negotiations over the terms of its acquisition are at a reasonably advanced stage, (b) covering its operating expenses, and (c) other general corporate uses.

Follow-on Flex Pack is to be established as a newly incorporated company that will be a related company of, and incorporated in a parallel structure to, Existing Flex Pack, in which the Secondary Fund directly (and the Company indirectly by virtue of its Special LP Interest in the Secondary Fund) holds an existing interest, along with a number of other US microcap portfolio companies. Existing Flex Pack is a US-based provider of a variety of custom flexible packaging solutions to converters and end-users. Follow-on Flex Pack will (as mentioned above) be a newly incorporated company that is established as a related company of, and in a parallel structure to, Existing Flex Pack, and that will be formed for the purpose of making complementary acquisitions to the business of Existing Flex Pack. As also mentioned above, one such business has already been identified, being a full-service paper and film packaging manufacturer and converter and which is considered to be complementary to the business of Existing Flex Pack. The amount of the Company's proposed investment expected to be allocated to such acquisition (assuming transaction terms are able to be agreed and the acquisition is completed) is expected to be in the region of around US$10.5 million. Whilst negotiations over the terms of the business' acquisition are at a reasonably advanced stage and it is hoped that an agreement can be reached and completed in the near term, there is of course no certainty that transaction terms will be agreed and/or that the acquisition will be completed. Following the conclusion of negotiations and/or completion in respect of this potential acquisition, it is intended that further complementary businesses will be sought to be identified and acquired for which up to the remaining amounts of the Company's (along with the other investor's) proposed investments will be used to make such acquisitions.

Follow-on Flex Pack will also share the same management as Existing Flex Pack and will likely have a very similar, if not the same board of directors. It is expected that Follow-on Flex Pack will, once operational, enter into an agreement with Existing Flex Pack to document, among other things, a cost sharing arrangement, as Follow-on Flex Pack will share in the costs of management with Existing Flex Pack.

Further details of the Flex Pack Proposal are included in the Circular.

Related Party Transaction

The proposed investment by the Company into the Secondary Fund 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). JZAI is the Company's investment adviser and, under the Listing Rules, would therefore be considered a Related Party of the Company. In addition, the JZAI Founders (or their respective affiliates) and various members of the JZ US microcap investment team are also each considered to be a Related Party of the Company. 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. As noted above, the Secondary Fund is being managed by an affiliate of JZAI, an affiliate of JZAI also serves as the general partner of the Secondary Fund, and the JZAI Founders (or their respective affiliates) and various members of the JZ US microcap investment team are existing investors in the Secondary Fund.

Therefore, the proposed investment by the Company into the Secondary Fund (which involves, as described above, JZAI (or an affiliate of JZAI), the JZAI Founders (or their respective affiliates) and various members of the JZ US microcap investment team) would be considered a Related Party Transaction under Chapter 11 of the Listing Rules by virtue of the Company's voluntary compliance with the same. As such, the Flex Pack Proposal, as a Related Party Transaction of the Company, requires approval of Shareholders in connection with the proposed investment into the Secondary Fund.

A Resolution is therefore to be proposed at the Extraordinary General Meeting in relation to the Flex Pack Proposal as a Related Party Transaction of the Company and is being proposed to seek Shareholder approval for the Company's proposed investment into the Secondary Fund.

As the Resolution involves a Related Party Transaction of the Company, the JZAI Founders (or their respective affiliates) and various members of the JZ US microcap investment team, each as a Related Party in respect of the Company for the purposes of the Resolution, have undertaken not to vote, and have taken all reasonable steps to ensure that their respective associates will not vote, on the relevant Resolution.

Notice of Extraordinary General Meeting and Shareholder 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, Channel Islands and will shortly be available for viewing at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

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Market Abuse Regulation

The information contained within this announcement is considered by the Company to constitute inside information as stipulated under MAR. Upon the publication of this announcement, this inside information is now considered to be in the public domain. The person responsible for arranging the release of this announcement on behalf of the Company is David Macfarlane, Chairman of the Company.

For further information:

Important Notice

This announcement contains a number of "forward-looking statements". Generally, the words "will", "may", "should", "continue", "believes", "expects", "intends", "anticipates", "forecast", "plan" and "project" or in each case, their negative, or similar expressions identify forward-looking statements. Such statements reflect the relevant company's current views with respect to future events and are subject to risks, assumptions and uncertainties that could cause the actual results to differ materially from those expressed or implied in the forward-looking statements. Many of these risks, assumptions and uncertainties relate to factors that are beyond the companies' abilities to control or estimate precisely, such as future market conditions, changes in general economic and business conditions, introduction of competing products and services, lack of acceptance of new products or services and the behaviour of other market participants. Although the Company believes that the expectations reflected in such forward-looking statements are reasonable, no assurance can be given that such expectations will prove to have been correct. Shareholders should not, therefore, place undue reliance on these forward-looking statements, which speak only as of the date of this document. Except as required by applicable law or regulation, the Company expressly disclaims any obligation or undertaking to release publicly any updates or revisions to any forward-looking statements contained in this document to reflect any change in the Company's expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.