Pre-Annual General Meeting Information • Jan 27, 2016
Pre-Annual General Meeting Information
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(to be renamed Baronsmead Second Venture Trust plc)
General Meeting relating to the recommended proposals for the merger with Baronsmead VCT 4 plc and an Offer for Subscription to raise up to £10 million THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTION. If you are in any doubt as to the action you should take, you should consult your stockbroker, bank manager, solicitor, accountant or other financial adviser authorised under the Financial Services and Markets Act 2000 without delay. Shareholders should also carefully consider the risk factors set out on pages 3 to 5 of this document.
If you have sold or otherwise transferred all your Ordinary Shares in Baronsmead VCT 3 plc, please send this document, together with the accompanying form of proxy, as soon as possible to the purchaser or transferee, or to the stockbroker, bank or other agent through whom the sale or transfer was effected, for onward transmission to the purchaser or transferee. However, the distribution of this document and any accompanying documents into jurisdictions other than the United Kingdom may be restricted by law and therefore persons into whose possession this document and any accompanying documents come should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of securities laws of any such jurisdiction. Shareholders (including, without limitation, nominees, trustees or custodians) who would, or otherwise intend to, forward this document and the accompanying documents outside the United Kingdom should read the section headed "Overseas Shareholders" in paragraph 12 of Part I of this document.
This document should be read in conjunction with the accompanying Prospectus relating to the Company which has been prepared in accordance with the Prospectus Rules and the Listing Rules of the Financial Services and Markets Act 2000.
(Incorporated in England and Wales with registered number 04115341)
Notice of a General Meeting of Baronsmead VCT 3 plc, to be held at 3.30 p.m. on 3 March 2016 at the Grange St Paul's Hotel, Pepys Room, 10 Godliman St, London EC4V 5AJ is set out on pages 21 to 23 of this document. A form of proxy for use in connection with the General Meeting is enclosed. Whether or not you propose to attend the General Meeting, you are requested to complete and return the form of proxy in accordance with the instructions printed on it. In order to be valid, the form of proxy must be completed and returned to Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6AH as soon as possible and in any event so as to be received no later than 3.30 p.m. on 1 March 2016.
Applications will be made to the UK Listing Authority for all of the New Shares to be admitted to the Official List with a Premium Listing and to the London Stock Exchange for such Shares to be admitted to trading on the London Stock Exchange's Main Market for listed securities. It is expected that Admission will become effective and dealings in the New Shares issued pursuant to the Scheme will commence on 16 March 2016. It is expected that Admission will become effective and dealings in the New Shares issued pursuant to the Offer for Subscription will become effective on 16 March 2016.
Your attention is drawn to the letter from the Chairman of the Company in Part I of this document, which contains the recommendation of the Board that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting.
Your attention is drawn to the section entitled "Risk Factors" on pages 3 to 5 of this document and to the section entitled "Action to be taken" on page 11 of this document.
| Page | |
|---|---|
| Risk factors |
3 |
| Expected timetable |
6 |
| Part I – Letter from the Chairman |
7 |
| Part II – Additional information |
12 |
| Definitions | 17 |
| Notice of General Meeting |
21 |
The risks referred to in this section are the material risks known to the Directors at the date of this document which the Directors believe Shareholders should consider prior to deciding how to cast their votes on the Resolutions. Additional risks and uncertainties relating to the Company that are not currently known to the Directors or that the Directors do not currently consider to be material may also have an adverse effect on the Company. Shareholders who are in any doubt about the action they should take should consult their stockbroker, bank manager, solicitor, accountant or other financial adviser authorised under the Financial Services and Markets Act 2000 without delay.
Implementation of the Scheme is conditional, inter alia, upon the approval of Shareholders at the General Meeting and BVCT4 Shareholders approving the Scheme (full details of the conditions of the Scheme are set out in paragraph 2 of Part II of this document). If any condition of the Scheme is not met, the Scheme will not be implemented and certain costs and expenses incurred in connection with the Scheme (estimated to be in the region of £140,000 (including VAT)) will be borne by the Company. In these circumstances, the Company would continue as a separate VCT and the Board would reassess the options available to the Company.
In the event that the Scheme does not become effective the Offer will also not proceed and certain costs and expenses incurred in connection with the Offer (estimated to be in the region of £60,000 (including VAT)) will be borne by the Company.
In order to comply with VCT legislation, the Company (in common with other VCTs) invests in AIMtraded and unquoted companies. Investment in AIM-traded and unquoted companies by its nature, may involve a higher degree of risk than investment in companies traded on the Main Market of the London Stock Exchange. In particular, smaller companies often have limited product lines, markets or financial resources and may be dependent for their management on a smaller number of key individuals. In addition, the market for stock in smaller companies is often less liquid than that for stock in larger companies, bringing with it potential difficulties in acquiring, valuing and disposing of such stock. Full information for determining the value of smaller or unquoted companies or the risks to which they are exposed may also not be available.
The Company's investments may be difficult to realise. The fact that a share is traded on AIM does not guarantee its liquidity. The spread between the buying and selling price of such shares may be wide and thus the price used for valuation may not be achievable. The valuation of the Company's portfolio and opportunities for realisation may also depend on stock market conditions.
Changes in legislation concerning VCTs and in particular, changes in relation to qualifying holdings and qualifying trades, may limit the number of qualifying investment opportunities, reduce the level of returns which would otherwise have been achievable or result in the Company not being able to meet its objectives, may delay the investment of any proceeds raised by the Company in future fundraisings and may reduce the levels of returns to investors.
Any change of governmental, economic, fiscal, monetary or political policy, in particular current government spending reviews and cuts and any changes to taxation and tax reliefs, in particular changes to the VCT rules, could materially affect, directly or indirectly, the operation of the Company and/or the performance of the Company (and the portfolio companies in which it invests) and the value of and returns from Shares and/or its ability to achieve or maintain VCT status.
The information, including tax rules, contained in this document is based on existing legislation. The tax rules or their interpretation in relation to an investment in the Company and/or the rates of tax, or other statutory provisions to which the Company is subject, may change during the life of the Company and such changes could be retrospective. While it is the intention of the Directors that the Company will be managed so as to continue to qualify as a VCT, there can be no guarantee that this status will be maintained. A failure to meet the qualifying requirements could result in the loss of tax reliefs previously obtained, resulting in adverse tax consequences for investors, including a requirement to repay the income tax relief obtained, and could also cause the Company to lose its exemption from corporation tax on capital gains.
New qualifying conditions for VCTs became effective from Royal Assent of the Finance (No. 2) Act 2015 which was received on 18 November 2015. The new qualifying conditions include a maximum age limit for qualifying investments (generally seven years from first commercial sale) and a maximum amount of Risk Finance State Aid which a company can receive over its lifetime (£12 million, or £20 million for knowledge intensive companies). The new conditions also prevent a company from using the funds it receives from a VCT to purchase shares in another company or to acquire an existing business or trade from another company. It is expected that the scale of the Company's new investments will change and some elements of the investment portfolio will carry a higher risk. The changes may also mean that the Company is unable to provide further investment to existing portfolio companies.
As a result of the tax status of VCTs, investments by VCTs in underlying portfolio companies are regarded as State aid. Where the European Commission believes that State aid has been provided which is unlawful, in particular if it is not in accordance with the Risk Finance Guidelines, they may require that the UK government recovers that State aid. Such recovery may be from the investee company, the VCT or the VCT's investors.
The profitability of the businesses of the Company's portfolio companies could be impacted by business conditions and adverse economic conditions. Factors such as unemployment levels, the levels and volatility of equity markets, consumer confidence, interest rates and inflation could significantly affect the market for products or services of portfolio companies. The economic climate in the United Kingdom and elsewhere may adversely affect the prospects for both existing portfolio companies and any new investments.
At any given point in time, the price for a Share which a Shareholder could achieve on the stock market may be significantly less than the Net Asset Value or the price paid by the Shareholder to acquire that Share. The Shares may trade at a discount to their Net Asset Value for a variety of reasons, including as a consequence of general market conditions, concerns regarding the general liquidity or marketability of the Shares or the actual or expected performance of the Company.
The Company is a closed-ended company. Shareholders will have no right to have their Shares redeemed or repurchased by the Company at any time. Shareholders wishing to realise their investment in the Company will be required to dispose of their Shares on the stock market. Accordingly, the ability of Shareholders to realise the Net Asset Value of, or any value in respect of, their Shares is dependent on the existence of a liquid market in the Shares and the market price of such Shares.
Although the existing Ordinary Shares issued by the Company have been (and it is anticipated that the New Shares will be) admitted to the premium segment of the Official List of the UK Listing Authority and traded on the Main Market, there may not be a liquid market for the Ordinary Shares as there is a limited secondary market for VCT shares (primarily because initial VCT income tax relief is only available to individuals subscribing for newly issued shares) and investors may find it difficult to realise their investments.
The Company has stated its aim to seek a mid market share price discount to NAV of no more than 5.0 per cent. but keeps the share price discount policy under continuous review. The performance of the Company's share price and the discount to NAV is monitored continuously and Shares may be bought back depending on market conditions at the time and only when the Directors believe it to be in the best interests of all Shareholders. There can, however, be no guarantee that the Company will buy back Ordinary Shares from Shareholders or that if it does the discount to NAV will not be greater than 5.0 per cent. Share buybacks will be subject to applicable legislation and VCT regulations and the availability of sufficient reserves and cash in the Company.
The Company aims to maintain a minimum annual dividend level of around 4.5 pence per Ordinary Share if possible, but this depends primarily on the level of realisations achieved and cannot be guaranteed. A reduction of income from the Company's portfolio would adversely affect the ability of the Company to pay dividends on the Ordinary Shares. Any adverse performance of the assets acquired from Baronsmead VCT 4, as well as the existing investments of the Company, may restrict the ability of the Company to pay dividends.
Any change in the tax treatment of dividends paid or income received by the Company may reduce the dividends paid to the holders of the Ordinary Shares. A reduction of income from the Company's investments would adversely affect the yield on the Ordinary Shares. Such a reduction could arise, for example, from lower rates of dividends paid by investee companies or difficulties realising gains on portfolio investments.
The Company has no employees and is dependent on the skills and experience of the Investment Manager to manage its investments. If the Investment Manager ceases to act as investment manager of the Company or if key personnel cease to remain with the Investment Manager or be involved in the management of the Company's portfolio, there is no assurance that suitable replacements will be found. If this occurs there may be an adverse effect on the performance of the Company and the value of the Shares.
| 2016 | |
|---|---|
| Latest time and date for receipt of forms of proxy for the General Meeting | 3.30 p.m. on 1 March |
| First General Meeting of Baronsmead VCT 4 | 2.30 p.m. on 3 March |
| General Meeting | 3.30 p.m. on 3 March |
| Calculation Date | 5.00 p.m. on 10 March |
| Second General Meeting of Baronsmead VCT 4 | 10.30 a.m. on 11 March |
| Effective Date for implementation of the Scheme and commencement of the liquidation of Baronsmead VCT 4 |
11 March |
| Admission to listing and dealings commence in the New Shares issued pursuant to the Scheme |
8.00 a.m. on 16 March |
| New Shares issued in uncertificated form credited CREST accounts of BVCT4 Shareholders under the Scheme |
8.00 a.m. on 16 March |
| Share and tax certificates in respect of New Shares issued in certificated form pursuant to the Scheme despatched to BVCT4 Shareholders entitled thereto |
week commencing 21 March |
Note: Each of the times and dates in the above expected timetable (other than in relation to the General Meetings) may be extended or brought forward without further notice. If any of the above times and/or dates change, the revised time(s) and/or date(s) will be notified to Shareholders by an announcement through a Regulatory Information Service provider.
| 2016 | |
|---|---|
| Record date for the Offer | 21 January |
| Offer opens | 1 February |
| Exclusive period for Existing Shareholders and BVCT4 Shareholders ends |
close of business on 15 February |
| Exclusive period for Baronsmead Shareholders ends | close of business on 3 March |
| First allotment | 11 March |
| Final allotment | 24 March |
| Offer closes | 24 March |
| Dealings in New Shares commence | 3 Business Days after allotments |
| Definitive share certificates despatched | within 10 Business Days of allotments |
Note: The Board may close the Offer earlier than the date stated above if it is fully subscribed by an earlier date or may extend such Offer. The Board further reserves the right to accept Subscription Forms and to allot and arrange for the listing of New Shares in respect of Subscriptions received on or prior to the closing date of the Offer as the Board sees fit, which may not be on the dates stated above.
(Incorporated in England and Wales with registered number 04115341)
Anthony Townsend (Chairman) 100 Wood Street Andrew Karney London Gillian Nott OBE EC2V 7AN Ian Orrock
Directors: Registered office:
26 January 2016
Dear Shareholder,
The Board has reached agreement with Baronsmead VCT 4 in respect of a recommended merger of the assets and liabilities of the Company and Baronsmead VCT 4 (the "Proposals") pursuant to a scheme of reconstruction and winding up of Baronsmead VCT 4 under section 110 of the Insolvency Act 1986 (the "Scheme"). Baronsmead VCT 4 is a Venture Capital Trust which was launched in December 2001 and is also managed by the Company's investment manager, Livingbridge.
I am writing to you to provide the details of (a) the Company's proposed participation in the Scheme; (b) the proposed Offer for Subscription which is conditional on the implementation of the Scheme; and (c) the proposed cancellation of the Company's share premium account.
A General Meeting has been convened at which Shareholders will be asked to consider and, if thought fit, approve the Resolutions. The General Meeting, notice of which is set out at the end of this document, will be held at 3.30 p.m. on 3 March 2016 at the Grange St Paul's Hotel, Pepys Room, 10 Godliman St, London EC4V 5AJ.
The Board considers the Proposals to be in the interests of Shareholders as a whole and recommends that Shareholders vote in favour of the Resolutions at the General Meeting.
Prior to April 2012, the VCT rules restricted the amount a VCT could invest in a portfolio company to £1 million per annum. This led to investment managers, such as Livingbridge, establishing numerous VCTs that pursued the same investment strategy allowing larger investments to be made in VCT Qualifying Companies. With effect from 6 April 2012, the VCT rules were amended and the annual investment limit was increased to £5 million per investee company. As a result there is no longer as significant an advantage in having multiple VCTs pursuing the same investment strategy.
Since 2012 the Directors and Livingbridge have been reviewing the merits of merging the Baronsmead VCTs. In April 2014, changes to the stamp duty rules significantly reduced the overall cost of a merger. As a result, the Board now believes that there is a compelling argument for a merger from a cost savings point of view, with Shareholders and BVCT4 Shareholders benefiting from estimated aggregate costs savings of the Enlarged Company of approximately £355,000 per annum. In addition, the Directors believe that the size of the Enlarged Company will give it greater presence in the market for making investments. For these reasons the Directors believe that Shareholders' interests will be best served by the Merger of the Company with Baronsmead VCT 4.
Under the Scheme, Baronsmead VCT 4 will be wound up voluntarily pursuant to a scheme of reconstruction under section 110 of the Insolvency Act 1986. The Scheme provides for the undertaking, assets and liabilities of Baronsmead VCT 4 to be transferred to the Company in consideration for the issue of New Shares of an equivalent value to BVCT4 Shareholders. The Scheme is subject to, amongst other conditions, approval by the Shareholders and BVCT4 Shareholders.
The New Shares issued pursuant to the Scheme will rank pari passu in all respects with the existing Shares in the Company.
In further consideration for the transfer of the undertaking, assets and liabilities of Baronsmead VCT 4 to the Company, the Company will, pursuant to the Deed of Indemnity, undertake to pay all liabilities incurred by the Liquidators including, but not limited to, the implementation of the Scheme, the winding up of BVCT4 and the purchase for cash of any holdings of dissenting BVCT4 Shareholders.
The Directors of the Company consider that the Merger would be in the best interests for Shareholders for the following reasons.
Note: The net assets of the Enlarged Company are based on the combined net assets of the Company and Baronsmead VCT 4 as at 30 November 2015 after taking account of the costs of the Proposals, being approximately £365,000, but before taking account of the net proceeds, if any, of the fundraising proposed by the Enlarged Company.
If the Scheme is implemented, the Company will acquire all of Baronsmead VCT 4's undertaking, assets and liabilities. The consideration for such acquisition shall be the issue of New Shares to BVCT4 Shareholders and the Merger will be completed on a relative net asset basis. The assets to be transferred to the Company comprise investments in a portfolio of 72 companies, which, with the exception of one unquoted investment and the Company's investment in Wood Street is identical to the Company's portfolio. These assets therefore comply with the Company's investment policy.
The number of New Shares to be issued to BVCT4 Shareholders under the Scheme will be based on the adjusted Net Asset Value of an Ordinary Share (the "FAV per BVCT3 Share") and the adjusted Net Asset Value of a BVCT4 Share (the "FAV per BVCT4 Share"). The FAV per BVCT3 Share and the FAV per BVCT4 Share will be calculated as at 10 March 2016 using each company's respective accounting policies (which are identical). The investments held by the Company and Baronsmead VCT 4 which are listed, quoted or traded on a recognised stock exchange will be valued by reference to the bid price on the principal stock exchange where the relevant investment is listed, quoted or dealt. Unquoted investments held by the Company and Baronsmead VCT 4 will be valued at their fair value as at the Calculation Date as determined by the Directors and the BVCT4 Directors respectively.
The FAV per BVCT3 Share will be the Net Asset Value of an Ordinary Share adjusted to add back the costs and expenses of the Proposals already incurred by the Company prior to the Effective Date. The FAV per BVCT4 Share will be calculated in accordance with the Scheme and will be the Net Asset Value of a BVCT4 Share adjusted to add back the costs and expenses of the Proposals already incurred by BVCT4 prior to the Effective Date.
BVCT4 Shareholders will be issued such number of New Shares in the Company with a FAV per BVCT3 Share equal to 100 per cent. of the FAV per BVCT4 Share of their BVCT4 Shares. The New Shares issued pursuant to the Scheme will rank equally in all respects with the existing issued Ordinary Shares.
The cash transferred to the Company by Baronsmead VCT 4 under the Scheme will be used and invested in accordance with the Enlarged Company's investment policy (save to the extent required to meet its liabilities).
The number of New Shares to be issued pursuant to the Scheme, the FAV per BVCT3 Share and the FAV per BVCT4 Share will all be announced through a Regulatory Information Service as soon as practicable following the Calculation Date.
It is proposed that if the Scheme becomes effective the Company will change its name to Baronsmead Second Venture Trust plc.
The Board and the BVCT4 Board have considered what the size and future composition of the Board should be following the Merger. The Board currently comprises four Directors. Following the Merger it is anticipated that Robert Owen and Malcolm Groat (each of whom is a BVCT4 Director) will be appointed to the Board. In addition, it is anticipated that Andrew Karney and Gillian Nott OBE will retire as Directors of the Company. As a result following the Merger, the Board will comprise four Directors.
Last year's Summer Budget introduced legislation designed to ensure that VCTs comply with changes to the EU State aid rules as well as remaining effective in giving small and growing businesses access to finance. The rules introduced new criteria regarding the age of companies that will be eligible as Qualifying Investments. There is now a lifetime cap on the total amount of State aided investment an investee company can receive and a requirement that investment be used for growth and development only. These measures were approved when the Finance (No.2) Act 2015 received Royal Assent on 18 November 2015.
The new rules will require the Investment Manager to adapt its investment strategy to focus on the provision of development capital to younger companies to enable them to grow their businesses organically rather than through acquisition. Whilst the full implications of the new rules are still being assessed by the Investment Manager and its advisers, it is clear that the scale and nature of the Enlarged Company's new investments will change and some elements of the investment portfolio will carry a higher risk.
The Board has reviewed the impact of the new rules with the Investment Manager. The Board is of the view that the Investment Manager has made sufficient adjustments to the investment focus to adapt to the new investment environment and comply with the new VCT rules. The Board is therefore confident in the Investment Manager's ability to identify an adequate supply of new and attractive investment opportunities which will continue to generate acceptable returns, and comply with the new VCT rules.
At the beginning of 2014 the Company raised £9.7 million (after costs). Since 1 January 2014 the Company has invested approximately £14.5 million in new and follow on investments in unquoted and AIM-traded companies. As a result, the Company is seeking to raise further funds to allow it to continue to invest in new and existing portfolio companies. The Offer is conditional on the Scheme becoming effective.
Amounts subscribed under the Offer will be used to purchase New Shares in the Company and will enable investors to participate in the investment returns of the Company's existing investment portfolio following the allotment of the New Shares.
As it is anticipated that there will be a strong demand for New Shares under the Offer, the Directors have sought to protect the interests of the Existing Shareholders and the BVCT4 Shareholders. Until close of business on 15 February 2016 the Offer will be open exclusively to satisfy subscriptions from Existing Shareholders and BVCT4 Shareholders. Should the Offer not be fully subscribed before this time, the remaining New Shares to be issued under the Offer will be used to satisfy subscriptions from the Baronsmead Shareholders until close of business on 3 March 2016. If the Offer is not fully subscribed by close of business on 3 March 2016, the balance, if any, will be used to satisfy the subscriptions of any other investors.
Applications will be processed on a "first come, first served" basis by the Receiving Agent. Shareholders are advised to return their completed Subscription Forms as soon as possible.
The Directors and the BVCT3 Directors have committed to investing £215,000 in aggregate in the Offer.
The minimum subscription under the Offer is £3,000 and thereafter in multiples of £1,000. There is no maximum investment. However, potential investors should be aware that tax relief is only available on a maximum of £200,000 in each tax year. Potential investors should consult their professional or financial advisers before deciding whether and, if so, how much they should invest under the Offer.
Resolutions 2 and 3 set out in the notice of the General Meeting grant authority to the Directors to issue Ordinary Shares pursuant to the Offer and further Ordinary Shares in respect of future offers for subscription. Further details of the Offer are set out in the Prospectus published by the Company on 26 January 2016, a copy of which is enclosed.
The Company is proposing, subject to Shareholder approval and approval of the High Court, to cancel the share premium account of the Enlarged Company and transfer this amount to reserves, thereby creating a special reserve which shall be able to be applied in any manner in which the Company's profits available for distribution are able to be applied (as determined in accordance with the CA 2006 and the Reduction of Share Capital Order and subject to the limitations on the return of capital introduced by the 2014 Finance Act, including buying back shares, writing off loses and enhancing the ability to make distributions.
Legislation introduced by the 2014 Finance Act limits the ability of VCTs to return share capital to an investor that does not represent profits made on investments. This restriction applies for a three year period beginning at the end of the accounting period in which the funds were raised. HMRC may withdraw the Company's VCT approval if it fails to comply with this condition.
The Board aims to maintain a minimum annual dividend level of around 4.5 pence per Ordinary Share if possible, but this depends primarily on the level of realisations achieved and cannot be guaranteed. There is no certainty that any dividends will be paid. However, since launch, the average annual dividend paid to Shareholders has been 6.9 pence per Ordinary Share (equivalent to a pre-tax return of 9.1 pence per Ordinary Share for a higher rate taxpayer).
The aggregate costs and expenses to be incurred by the Company and Baronsmead VCT 4 in connection with the Scheme are expected to be approximately £365,000 (including VAT and stamp duty). It has been agreed that all costs of implementing the Scheme will be met by the Enlarged Company following the completion of the Scheme (including the costs of purchasing the interests of any dissenting BVCT4 Shareholders). Should the Scheme be implemented, it is expected that the costs of the Merger will be recouped from cost savings achieved by the Enlarged Company within approximately 12 months of the Effective Date. The effect of this arrangement is that the costs of the Merger are borne by the Shareholders of the Company and the BVCT4 Shareholders in proportion to their relative contribution to the net asset value of the Enlarged Company.
In the event that the Scheme does not become effective, it is estimated that the aggregate costs incurred by the Company and Baronsmead VCT 4 in relation to the Scheme will be approximately £270,000. The Company and Baronsmead VCT 4 have agreed to bear these abort costs in proportion to their respective unaudited net asset values as at 30 November 2015, being 52 per cent. and 48 per cent. respectively.
The Investment Manager will, in respect of services provided pursuant to the Offer, receive a fee of 3.0 per cent. of the gross proceeds of the Offer. Out of this fee, the Investment Manager will pay all costs associated with the Offer, on behalf of the Company. In addition, the Investment Manager will pay permissible annual trail commission payments in relation to non-advised sales. The Investment Manager will be responsible for any costs associated with the Offer in excess of this fee. The net proceeds of the Offer will, therefore, be £9.7 million if the Offer is fully subscribed.
In the event that the Scheme does not become effective, the Offer will not proceed and it is estimated that the aggregate costs incurred by the Company and Baronsmead VCT 4 will be approximately £115,000. The Company and Baronsmead VCT4 have agreed to bear these abort costs in proportion to their respective unaudited net asset values as at 30 November 2015, being 52 per cent. and 48 per cent. respectively.
As it is proposed that, following the Merger, the Company will be renamed Baronsmead Second Venture Trust plc, in order to avoid any confusion as to which share certificates remain valid following the Merger and renaming of the Company, the Registrar will issue all Existing Shareholders with new share certificates in the new name of the Company. Existing certificates in respect of Ordinary Shares will cease to be of value for any purpose following the despatch to Shareholders of new certificates in respect of their holdings in the Enlarged Company.
Shareholders will find enclosed a form of proxy for use in relation to the General Meeting. Whether or not they propose to attend the General Meeting, Shareholders are asked to complete and return the form of proxy in accordance with the instructions printed thereon as soon as possible and, in any event, so as to be received by Computershare Investor Services PLC, The Pavilions, Bridgwater Road, Bristol BS99 6AH by not later than 3.30 p.m. on 1 March 2016. Completion and return of a form of proxy will not prevent you from attending and voting in person at the General Meeting should you wish to do so.
The issue of New Shares to persons, residents in or citizens of jurisdictions outside the United Kingdom may be affected by the laws of the relevant jurisdiction. Further details relating to Overseas Shareholders are set out in paragraph 10 of Part II.
The Board considers the Resolutions to be in the best interests of Shareholders as a whole. Accordingly, the Board recommends unanimously that Shareholders vote in favour of the Resolutions, as the Directors intend to do in respect of their own beneficial holdings which total 380,381 Ordinary Shares (representing 0.51 per cent. of the total voting rights in the Company exercisable at the General Meeting).
Shareholders who are in any doubt as to the contents of this document or as to the action they should take should consult their stockbroker, bank manager, solicitor, accountant or an appropriately qualified and duly authorised independent financial adviser without delay.
Yours faithfully
Anthony Townsend Chairman
Applications have been made to the UK Listing Authority for the New Shares to be admitted to the Official List with a Premium Listing. Applications have also been made to the London Stock Exchange for the New Shares to be admitted to trading on the Main Market. If the Proposals become effective, it is expected that the New Shares to be issued pursuant to the Scheme will be allotted on 11 March 2016, credited as fully paid, and that the first day of dealings in such shares on the Main Market will be 16 March 2016. The New Shares to be issued pursuant to the Offer will be allotted on 11 March and 24 March 2016 credited as fully paid, and the first day of dealings in such shares on the Main Market will be three Business Days after allotment.
The Directors reserve the right to arrange for the listing of New Shares under the Offer on such other dates as they see fit. New Shares will be issued in registered form and may be held in either certificated or uncertificated form.
It is expected that BVCT4 Shareholders who hold their BVCT4 Shares in uncertificated form at the Record Date will receive their New Shares in uncertificated form on 16 March 2016, although the Directors reserve the right to issue such securities in certificated form. In normal circumstances, this is only likely to be exercised in the event of an interruption, failure or breakdown of CREST or of the facilities or system operated by the Registrar in connection with CREST. The Company will procure that instructions are given to credit the appropriate stock accounts in CREST with the relevant entitlements to New Shares in uncertificated form.
Fractional entitlements to New Shares will not be issued pursuant to the Scheme or the Offer and entitlements will be rounded down to the nearest whole number. No cash payments shall be made or returned in respect of any such fractional entitlements which will be retained for the benefit of the Company.
The Directors or Proposed Directors do not have any options over Ordinary Shares. As at the date of this document, the Directors, the Proposed Directors, or their immediate families and related trusts, had the following interests in the issued share capital of the Company (all of which are beneficial) and will, if the Proposals are implemented, have the following interests (all of which are beneficial) immediately following the implementation of the Proposals (based on the assumptions set out below): (a) which are required to be notified to the Company pursuant to the Disclosure and Transparency Rules; or (b) being interests of persons connected (within the meaning given in the Disclosure and Transparency Rules) with the Directors or the Proposed Directors which would, if such persons were a Director, be required to be disclosed under (a) above and the existence of which was known to or could, with reasonable diligence, be ascertained by the Director or the Proposed Director:
| Name | Ordinary Shares currently held |
Percentage of current issued share capital |
New Shares to be issued pursuant to Issues |
Percentage of issued share capital following the Issues |
|---|---|---|---|---|
| Anthony Townsend | 151,199 | 0.203% | 25,174 | 0.117% |
| Andrew Karney | 104,340 | 0.140% | 11,851 | 0.077% |
| Gillian Nott OBE | 93,962 | 0.126% | 45,121 | 0.092% |
| Ian Orrock | 31,150 | 0.042% | 9,740 | 0.027% |
| Robert Owen | 10,709 | 0.014% | 125,888 | 0.090% |
| Malcolm Groat | — | — | 36,097 | 0.024% |
(1) The figures above assume that 76,831,937 New shares are issued pursuant to the Issues.
(2) Robert Owen holds 125,824 BVCT4 Shares and it is assumed that he would be issued 117,101 New Shares under the Scheme.
(3) Malcolm Groat holds 15,182 BVCT4 Shares and it is assumed that he would be issued 14,129 New Shares under the Scheme.
(4) Anthony Townsend holds 8,167 BVCT4 Shares and it is assumed that he would be issued 7,600 New Shares under the Scheme.
(5) Andrew Karney holds 12,734 BVCT4 Shares and it is assumed that he would be issued 11,851 New Shares under the Scheme.
(6) Gillian Nott holds 48,482 BVCT4 Shares and it is assumed that he would be issued 45,121 New Shares under the Scheme.
(7) Ian Orrock holds 1,025 BVCT4 Shares and it is assumed that he would be issued 953 New Shares under the Scheme.
There has been no significant change in the trading or financial position of the Company since 30 June 2015 (being the end of the last financial period of the Company for which financial information has been published and incorporated by reference in Part VII of the Prospectus).
The Company's investment policy is to invest primarily in a diverse portfolio of UK growth businesses, whether unquoted or traded on AIM. Investments are made selectively across a range of sectors in companies that have the potential to grow and enhance their value.
The Company invests in a range of securities including, but not limited to, ordinary and preference shares, loan stocks, convertible securities and interest bearing securities as well as cash. Unquoted investments are usually structured as a combination of ordinary shares and loan stocks, while AIM traded investments are primarily held in ordinary shares. Pending investment in VCT qualifying and non-VCT qualifying unquoted, AIM-traded and other quoted securities (which may be held directly or indirectly through collective investment vehicles), cash is primarily held in interest bearing accounts, money market open ended investment companies (OEICs), UK gilts and treasury bills.
Investments are primarily made in companies which are substantially based in the UK, although many of these investees may have some trade overseas.
The investment policy is designed to ensure that the Company continues to qualify and is approved as a VCT by HMRC. Amongst other conditions, the Company may not invest more than 15 per cent. by value of its investments calculated in accordance with section 278 of the Tax Act ("VCT Value") in a single company or group of companies and must have at least 70 per cent. of its investments by VCT Value throughout the period in shares and securities comprised in qualifying holdings. At least 70 per cent. by VCT Value of qualifying holdings must be in "eligible shares", which are ordinary shares which have no preferential rights to assets on a winding up and no rights to be redeemed, but may have certain preferential rights to dividends. For funds raised before 6th April 2011, at least 30 per cent. by VCT Value of qualifying holdings must be in "eligible shares" which are ordinary shares which do not carry any rights to be redeemed or preferential rights to dividends or to assets on a winding up. At least 10 per cent. of each Qualifying Investment must be in "eligible shares".
The companies in which investments are made must have no more than £15 million of gross assets at the time of investment to be classed as a VCT qualifying holding.
The Company aims to be at least 90 per cent. invested, directly or indirectly, in VCT qualifying and nonqualifying growth businesses subject always to the quality of investment opportunities and the timing of realisations. It is intended that at least 75 per cent. of any funds raised by the Company will be invested in VCT Qualifying Investments. Non-VCT qualifying investments held in unquoted, AIMtraded and other quoted companies may be held directly or indirectly through collective investment vehicles.
Risk is spread by investing in a number of different businesses within different qualifying industry sectors using a mixture of securities. Generally no more than £2.5 million, at cost, is invested in the same company. The maximum the Company will invest in a single company (including a collective investment vehicle) is 15 per cent. of its investments by VCT Value. The value of an individual investment is expected to increase over time as a result of trading progress and a continuous assessment is made of its suitability for sale.
Investments are selected in the expectation that the application of private equity disciplines, including an active management style for unquoted companies, will enhance value and enable profits to be realised from planned exits.
The Company aims to invest in larger more mature unquoted and AIM-traded companies and to achieve this it invests alongside the other funds managed by the Investment Manager, which includes the other Baronsmead VCTs.
Certain members and employees of the Investment Manager invest in unquoted investments alongside the Company. This scheme is in line with current practice of private equity houses and its objective is to attract, recruit, retain and incentivise the Investment Manager's team and is made on terms which align the interests of Shareholders and the Investment Manager.
The Company's policy is to use borrowing for short term liquidity purposes only up to a maximum of 25 per cent. of the Company's gross assets, as permitted by the Articles.
It is proposed that the Enlarged Company will update its investment policy to ensure it is consistent with the HMRC guidance on the legislative changes to the VCT rules enacted, which is expected to be published in the first quarter of this year. Shareholders will be provided with further information in relation to the changes following the publication of the HMRC guidance. The current investment policy is set out in full above.
The Board is of the view that the Investment Manager has made sufficient adjustments to the investment focus to adapt to the new investment environment and ensure that the Enlarged Company will comply with the new VCT rules.
consents which may be required, the compliance with any other necessary formalities which need to be observed and the payment of any issue, transfer of other taxes or duties due in such jurisdiction.
Dickson Minto W.S., which is authorised and regulated in the UK by the FCA, has given and has not withdrawn its written consent to the inclusion in this document of its name and the references to it in the form and context in which they appear.
Copies of the following documents are available for inspection in person during normal business hours on any Business Day at the offices of Livingbridge VC LLP, 100 Wood Street, London EC2V 7AN until the Effective Date:
26 January 2016
The following definitions apply throughout this document unless the context requires otherwise:
| 2014 Finance Act | the Finance Act 2014 |
|---|---|
| Admission | the admission of the New Shares to be issued under the Proposals to the Official List with a Premium Listing and to trading on the Main Market |
| AIM | the Alternative Investment Market operated by the London Stock Exchange |
| Articles | the articles of association of the Company in force from time to time |
| Baronsmead Shareholders | registered holders of shares in the Baronsmead VCTs prior to 22 January 2016, or a person who, prior to 22 January 2016, was the spouse or civil partner of an Existing Shareholder |
| Baronsmead VCT 4 or BVCT4 | Baronsmead VCT 4 plc, a company incorporated in England and Wales with registered number 04313537 |
| Baronsmead VCTs | Baronsmead VCT plc, Baronsmead VCT 2 plc, Baronsmead VCT 3 plc, Baronsmead VCT 4 plc and Baronsmead VCT 5 plc |
| Beneficial Owner | a person in whom the beneficial ownership of the Shares is vested, or will be vested immediately upon there issue |
| Board or Directors | the directors of the Company or any duly constituted committee thereof |
| Business Day | any day on which banks are open for business in London (excluding Saturdays and Sundays) |
| BVCT4 Board or BVCT4 Directors | the directors of Baronsmead VCT 4 or any duly constituted committee thereof |
| BVCT4 Circular | the circular sent to BVCT4 Shareholders on 26 January 2016 |
| BVCT4 Share | ordinary share of 10p in the capital of Baronsmead VCT 4 |
| BVCT4 Shareholder | for the purposes of the Scheme a BVCT4 Shareholder is a registered holder of shares in Baronsmead VCT 4 prior to the Scheme becoming effective and for the purposes of the Offer a BVCT4 Shareholder is a registered holder of shares in Baronsmead VCT 4 prior to 22 January 2016, or a person who, prior to 22 January 2016, was the spouse or civil partner of a BVCT4 Shareholder |
| Calculation Date | the time and date, to be determined by the Directors but expected to be 5.00 p.m. on 10 March 2016 (unless the First General Meeting is adjourned), at which the FAV per BVCT4 Share and the FAV per BVCT3 Share will be calculated for the purposes of the Scheme |
| certificated or in certificated form | a share which is not in uncertificated form |
| Company | Baronsmead VCT 3 plc, a company incorporated in England and Wales with registered number 04115341 |
| CREST | the relevant system (as defined in the CREST Regulations) in respect of which Euroclear is the Operator (as defined in the CREST Regulations) |
|---|---|
| CREST Manual | the CREST Reference Manual issued by Euroclear dated 27 June 2011 |
| CREST Regulations | the Uncertificated Securities Regulations 2001 (SI 2001/3755) (as amended) |
| Deed of Indemnity | deed of indemnity between the Company, the Liquidators and Baronsmead VCT 4 |
| Disclosure and Transparency Rules | the Disclosure Rules and Transparency Rules of the FCA |
| Effective Date | the date of the passing of the resolution to be proposed at the Second General Meeting or, if later, on all conditions of such resolution being satisfied (which is expected to be 11 March 2016) |
| Enlarged Company | the Company (to be renamed Baronsmead Second Venture Trust plc) following completion of the Merger |
| EU | the European Union |
| Euroclear | Euroclear UK & Ireland Limited |
| European Commission | The European Commission of the European Union |
| Existing Shareholders | for the purposes of the Scheme an Existing Shareholder is a registered holder of Ordinary Shares prior to the Scheme becoming effective and for the purposes of the Offer an Existing Shareholder is a registered holder of Ordinary Shares prior to 22 January 2016, or a person who, prior to 22 January 2016, was the spouse or civil partner of an Existing Shareholder |
| FAV per BVCT3 Share | the formula asset value of an Ordinary Share calculated as at the Calculation Date in accordance with the Scheme |
| FAV per BVCT4 Share | the formula asset value of a BVCT4 Share calculated as at the Calculation Date in accordance with the Scheme |
| FCA | the Financial Conduct Authority |
| First General Meeting | the general meeting of Baronsmead VCT 4 convened for 2.30 p.m. on 3 March 2016, or any adjournment thereof |
| FSMA | the Financial Services and Markets Act 2000 (as amended) |
| General Meeting | the general meeting of the Company convened for 3.30 p.m. on 3 March 2016, or any adjournment thereof |
| HMRC | HM Revenue & Customs |
| Investment Manager or Livingbridge | Livingbridge VC LLP, a limited liability partnership registered in England and Wales with registered number OC320408 |
| Issues | the issues of New Shares pursuant to the Scheme and the Offer |
| Liquidators | the liquidator for the time being of BVCT4, being initially the persons appointed at the Second General Meeting |
| Listing Rules | the Listing Rules made by the FCA under Part VI of FSMA, as amended |
| London Stock Exchange | London Stock Exchange plc |
|---|---|
| Main Market | the London Stock Exchange's main market for listed securities |
| NAV or Net Asset Value | in relation to a share, its net asset value on the relevant date calculated on the basis of the relevant company's normal accounting principles and policies |
| New Shares | the Ordinary Shares to be issued pursuant to the Scheme and the Offer |
| Nominee | a party who holds, or subscribes for shares on behalf of, and as trustee of, a Beneficial Owner |
| Nominee Subscription Form | subscription form to be used by Nominees subscribing on behalf of Beneficial Owners available upon request from Computershare |
| Offer or Offer for Subscription | the offer for subscription of Ordinary Shares as described in the Prospectus |
| Official List | the Official List of the UK Listing Authority |
| Ordinary Shares or Shares | ordinary shares of 10p each in the capital of the Company |
| Overseas Shareholders | Shareholders who have a registered address outside or who are resident in, or citizens, residents or nationals of, jurisdictions outside the United Kingdom |
| Premium Listing | a listing on the premium segment of the Official List |
| Proposals or Merger | the proposals for the voluntary winding up and reconstruction of BVCT4 (including the Scheme) described in the BVCT4 Circular |
| Proposed Directors | Robert Owen and Malcolm Groat |
| Prospectus | the prospectus published by the Company on 26 January 2016 |
| Prospectus Rules | the rules made by the FCA under Part VI of FSMA, as amended |
| Qualifying Company | an unquoted (including AIM-traded) company which satisfies the requirements of Part 4 of Chapter 6 of the Tax Act |
| Qualifying Investment | shares in, or securities of, a Qualifying Company held by a VCT which meet the requirements of Part 4 of Chapter 6 of the Tax Act |
| Record Date | 6.00 p.m. on 10 March 2016, being the record date for determining which BVCT4 Shareholders are entitled to participate in the Scheme |
| Reduction of Share Capital Order | The Companies (Reduction of Share Capital) Order 2008 |
| Registrar or Computershare or Receiving Agent |
Computershare Investors Services PLC, a company incorporated in England & Wales with registered number 3498808 |
| Regulatory Information Service | any of the services authorised from time to time by the FCA for the purposes of disseminating regulatory announcements |
| Resolutions | the resolutions set out in the notice of the General Meeting |
| Resolution 1 | the special resolution to be proposed at the General Meeting in connection with the authority to allot New Shares in connection with the Scheme |
|---|---|
| Resolution 2 | the special resolution to be proposed at the General Meeting in connection with the authority to allot New Shares in connection with the Offer |
| Risk Finance Guidelines | European Commission communication C(2014) 34/2 – Guidelines on State aid to promote risk finance investments |
| Scheme | the scheme under section 110 of the Insolvency Act 1986 set out in Part III of the BVCT4 Circular |
| Second General Meeting | the general meeting of BVCT4 convened for 10.30 a.m. on 11 March 2016, or any adjournment thereof |
| Shareholders | holders of Ordinary Shares |
| Subscriber | a person whose name appears on the Subscription Form for use in connection with the Offer |
| Subscription Form | the subscription form for use in connection with the Offer as set out towards the end of this document, or any amended subscription form for Subscriptions received from 3 March 2016 |
| Subscriptions | offers by Subscribers pursuant to the Offer and made by completing the Subscription Form or Nominee Subscription Form and posting (or delivering) these to the Registrar or as otherwise indicated on the Subscription Form or Nominee Subscription Form (and each a Subscription) |
| Summer Budget | the budget given to Parliament by the Chancellor of the Exchequer on Wednesday 8 July 2015 |
| Tax Act | the Income Tax Act 2007 (as amended) |
| UK or United Kingdom | the United Kingdom of Great Britain and Northern Ireland |
| UK Listing Authority | the FCA acting in its capacity as the UK Listing Authority pursuant to Part VI of FSMA |
| uncertificated or in uncertificated form | recorded in the register of members of the Company or Baronsmead VCT 4 (as appropriate) as being held in uncertificated form in CREST and title to which may be transferred by means of CREST |
| VAT | value added tax |
| VCT or Venture Capital Trust | a venture capital trust as defined in section 259 of the Income Tax Act 2007 (as amended) |
| VCT Value | the value of an investment calculated in accordance with section 278 of the Tax Act |
| Wood Street | Wood Street Microcap Investment Fund, an investment company with variable capital incorporated in England and Wales with company number IC000714 |
(Incorporated in England and Wales with registered no. 04115341)
NOTICE IS HEREBY GIVEN that a general meeting of the Company will be held at the Grange St Paul's Hotel, Pepys Room, 10 Godliman St, London EC4V 5AJ on 3 March 2016 at 3.30 p.m. for the purpose of considering and, if thought fit, passing the following resolutions, which will be proposed as special resolutions, namely:
THAT, subject to and conditional upon the scheme for the reconstruction and winding up of Baronsmead VCT 4 plc (as described in the circular to shareholders of the Company (the "Circular") dated 26 January 2016 of which this notice forms part) (the "Scheme") becoming unconditional in all respects (other than as regards any condition relating to the passing of this resolution) and in addition to any existing authority, the directors of the Company (the "Directors") be and are hereby unconditionally authorised in accordance with section 551 of the Companies Act 2006 (the "Act") to exercise all the powers of the Company to allot ordinary shares in the Company (the "Ordinary Shares") and to grant rights to subscribe for or to convert any security into shares in the Company, such authority being limited to the allotment of (or the grant of rights to subscribe for or to convert any security into) Ordinary Shares with an aggregate nominal value of up to £8,000,000 for the purposes of the Scheme, such authority to expire on 31 March 2016.
THAT, subject to and conditional upon the Scheme becoming unconditional in all respects and in addition to any existing authority, the Directors be and are hereby unconditionally authorised in accordance with section 551 of the Act to exercise all the powers of the Company to allot Ordinary Shares and to grant rights to subscribe for or to convert any security into Ordinary Shares ("Rights") up to an aggregate nominal amount of £3,500,000, such power to expire (unless previously revoked, varied, renewed or extended by the Company in general meeting) on the fifth anniversary of the date of the passing of this resolution, but so that this authority shall allow the Company to make, before the expiry of this authority, offers or agreements which would or might require shares to be allotted or Rights to be granted after such expiry and the Directors shall be entitled to allot shares or grant Rights pursuant to any such offers or agreements as if the authority conferred by this resolution had not expired.
THAT, subject to and conditional upon the Scheme becoming unconditional in all respects and in addition to any existing authority, the Directors be and are hereby generally and unconditionally authorised in accordance with section 570 of the Act to allot equity securities (as defined in section 560 of the Act) wholly for cash, pursuant to the authority referred to in resolution 2 above or by way of a sale of treasury shares, as if section 561(1) of the Act did not apply to any such allotment, such power to expire (unless previously revoked, varied, renewed or extended by the Company in general meeting) on the expiry of 15 months from the passing of this resolution save that the Company may at any time prior to the expiry of such power make an offer or enter into an agreement which would or might require shares to be allotted after the expiry of such power and the Directors are authorised to allot equity securities in pursuance of such an offer or agreement as if such power had not expired.
Registered office: By Order of the Board 100 Wood Street London Livingbridge VC LLP EC2V 7AN Company Secretary
(vi) Pursuant to regulation 41 of the Uncertificated Securities Regulations 2001, only Shareholders registered in the register of members of the Company by not later than 6.00 p.m. two days (excluding non-working days) prior to the time fixed for the General Meeting shall be entitled to attend and vote at the General Meeting in respect of the number of shares registered in their name at such time. If the General Meeting is adjourned, the time by which a person must be entered on the register of members of the Company in order to have the right to attend and vote at the adjourned General Meeting is 6.00 p.m. two days (excluding non-working days) prior to the time of the adjournment. Changes to the register of members after the relevant times shall be disregarded in determining the rights of any person to attend and vote at the General Meeting.
(vii) In the case of joint holders, the vote of the senior holder who tenders a vote whether in person or by proxy shall be accepted to the exclusion of the votes of the other joint holders and, for this purpose, seniority shall be determined by the order in which the names stand in the register of members of the Company in respect of the relevant joint holding.
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