Circular re: New Management Fees and Articles
12 October 2010
STRATEGIC EQUITY CAPITAL PLC
NEW MANAGEMENT FEE ARRANGEMENTS
AND
ADOPTION OF NEW ARTICLES OF ASSOCIATION
Introduction
As announced on 6 October 2010, As part of its recent strategic review, the
Board concluded that the current arrangements with the Company's investment
manager, SVG Investment Managers Limited, should be revised to provide a closer
alignment of the respective interests of Shareholders and the Investment
Manager, as well as a better incentive for the Investment Manager to continue
to deliver outperformance over the longer term.
The Board is also taking this opportunity to propose that the Company amend its
memorandum of association and adopt new articles of association to reflect
further changes to company law following the implementation of the Companies
Act 2006.
New Management Fee Arrangements
The Board believes that, having regard to the discount at which the Shares have
been trading relative to their underlying NAV (the average discount over the
last 12 months prior to 8 October 2010 was approximately 24.4 per cent.), a
basic fee calculated by reference to the Company's market capitalisation would
provide a closer alignment of SVGIM's interest with that of Shareholders.
Calculating the basic fee by reference to the Company's market capitalisation
should also reduce the Company's total expense ratio.
Furthermore, as the current Performance Hurdle is more than 69.1 per cent.
ahead of the latest unaudited NAV per Share and is continuing to accrue at the
rate of 7.0 per cent. per annum on a compounding basis, the Board does not
believe that there is a realistic prospect of the Adjusted NAV per Share
exceeding the Performance Hurdle in the foreseeable future. Accordingly, in the
opinion of the Board, the current performance fee no longer provides a real
incentive for the Investment Manager.
The Board is recommending, therefore, that the current fee arrangements with
the Investment Manager be revised to provide a closer alignment of the
respective interests of Shareholders and the Investment Manager, as well as a
better incentive for the Investment Manager to continue to deliver the recent
strong investment performance over the longer term. Accordingly, it is proposed
that:
* the basic fee should be the lower of:
(i) the basic fee as calculated under the current fee arrangements (that is,
1.0 per cent. per annum of the net NAV of the Company, being the net asset
value less the aggregate of the value of the Company's limited partnership
Interest in Strategic Recovery Fund II and the amount of the Company's undrawn
loan commitment to that fund from time to time); and
(ii) 1.0 per cent. per annum of the Company's market capitalisation;
(for illustrative purpose only, if the net NAV of the Company as described
above and the Company's market capitalisation as at 8 October 2010 remained
unchanged, the basic fee would be calculated by reference to that market
capitalisation, resulting in a saving of approximately £147,000 per annum); and
* the existing performance fee should be replaced with a new performance fee
on the following terms:
* the Company's performance should be measured over rolling three year
periods ending on 30 June in each year, with the first Proposed Performance
Period commencing on 1 July 2008 and ending on 30 June 2011;
* the Company's performance should be measured by comparing the NAV total
return per Share over a Performance Period against the total return
performance of the FTSE SmallCap (ex. Investment Companies) Index, being
the index against which the Board has historically compared the Company's
investment performance;
* if the NAV total return per Share (calculated before any accrual for any
performance fee to be paid in respect of the relevant Proposed Performance
Period) at the end of the relevant Proposed Performance Period exceeds
both:
(i) the NAV per Share at the beginning of the relevant Proposed Performance
Period as adjusted by the aggregate amount of (a) the total return on the FTSE
SmallCap (ex. Investment Companies) Index (expressed as a percentage) and (b)
2.0 per cent. per annum over the relevant Proposed Performance Period; and
(ii) the High Watermark (which, until exceeded at the end of a Proposed
Performance Period in respect of which the Investment Manager earns a
performance fee, will remain at 118.82p);
the Investment Manager will be entitled to 15 per cent. of the excess over the
higher of the Benchmark NAV per Share and the High Watermark; and
* payment of a performance fee that has been earned will be deferred to the
extent that the amount payable exceeds 1.75 per cent. per annum of the
Company's NAV at the end of the relevant Proposed Performance Period
(amounts deferred will be payable when, and to the extent that, following
any later Proposed Performance Period(s) with respect to which a
performance fee is payable, it is possible to pay the deferred amounts
without causing that cap to be exceeded or the relevant NAV total return
per Share to fall below the relevant Benchmark NAV per Share and the
relevant High Watermark).
The proposed new fee arrangements are conditional on approval by an ordinary
resolution of the Company, which will be proposed at a general meeting of the
Company which has been convened for Tuesday, 9 November 2010.
Adoption of New Articles of Association
The law in relation to UK companies has been undergoing a number of changes
following the introduction of the Companies Act 2006 and the implementation of
the Companies (Shareholders Rights) Regulations 2009 which were introduced in
August of last year.
The changes brought about by the Companies Act 2006 have been implemented in
stages, and the remaining parts were implemented on 1 October 2009. The Company
has been updating its articles of association in stages to accommodate the
revisions required as a consequence of the latest parts of the Companies Act
2006 to be implemented. Whilst the majority of the changes introduced on 1
October 2009 apply automatically to the Company, it is best practice to update
the Company's articles of association to reflect the law when the opportunity
arises. Accordingly, the Board is taking the opportunity of the General Meeting
to propose that the Company adopt new articles of association in order to
ensure full compliance with the provisions of the Companies Act 2006.
General Meeting
A general meeting of the Company will be held at the offices of SVG Investment
Managers Limited at 61 Aldwych, London WC2B 4AE, on Tuesday, 9 November 2010
commencing at 11.30 a.m. (or, if later, as soon as the AGM has concluded or
been adjourned) at which the following resolutions will be proposed:
* Resolution 1, which will be proposed as an ordinary resolution: to approve
the amendments to the Investment Management Agreement to give effect to the
proposed new fee arrangements described above.
Under the Listing Rules, SVGIM is regarded as a related party of the Company as
a consequence of being the Company's investment manager. Accordingly, entering
into a deed for the purpose of effecting the proposed amendments to the
Investment Management Agreement constitutes a related party transaction under
the Listing Rules and, as such, requires to be approved by the requisite
majority of Shareholders other than the Investment Manager and its associates
(as defined in the Listing Rules). As at the date of this announcement, SVGIM
and its associates (as defined in the Listing Rules), which includes its
holding company SVG Capital plc, held 22.7 per cent. of the voting share
capital of the Company. SVGIM has undertaken to take all reasonable steps to
ensure that its associates abstain from voting on resolution 1 (SVGIM itself
does not hold any Shares but, if it were to acquire any Shares prior to the
General Meeting, it would also abstain from voting on resolution 1).
* Resolution 2, which will be proposed as a special resolution: to delete all
the provisions of the Company's memorandum of association which, by virtue
of section 28 of the Companies Act 2006, are to be treated as provisions of
the Company's articles of association and to adopt new articles of
association.
Circular
The circular to Shareholders containing further information on the proposals
referred to in this announcement and the notice convening the General Meeting
will be posted today and will be available for inspection at the National
Storage Mechanism which is located at www.hemscott.com/nsm.do.
Enquiries
John Hodson (Chairman) Strategic Equity Capital plc M: 07770 394 098
Sue Inglis/ Canaccord Genuity Limited T: 020 7050 6779/
Gordon Neilly 020 7050 6778
Notes
Canaccord Genuity Limited is acting for Strategic Equity Capital plc and no one
else in connection with the matters referred to in this announcement and will
not be responsible to anyone other than Strategic Equity Capital plc for
providing the protections afforded to clients of Canaccord Genuity Limited or
for providing advice in relation to the matters referred to in this
announcement.
Definitions
The following definitions apply throughout this announcement unless the context
otherwise requires:
"Adjusted NAV per as at a particular time, the sum of (i) the NAV of
Share" the Company at that time, calculated on a basis that
does not recognise any liability of the Company to
the Investment Manager in respect of any performance
fee that is, or may become, payable, divided by the
number of Shares in issue at that time and (ii) the
aggregate of the amount of any dividends paid or
distributions made by the Company at any time since
its launch divided by the time-weighted average of
the number of Shares in issue since the Company's
launch to the end of the relevant Existing
Performance Period
"AGM" the annual general meeting of the Company convened
for Tuesday, 9 November 2010 at 11.30 a.m. and which
will be held at the offices of SVG Investment
Managers Limited, 61 Aldwych, London WC2B 4AE
"Benchmark NAV per the NAV per Share at the beginning of the relevant
Share" Proposed Performance Period as increased by the total
return on the FTSE SmallCap (ex. Investment
Companies) Index (expressed as a percentage) plus two
percentage points
"Board" the board of directors of the Company, including a
duly constituted committee thereof
"Company" Strategic Equity Capital plc
"General Meeting" the general meeting of the Company convened for
Tuesday, 9 November 2010 at 11.30 a.m. (or, if later,
as soon as the AGM has concluded or been adjourned),
or any adjournment of such general meeting
"High Watermark" the highest previously recorded Adjusted NAV per
Share at the end of an Existing Performance Period
or, if higher, the highest previously recorded NAV
total return per Share at the end of a Proposed
Performance Period in relation to which a performance
fee was earned
"Investment Management the investment management agreement between the
Agreement" Company and the Investment Manager dated 12 July 2005
(as amended by a deed between the Company and the
Investment Manager dated 4 August 2009)
"Investment Manager" or SVG Investment Managers Limited
"SVGIM"
"Listing Rules" the listing rules made by the Financial Services
Authority under section 73A of the Financial Services
and Markets Act 2000
"Performance Hurdle" the NAV per Share on the date on which the Company
was launched on 19 July 2005 increased at the rate of
7.0 per cent. per annum on a compounding basis to the
end of the relevant Existing Performance Period
"Proposed Performance a period of three years ending on 30 June in any year
Period"
"Shareholders" holders of Shares
"Shares" ordinary shares of 10p each in the capital of the
Company
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