Northern 2 Vct Regulatory News (NTV)

18 Oct 2007 10:39

Northern 2 VCT PLC18 October 2007 18 October 2007 Northern 2 VCT PLC (the "Company") Circular to Shareholders re: Proposed share issue and related ExtraordinaryGeneral Meeting, dividend policy and secondary market liquidity A copy of the above document has now been posted to shareholders. The full textof the Chairman's letter contained in the Circular is set out below. Introduction This letter gives you information on a proposal to (i) launch an issue of up to16 million new Ordinary Shares to existing Shareholders and new investors toraise up to approximately £15 million (before expenses) and (ii) amend theArticles of Association so that the resolution for the continuation of theCompany is first considered at the annual general meeting in 2013 instead of2011, and asks for your support for the enabling resolutions set out in theNotice of Extraordinary General Meeting on page 6. This letter also contains astatement as to dividend policy and your Directors' views on secondary marketliquidity. Proposal to raise additional capital At 31 July 2007 the Company had total equity shareholders' funds of £43.1million and liquid resources (listed fixed-interest securities and cash) of £6.7million. Whilst the maturing venture capital portfolio continues to generatesubstantial inflows of cash from disposals (£3.2 million in the six months ended31 July 2007), new investments completed in the same period totalled £3.8million and the Company also paid ordinary dividends of £2.2 million andpurchased shares in the market for cancellation at a cost of £0.6 million.After careful consideration your Board has concluded that it is now appropriateto seek to raise additional funds through a further issue of Ordinary Shares,with a view both to ensuring that the Company has sufficient liquidity to meetfuture requirements and to increasing the Company's capital base (assuming fullsubscription) to well in excess of £50 million. Shareholders will be aware that the Finance Act 2007 introduced new restrictionson the criteria for qualifying investments made by VCTs using funds raised after5 April 2007. The Directors have given careful consideration to the possibleeffect of these restrictions in the light of the Company's current andprospective investment activity, and they do not believe there will be anysignificant impact on the company's ability to pursue its existing investmentpolicy whilst maintaining its approved VCT status. Your Board is therefore seeking authority from Shareholders to issue up to 16million new Ordinary Shares for cash, representing 33.5% of the current issuedshare capital of the Company at the date of this letter (the Company holds notreasury shares). This authority will expire on 31 October 2012; to the extentthat the authority is not used in relation to the Proposal the Directors may useit at any time up to 31 October 2012 to issue or agree to issue further shares.In addition Shareholders are asked to increase the authorised share capital ofthe Company to facilitate the Proposal by the creation of 5,000,000 additionalOrdinary Shares representing an 8% increase in the Company's authorised sharecapital. It is intended that new Ordinary Shares will be issued at a price based on thelatest published net asset value of the Company, after deducting (if not alreadydeducted) the interim dividend of 2.0 pence per Share in respect of the periodended 31 July 2007, divided by 0.945 to allow for issue costs of 5.5% of theamount raised, rounded up to the nearest whole penny per Share. As anindication, based on the net asset value as at 31 July 2007 of 90.1 pence perShare less the proposed interim dividend of 2.0 pence per Share, the issue pricewould be 94 pence per Share. Any new Ordinary Shares so issued will rank pari passu in all respects with theexisting Ordinary Shares, except that they will not rank for interim or finaldividends declared in respect of the financial year ending 31 January 2008.Application will be made for Admission of any new Ordinary Shares issued as partof the Proposal and it is proposed that Admission will be effected at theearliest practicable opportunity for each tranche of Ordinary Shares so issued.In each case, it is envisaged that definitive share certificates in respect ofany Ordinary Shares issued under the Proposal will be despatched within 21 daysof Admission. No temporary documents of title will be issued. Ordinary Sharesso issued may be dematerialised at the option of the recipients and entered onthe CREST system as the existing Ordinary Shares presently are. Your Board's current intention, assuming Shareholders approve the necessaryresolutions, is to issue a prospectus in connection with the issue of the newOrdinary Shares as soon as practicable after the Extraordinary General Meeting.As explained above, it is intended that the issue price will be fixed at a levelsuch that after taking account of issue costs there should be no dilution of thenet assets per Share attributable to existing Shareholders. Potential benefitsof the Proposal to Existing Shareholders include a broader spread of portfolioinvestments expected to be possible with the enlarged assets of the Company, theability to spread the fixed running costs of the Company over a wider capitalbase and the possible impact on secondary market liquidity of an increase in theabsolute size of the Company. New investors will share in the potential benefitfrom future growth in the value of the Company's existing investments, which arealready generating a steady flow of dividend distributions to Shareholders. Amendment to the Articles of Association The Company's Articles of Association presently require that a resolution forthe continuation of the Company be put to the annual general meeting of theCompany in 2011 and, unless defeated, at five-yearly intervals thereafter.Under current VCT legislation, subscribers for new Ordinary Shares in theproposed share issue will be required to hold their shares for at least fiveyears in order to retain the benefit of initial income tax relief and your Boarddoes not consider that it would be appropriate to hold a continuation voteduring this period. It is therefore proposed that the Articles of Associationbe amended so as to require the continuation resolution to be considered at the2013 annual general meeting (expected to be held in May 2013) and every fiveyears thereafter. Resolution 1 in the notice of the Extraordinary General Meeting, which is aspecial resolution requiring the support of 75% of Shareholders voting in personor by proxy, substitutes in Article 27 the 2013 annual general meeting for the2011 annual general meeting for the purposes of the continuation vote anddeletes additional wording relating to the original listing of the Company'sshares which is now not required. Article 27 of the Articles of Association ofthe Company in its current form is set out below: 27 Duration of the Company At the annual general meeting of the Company held in 2011, following theadmission of the Ordinary Shares to the Official List of the London StockExchange and, if the Company has not then been liquidated, unitised orreconstructed, at each fifth subsequent annual general meeting of the Companyconvened by the Directors thereafter, the Directors shall propose an ordinaryresolution that the Company should continue as a venture capital trust for afurther five year period. If such ordinary resolution is not passed, theDirectors shall draw up proposals for the voluntary liquidation, unitisation orother re-organisation of the Company for submission to the members of theCompany at an extraordinary general meeting to be convened by the Directors fora date not more than nine months after the date of the meeting at which suchordinary resolution was not passed. The Directors shall use all reasonableendeavours to ensure that such proposals for the liquidation, unitisation orreconstruction of the Company as are approved by special resolution areimplemented as soon as is reasonably practicable after the passing of suchresolution. For the purposes of this Article only an ordinary resolution willhave not been passed only if those members in person or by proxy who voteagainst the resolution hold in aggregate not less than 25% of the issued sharecapital of the Company at such time entitled to attend and vote at such ameeting. Dividend policy and secondary market liquidity The Company has now been in existence for over eight years and your Boardbelieves that it is in the interests of Shareholders generally that there shouldbe a more active secondary market in the Company's Ordinary Shares. The Companyhas continued to provide liquidity to Shareholders by purchasing Shares in themarket at a 10% discount to net asset value, and the Board intends to maintainthis policy subject to market conditions and periodic review in the light ofcircumstances, but the Board also wishes to encourage demand from secondarymarket purchasers who wish to take advantage of the ability of VCTs todistribute income and capital gains to their shareholders free of tax. With this objective in mind, the Board has reviewed its policy in relation todividend payments to Shareholders and intends as far as possible to declare anannual dividend in future of not less than 5.5 pence per Share, subject to theavailability of sufficient distributable profits. The Company has paid adividend of at least this amount in each of the three financial years ended 31January 2005, 2006 and 2007. Based on a mid-market share price of 80 pence perOrdinary Share, a dividend of 5.5 pence per Share represents an annual tax-freedividend yield of 6.9%, equivalent to a 10.2% gross dividend yield to ahigher-rate taxpayer. Your Board believes that a recurring dividend yield ofthis size should prove attractive to secondary market purchasers. The indicatedfigure is not intended to be a maximum and the Board may declare a higherdividend where the profits in a given year make this possible. The Board has also reviewed the provision of corporate broking services to theCompany, as a result of which it was announced on 16 October 2007 thatLandsbanki Securities (UK) Limited (formerly Teather & Greenwood Limited) havebeen appointed as brokers to the Company with immediate effect. Extraordinary General Meeting Page 6 of this Circular contains a notice convening an Extraordinary GeneralMeeting of the Company to be held at 2.00pm on Monday 12 November 2007 at theCompany's registered office, Northumberland House, Princess Square, Newcastleupon Tyne NE1 8ER, when the following resolutions will be proposed: 1. to amend Article 27 of the Articles of Association; 2. to increase the authorised share capital of the Company by £250,000 by thecreation of 5,000,000 additional Ordinary Shares; and 3. to authorise the Directors to allot up to 16,000,000 new Ordinary Shares forcash and in relation to the issue of those shares to disapply section 89(1) ofthe Companies Act 1985 (which gives Shareholders certain pre-emption rights onthe issue of shares). Action to be taken by shareholders It is important that you complete the Form of Proxy and return it to theCompany's registrars, Equiniti Limited, at Aspect House, Spencer Road, LancingBN99 6DA by no later than 2.00pm on Friday 9 November 2007. Completion andreturn of the Form of Proxy will not preclude you from attending theExtraordinary General Meeting and voting in person should you so wish. Recommendation The Directors consider that the Proposal is in the best interests of the Companyand its Shareholders as a whole and they unanimously recommend Shareholders tovote in favour of the resolutions to be proposed at the Extraordinary GeneralMeeting, as they intend to do in respect of their own beneficial holdings which,in aggregate, amount to 560,148 Ordinary Shares representing approximately 1.2%of the issued Ordinary Share capital of the Company. Yours faithfully Dr Matt Ridley Chairman In this letter, unless the context otherwise requires, the following expressionsbear the following meanings: "Admission" admission of Ordinary Shares to the Official List of the UK Listing Authority and to trading on the London Stock Exchange's market for listed securities "Circular" this document dated 17 October 2007, addressed to the Shareholders "Company" Northern 2 VCT PLC "CREST" the computerised settlement system to facilitate the transfer of title to securities in uncertified form operated by CRESTCo Limited "Directors" or "Board" the directors of the Company, whose names are set out on page 1 of this document "Extraordinary General the extraordinary general meeting of the Company to be held atMeeting" Northumberland House, Princess Square, Newcastle upon Tyne NE1 1ER at 2.00pm on Monday 12 November 2007 "Form of Proxy" the form of proxy for use at the Extraordinary General Meeting "Manager" NVM Private Equity Limited which is authorised and regulated in the conduct of investment business by the Financial Services Authority "Offer" the offer for subscription of new Ordinary Shares referred to in this Circular "Ordinary Share" or " an ordinary share of 5 pence in the capital of the CompanyShare" "Proposal" the proposed issue of new Ordinary Shares and amendment to the Articles of Association "Shareholders" holders of Ordinary Shares "UK Listing Authority" the Financial Services Authority acting in its capacity as the competent authority for the purposes of Part VI of the Financial Services and Markets Act 2000 "VCT" a venture capital trust as defined in section 842AA of the Income and Corporation Taxes Act 1988 (as amended) For further enquiries please contact the Company Secretary: Christopher Mellor (0191 244 6012) Ends This information is provided by RNS The company news service from the London Stock Exchange