Albion. Tch Vct Regulatory News (AATG)

7 Nov 2005 17:16

Close Technology & General VCT PLC07 November 2005 7 November 2005 Close Technology & General VCT PLC Proposed Offer for Subscription of C Shares The Company has today posted a Circular to Shareholders and published aProspectus in connection with a proposed Offer for Subscription of up to 35million C Shares at an issue price of 100p per C Share. The Circular alsocontains proposals to extend the life of the Company and to amend the existingmanagement fee arrangements. Implementation of the Proposals requires the approval of Shareholders at anExtraordinary General Meeting convened for 12 noon on 8 December 2005. Reasons for the C Share Offer The Company was launched as a venture capital trust in 2000. Since its launchthe Manager has successfully implemented the investment strategy of the Company.The unaudited interim accounts for the six months to 30 June 2005 show thesignificant progress that has been made in achieving a strong return toShareholders through a diversified portfolio of technology and non-technologyunquoted investments. As at 30 June 2005, the unaudited net asset value perOrdinary Share had risen to 118.5 pence and, at that date, 17 pence of dividendshad been paid or declared since launch. It is the Company's policy, over the medium term, to create a strong andpredictable dividend stream by supplementing dividends derived from investmentincome with distributions from realised capital profits. This has already beenachieved in respect of the Ordinary Shares, where dividends declared haveincreased to 8 pence per Share in the current financial year. The C Shares will have a similar policy of supplementing dividends derived fromrevenue profits with distributions from realised capital profits. Both the Directors and the Manager now consider that an increase in the capitalbase of the Company would offer existing Shareholders a number of advantages asfollows: - the fixed overhead costs of the Company will relate ultimately to a larger investment portfolio and the economies of scale which result should increase both the Company's profitability and the dividends payable to Shareholders; - the increase in the size of the Company and the number of shares in issue should lead to greater liquidity in the market for its shares after the conversion of the C Shares into Ordinary Shares which will occur following the annual general meeting to be held in 2011 to approve the accounts to 31 December 2010; and - the Company will be able to make more VCT qualifying investments. Following conversion of the C Shares into Ordinary Shares, therefore, existing Shareholders should achieve a wider spread of investment than would otherwise be the case. Details of the C Share Offer The Offer will be available both to existing investors in the Company and to newinvestors. The net proceeds from the C Share Offer will be managed as a separate pool ofassets for a period of approximately five years. This period has been chosen inorder to allow the building up of a full and mature investment portfolio. The CShares will convert into new Ordinary Shares on the basis of the net assetsattributable to each pool as disclosed in the audited accounts for the year to31 December 2010. This initial segregation should ensure that the returns toexisting Ordinary Shareholders will be protected from any adverse effects whichmight arise, for example from the Company holding a larger proportion ofuninvested cash than would otherwise be the case. The segregation of the assetsattributable to the C Shares will also mean that: - all the expenses of the C Share Offer will be paid out of the pool of assets attributable to the C Shares and, therefore, will be borne by the subscribers for those Shares. Expenses will be capped at 5.5 per cent. of total issue proceeds; - income and capital dividend payments to C Shareholders will be made out of the net income and net realised capital profits derived from the assets attributable to the C Shares. In determining the net income available, the C Shares will bear their pro rata proportion of the running expenses of the Company; and - after five years, the underlying assets attributable to both the Ordinary Shares and the C Shares will be valued and the C Shares converted into Ordinary Shares by applying the conversion ratio set out in the resolution included in the notice of meeting of the EGM. Application will be made to the FSA for the C Shares to be admitted to theOfficial List and to the London Stock Exchange for admission to trading on theLondon Stock Exchange's market for listed securities. It is expected thatAdmission will become effective and that dealings in the C Shares in respect ofthe first closing of the Offer will commence on the London Stock Exchange on 4January 2006. The final closing of the Offer (unless closed earlier) will be 4April 2006. The C Shares to be issued pursuant to the Offer will rank pari passuin all respects with the Ordinary Shares upon their conversion into OrdinaryShares, which is expected to occur following the annual general meeting of theCompany to be held in 2011. Life of the Company Although it is not intended that the Company will have a limited life, under theCompany's existing Articles of Association a resolution is to be proposed at theannual general meeting to be held in 2010 (and every five years thereafter)regarding whether the Company should continue as a venture capital trust. Underthe proposed changes to the Articles of Association the Directors are seekingauthority from Shareholders for this resolution to be postponed for two yearsuntil the annual general meeting to be held in 2012 and every five yearsthereafter. This is to allow the Company to build up, in respect of the CShares, a full and mature investment portfolio up to and following theirconversion. Proposed Changes to the Management Arrangements Management Performance Incentive The Company has a policy of creating a strong and predictable flow of dividendsto Shareholders. These dividends are derived not only from revenue profits butalso profits on the sale of investments. Following a series of highly successfulexits from investments comprised in the Ordinary Share portfolio over the lastyear, the Company has declared total dividends in the current year of 8 penceper Ordinary Share and expects this level to be maintained for payment in futureyears, so far as revenue and capital profits allow. The Company therefore has apolicy of paying out by way of dividend over the medium term substantially allof its revenue and capital profits. This is an estimate of dividends only and isnot intended to be, nor should it be taken as, a forecast of profits. As currently structured, the management performance incentive is at odds withthis policy. The incentive provides for the manager to be paid a fee of 20 percent. of the return (comprising dividends paid and rises in asset value) over ahurdle of 8 per cent. per annum on the initial offer price of 100 pence perOrdinary Share, such hurdle rate to be compounded and therefore to increase yearon year. The compounding element rewards the Manager for retaining profits forfurther investment rather than paying them out to Shareholders by way ofdividend, which is contrary to the Company's policy. The board thereforeproposes that the words "on a compounded basis" be deleted from the definitionof "Target Return" in the management agreement and that the first potentialpayment under the management performance incentive which is due following thepublication of the accounts to 31 December 2005 be calculated without the use ofcompounding. This amendment would have the effect of reducing the hurdle ratefor an incentive fee to be payable. This means that the Target Return (in order for an incentive fee to be payable),comprising dividends paid and net asset value, for the five years ending 31December 2005 would be reduced from 146.9 pence per Ordinary Shares to 140 penceper Ordinary Share. This compares to the unaudited actual return at 30 June 2005of 135.5 pence per ordinary Share. Management arrangements in respect of the C Shares It is proposed that the Manager enters into similar terms for the management ofthe funds to be invested in respect of the C Share portfolio, following themethod set out above (after approval by Shareholders of the proposed amendment). (i)Management Agreement In addition to the exiting management arrangements, the Company and the Managerwill enter into a side letter making amendments to the management agreementpursuant to which the Manager will manage the funds attributable to the C Shareportfolio for an annual fee equal to 2.5 per cent. (plus any applicable VAT) ofthe net asset value of the C Share portfolio, payable quarterly in arrears. (ii) Management Performance Incentive Similar incentive arrangements as those described above in respect of theOrdinary Shares (after the proposed amendment has been approved by Shareholdersat the EGM) will also apply to the C Shares; the hurdle will be based off theoriginal issue price of the C Shares of 100 pence. Related Party Transaction In view of the interest of Close Venture Management in the Management Agreementand in the proposed changes to the management performance incentive fee, theproposal relating to the new management fee arrangements constitutes a relatedparty transaction for the purposes of the Listing Rules. In accordance with theListing Rules an ordinary resolution will be proposed at the EGM at whichShareholders will be asked to approve the proposal. The Manager and its associates (which, for the avoidance of doubt do not includeemployees of the Manager) do not own, beneficially or otherwise, any Shares. TheManager and its associates will not vote on the resolution to amend themanagement arrangements to be proposed at the Extraordinary General Meeting. Cancellation of Share Premium Account The share premium account relating to the Ordinary Shares was cancelled pursuantto a special resolution which was approved by the Court on 8 August 2001.Shareholders are being asked at the EGM to approve the cancellation of the sharepremium account which will arise on the issue of the C Shares. This will createa sizeable reserve which may be used to buy-in the Company's Shares forcancellation. In addition, the Companies Act 1985 places restrictions on thepayment of dividends by public limited companies. In particular they can paydividends only to the extent that accumulated realised profits exceed realisedand unrealised losses. This means that the Company will have to take intoaccount any realised and unrealised capital losses suffered in relation to the CShare funds when determining whether it can pay dividends on the C Shares. Thereserve created by the cancellation of the share premium account relating to theC Shares should be sufficient to off-set the effect of any reasonablyforeseeable capital losses before the Company is able to distribute its revenueprofits in accordance with the Companies Act 1985. Assuming the specialresolution to cancel the share premium account is passed at the EGM, it isanticipated that the necessary court order confirming the cancellation will bemade during May 2006. EXPECTED TIMETABLE OF PRINCIPAL EVENTS Extraordinary General Meeting 12 noon on 8 December 2005 Subscription list for Offer opens 3 January 2006 Dealings in C Shares commence in respect of the first allotment of 4 January 2006C Shares Final Closing for the Offer (unless closed earlier) 4 April 2006 Commencement of dealings in respect of the final allotment of C 5 April 2006Shares The Directors reserve the right to allot and issue C Shares at any time whilstthe Offer remains open. Definitive C Share and tax certificates will bedespatched and CREST accounts credited as soon as practicable following any suchallotment. Terms used in this announcement shall, unless the context otherwise requires,bear the meaning given to them in the documents issued by Close Technology &General VCT PLC on 7 November 2005. Enquiries: Patrick ReeveClose Venture Management 020 7422 7830 John West/Clemmie CarrTavistock Communications 020 7920 3150 Copies of the Circular and the Prospectus have been submitted to the FSA andwill shortly be available for inspection at the UK Listing Authority's DocumentViewing Facility, which is situated at: Document Viewing FacilityUK Listing Authority25 The North ColonnadeCanary WharfLondon E14 5HSTel. 020 7066 1000 This information is provided by RNS The company news service from the London Stock Exchange