Northern 2 Vct Regulatory News (NTV)

15 Feb 2006 15:32

Northern 2 VCT PLC15 February 2006 Northern 2 VCT PLC (the "Company") Proposed grant of authority to issue new Ordinary Shares, amendment of theArticles and adoption of new management fee and performance incentive schemearrangements A copy of the above document has now been posted to shareholders. The full textof the Chairman's letter is set out below.IntroductionIn my statement to Shareholders on pages 2 to 5 of Northern 2 VCT PLC's interimreport for the six months ended 31 July 2005, published on 26 September 2005, Iindicated that the Directors had the following matters under review: •the possibility of raising further funds through a share issue during the 2005/06 tax year; •the requirement in the Articles for a continuation vote to be put to Shareholders at the annual general meeting in May 2006; and •the structure of Northern Venture Managers' management fees and performance incentive arrangements. This letter gives you information on proposals to (i) launch an issue of up to11 million new Ordinary Shares to existing Shareholders and new investors toraise approximately £10.5 million (before expenses), (ii) amend the Articles sothat the resolution for the continuation of the Company is first considered atthe annual general meeting in 2011 instead of 2006, and (iii) introduce newmanagement fee and performance incentive arrangements, and asks for your supportfor the enabling resolutions set out in the notice of Extraordinary GeneralMeeting on page 6. Additional CapitalIn the 2004 Budget the Government announced a temporary doubling of the rate ofincome tax relief on subscriptions for new shares in VCTs to 40% for the 2004/05and 2005/06 tax years. This has provided a stimulus to investment in VCTs, withfundraising increasing to a record £520 million in the 2004/05 tax year. In hisPre-Budget Report Statement delivered on 5 December 2005, the Chancellor of theExchequer said that the Government remained committed to ensuring the long-termsustainability and success of the VCT market but that the future level of VCTreliefs would not be announced until the 2006 Budget (whose date has yet to beannounced). As a result, with the end of the 2005/06 tax year less than twomonths away, potential VCT investors have no way of knowing whether the 40% rateof income tax relief will continue to be available. If the income tax relief isreduced or abolished for the 2006/07 tax year, your Board believes it ispossible that investor interest will be significantly reduced after 5 April2006. Your Board has carefully considered the future prospects for the Company, havingregard to the fact that uncommitted liquid resources available for futureinvestment are now less than £7 million, and believes that given the marketuncertainty referred to above it is appropriate to seek to raise additionalcapital in the 2005/06 tax year. Your Board and the Manager believe that marketconditions should, for the foreseeable future, remain conducive to the sourcingof suitable, high quality new investment propositions for the Company. YourBoard is therefore seeking authority to issue up to 11 million new OrdinaryShares for cash, representing approximately 25.7% of the current issued sharecapital of the Company at the date of this letter. This authority will expire atthe conclusion of the next annual general meeting or, if earlier, fifteen monthsfrom the date of the Extraordinary General Meeting. Any new Ordinary Shares so issued will rank pari passu in all respects with theexisting Ordinary Shares and will rank for all dividends which are both declaredand paid following Admission. The new Ordinary Shares will not rank for thefinal dividend in respect of the financial year ended 31 January 2006.Application will be made for Admission of any new Ordinary Shares issued underthe authority and it is proposed that Admission will be effected at the earliestpracticable opportunity for each tranche of Ordinary Shares so issued. In eachcase, it is envisaged that definitive share certificates in respect of anyOrdinary Shares issued under the proposed issues will be dispatched within 21days of Admission. No temporary documents of title will be issued. OrdinaryShares so issued may be dematerialised at the option of the recipients andentered on the CREST system as the existing Ordinary Shares presently are. Your Board's current intention, assuming Shareholders approve the necessaryresolution, is to issue a prospectus in connection with the issue of the newOrdinary Shares as soon as practicable after the Extraordinary General Meeting.It is intended that the issue price will be fixed at a level such that aftertaking account of issue costs there should be no dilution of the net asset valueper share attributable to existing Shareholders. Amendment to the Articles The Articles require that a resolution for the continuation of the Company beput to the annual general meeting of the Company in 2006 and, unless defeated,at five-yearly intervals thereafter. This is reflected in the existing Article27 of the Articles which is set out at page 5 of this Circular for yourreference. Your Board does not consider that it would be appropriate to launchan issue of new Ordinary Shares shortly before a vote on continuation and it istherefore proposed that the Articles be amended so as to require thecontinuation resolution to be considered at the annual general meeting to beheld in 2011 and every five years thereafter. We consider that the postponementof the continuation vote for five years will enable the future return on theCompany's investments to be maximised and will protect the position of thoseShareholders who have deferred capital gains by investing in the Company. 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 the 2011 annual general meeting for the 2006 annualgeneral meeting for the purposes of the continuation vote. Establishment of co-investment scheme In my statement in the interim report I referred to an ongoing review of themanagement fee and performance incentive arrangements for the Manager, duringwhich your Board considered how best to remunerate and incentivise the Managerand its investment executives. As a result of this review the Board intends toestablish a co-investment scheme for executives of the Manager. Under the termsof the scheme, investment executives employed by the Manager who have beennominated by the Manager (in its absolute discretion) to participate in thescheme and who agree to participate (the ''Co-Investors'') will be required toinvest directly (and on the same terms as the Company) in certain of thesecurities of the companies in which the Company invests, as described below.Co-Investors will be required to subscribe for: • where the investment comprises a mixture of ordinary shares and loans or redeemable preference shares, 5% of the aggregate amounts invested in ordinary shares at the same time by the Company; or • where the investment is structured entirely as ordinary shares (including investments quoted on AIM), 1% of the aggregate amount invested at the same time by the Company; or • where a further investment is made in an existing portfolio company, 1% of the entire investment ''strip'' (ie ordinary shares and any other instruments subscribed by the Company) invested at the same time by the Company. All investments in unquoted entities made by Co-Investors will be realised atthe same time as, and on the same terms as, the corresponding investments madeby the Company in unquoted entities. In respect of those investments in quotedentities, Co-Investors under the scheme will not necessarily be required torealise investments at the same time as, or on the same terms as, thecorresponding investments made by the Company. The Directors believe that the introduction of a co-investment scheme is in theinterests of Shareholders in the Company because it will enable the Manager torecruit and retain high-calibre executives in a competitive market environment,by providing an effective and tax-efficient incentive to Co-Investors at amodest dilution to the Company's investment returns, whilst securing asubstantial personal financial commitment from each Co-Investor to theinvestments made by the Company. The share option scheme established on 10February 1999, pursuant to which specified executives of the Manager may incertain circumstances become entitled to subscribe for new Ordinary Shares inthe Company, will be terminated. No options have been or will be issued underthe scheme. Your Board has also reviewed the terms of the management agreement with theManager, underwhich the Manager was entitled to receive an annual management fee at the fixedrate of 2.5% ofthe Company's net assets, calculated half-yearly. Following this review it hasbeen agreed with the Manager that with effect from 1 February 2006 the basicrate of management fee will be reduced to 2% of net assets per annum, but that aperformance-related element of up to an additional 1% of net assets per annumcan be earned. Performance will be measured on a sliding scale by reference tothe Company's total return (net asset growth plus dividends paid) in eachfinancial year, with a performance-related fee payable at the maximum level of1% if the total return is 14% or more and reducing to nil if the total return isless than 3.5%. The Board considers that this change will align the Manager'sremuneration more closely with the financial performance of the Company. Extraordinary General MeetingPage 6 of this Circular contains a notice convening an Extraordinary GeneralMeeting of the Company to be held at 11.30am on Thursday 9 March 2006 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 so as to require Shareholders to vote onthe continuation of the Company at the 2011 annual general meeting of theCompany rather than at the 2006 annual general meeting; and 2. to authorise the Directors to allot up to 11 million new Ordinary Shares forcash as if Section 89(1) of the Act did not apply. Action to be taken by shareholders It is important that you complete the Form of Proxy and return it to theCompany's registrars, Lloyds TSB Registrars, at The Causeway, Worthing BN99 6DAby no later than 11.30am on Tuesday 7 March 2006. Completion and return of theForm of Proxy will not preclude you from attending the Extraordinary GeneralMeeting and voting in person should you so wish. Recommendation The Directors consider that the Proposals are in the best interests of theCompany and its Shareholders as a whole and they unanimously recommendShareholders to vote in favour of the resolutions to be proposed at theExtraordinary General Meeting, as they intend to do in respect of their ownbeneficial holdings which, in aggregate, amount to 452,682 Ordinary Sharesrepresenting approximately 1.1% of the issued Ordinary Share capital of theCompany. Yours faithfully Dr Matt RidleyChairman In this Circular, unless the context otherwise requires, the followingexpressions bear the following meanings: ''Act'' the Companies Act 1985 as amended''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''AIM'' the Alternative Investment Market of the London Stock Exchange''Articles'' articles of association of the Company as amended''Circular'' this document dated 14 February 2006, 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 the directors of the Company, whose names are set out on page''Board'' 1 of this document''Extraordinary the extraordinary general meeting of the Company to be heldGeneral at Northumberland House, Princess Square, Newcastle upon TyneMeeting'' NE1 8ER at 11.30am on Thursday 9 March 2006''Form of the form of proxy for use at the Extraordinary GeneralProxy'' Meeting''Manager'' Northern Venture Managers 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''Ordinary ordinary shares of 5p each in the capital of theShares'' Company''Proposals'' the proposed issue of up to 11 million new Ordinary Shares and the proposed amendment to the Articles''Shareholders'' holders of Ordinary Shares''UK Listing the Financial Services Authority acting in its capacity asAuthority'' 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) This information is provided by RNS The company news service from the London Stock Exchange