Hygea VCT plc : Circular Posted and Notice of General Meeting

For immediate release                                                                                      15 December 2017  

HYGEA VCT PLC
("Hygea" or the "Company")

Proposed offer for subscription of a new class of shares
Revision of Articles of Association
Amendment of Investment Policy of the Company
Share capital re-structuring
and
Notice of General Meeting

The Company announces that it is today posting a circular to Shareholders convening a general meeting at 11.00 on 19 January 2018 at the offices of Howard Kennedy LLP at No. 1 London Bridge, London SE1 9BG to consider the  proposals and the amendment of the new investment policy as described further below.  The circular will also be available on the Company's website www.hygeavct.com and will shortly be available from the National Storage Mechanism.  

Notice of General Meeting

The Board of Hygea vct plc today announces its intention to launch an offer for subscription of a new class of shares (the New "B" Shares) and to appoint a third party to manage this new share class. It is proposed that the new funds raised under this offer will be invested using a more generalist investment policy than the one that currently applies to the Company.

The Board have been considering the future direction of the Company, given the absence of significant realisations and the continuing running costs and continue to believe that there remains significant potential within the portfolio but, having taken measures to reduce the costs associated with maintaining listed company status without losing valuable shareholder benefits, the Board remain keen to seek ways to further minimise the costs during the remainder of the holding period for the existing investments.

The Board believe that the most attractive solution for Shareholders is a proposal by Seneca Partners Limited ("Seneca"), an experienced fund management group based in the North West of England whose activities are more fully described in paragraph 2 below. For some time Seneca have been looking into the possibility of establishing a VCT as a new offering for their existing client base. Following discussions on various matters (including the costs of establishing a new VCT and the level of annual running costs of such a new VCT), Seneca has proposed that a new share class (the New "B" Shares) is created in the Company, with the new pool of assets to be managed by Seneca with a more generalist investment policy than the one that currently applies to the existing Ordinary Share class.

Both the Board and Seneca see considerable advantages in this proposal. One advantage to investors in the New "B" Shares is that the Company is already an established VCT and although it is proposed that the New "B" Share Pool will assume the Annual Running Costs (see below) for the Initial Period (of three years), this would have been the case if Seneca had launched a new VCT on its own. In addition, by creating a new share class in an existing VCT, this is expected to benefit the New "B" Shareholders by potentially allowing the Company to pay dividends on the New "B" Shares far earlier than would have been the case if Seneca launched a new VCT. As the Company has not undertaken a fundraising for a number of years, the Board also believe that existing Shareholders may be interested in subscribing for the new class of share in their company.

As regards the existing Ordinary Share Pool, in effect the investment strategy of the Company will remain unchanged. The Board will continue to manage this pool of assets and it remains their intention to distribute funds from this pool to Ordinary Shareholders when appropriate realisation opportunities arise.

Therefore, it is the intention of the Company and Seneca to launch an offer for subscription in early 2018 to raise up to £10 million through the issue of up to 10 million New "B" Shares, with an over-allotment facility to raise up to a further £10 million (the "Offer"). Existing Shareholders will be offered the opportunity to subscribe for New "B" Shares under the Offer at a discount.

It has been agreed with Seneca that the Annual Running Costs of the Company in the Initial Period will be borne by the New "B" Share class. Therefore, the assets of the Ordinary Share Pool will not be depleted by those costs during that time. After the end of the Initial Period, the Ordinary Share Pool will be allocated its share of the Company's Annual Running Costs (pro-rata to the Net Asset Value of the respective share pools). It is anticipated that the share of such costs that will be attributed to the Ordinary Share Pool after the end of the Initial Period will be significantly less than the present costs since it is the intention of the Board and Seneca to increase the funds in the New "B" Share Pool over time through the issue of further New "B" Shares.

Following the successful outcome of the proposed Offer, the name of the Company will be changed.

The purpose of the Circular is, therefore, to explain and seek Shareholders' approval under the CA 2006 and the Listing Rules for the necessary authorities to enable the Offer to be made, including resolutions to:

• revise the articles of association of the Company to create New "B" Shares;
• grant authorities to allot New "B" Shares;
• cancel the Company's share premium account;
• grant authorities for the buyback of New "B" Shares;
• amend the investment policy of the Company;
• restructure the share capital of the Company and cancel the Company's capital redemption reserve.

      
1.          The Offer

The Company was launched in 2001 and since then has raised a total of £7.8 million through its initial offer for subscription and its subsequent top-up offers. The Company has been, and continues to be, fully invested for the purposes of the VCT rules, with Qualifying Investments having been made in the Medtech sector in accordance with the Company's published investment policy. Further to proposals made by the Board in 2007, Octopus Investments Limited retired as the Company's investment manager on 30 July 2007 and thereafter the Board took over the responsibility for managing the Company's investments. The Directors also currently manage the provision of administration services to the Company.

Further to discussions between Seneca and the Board, the Company wish to appoint Seneca as the investment manager to the Company and offer Shareholders (and new investors) the opportunity to invest in the New "B" Shares.  It is proposed that the New "B" Share class will form a separate pool of capital (distinct from the existing pool of capital represented by the Ordinary Shares) that will be managed by Seneca on behalf of the Company. The funds in the New "B" Share Pool will be invested in accordance with a more generalist investment policy (proposed to be adopted by the Company as described below) which will reflect the expertise and experience of Seneca. Although Seneca as the investment manager will assume responsibility for the management of all of the assets of the Company (and will also take over responsibility for the on-going day to day administration of the Company alongside the Company's existing service providers), the Board and Seneca have agreed that the Board should have the sole right to take investment decisions in relation to those investments in the Ordinary Share Pool.

The Directors, therefore, propose to launch the Offer (subject to Shareholders approving certain Resolutions set out in the Circular) through the issue of a prospectus in early 2018 to raise up to £10 million of further funds through the issue of up to 10 million New "B" Shares, with an over-allotment facility to raise up to a further £10 million.

2.          Appointment of Seneca as the Investment Manager of the Company and the amendment of the Investment Policy of the Company

Seneca is an award-winning specialist SME investment and advisory business. Formed in 2010, and headquartered in the North West of England, the management team have extensive experience across a range of sectors, including private equity, corporate finance, wealth management, accountancy and stockbroking. Seneca won "Alternative Finance Provider" in both 2016 and 2017 at the North West Business Insider Awards as well as 'Sub £10 million Deal of the Year' in 2016 in respect of their EIS investment in Foodpack Ltd.

Seneca already manages more than £100 million of capital, which includes over £70 million in EIS investments and EIS funds.

In relation to the EIS funds currently managed by Seneca, more than £50 million is within the "Seneca EIS Portfolio Service". This service made its first investments in 2013, and has since provided growth capital to 34 SMEs in 62 funding rounds.

The Seneca brand in the retail market place continues to grow with over 150 financial advisers from across the UK investing in Seneca products on behalf of their clients.

This fund management activity is complemented by Seneca's mid-market corporate advisory practice which specialises in advising corporates, management teams and investors on a wide range of corporate finance related transactions. These range from fundraisings for early stage businesses, through to mid-market sales and buy-outs with target deal sizes ranging from £5 million to £50 million.

Seneca is also the founding member of the Seneca branded network of companies which also includes Seneca Investment Managers Limited, a Liverpool based fund manager with more than £300 million under management.

As well as the proposal to appoint Seneca as investment manager of the Company, the Directors propose that the investment policy of the Company is amended to allow the Company to invest the proceeds of the Offer and any subsequent fundraisings in a wider range of Qualifying Investments than would be currently possible.

The current investment policy of the Company is as set out below and in Part IV of the Circular, and the proposed investment policy (as amended) below and in Part V of the Circular.

The Directors propose that the investment policy is amended:

• to expand the range of Qualifying Investments that the Company can make; and
• to amend the Non-qualifying Investment strategy so as to include investments in liquid AIFs, UCITS or other money market funds (including those managed by Seneca Investment Managers) made in accordance with the VCT rules.

In relation to investments made by the Ordinary Share Pool, the Directors do not envisage making any new investments from the assets in this share pool (apart from any follow investments in existing portfolio companies), and will seek to return to the Ordinary Shareholders over time the proceeds of any realisations in the form of dividends or by means of a return of capital.

In accordance with the Listing Rules, the Company requires Shareholder approval to make a material change to its investment policy. Since the Directors believe that the proposed changes to the investment policy together constitute a material change, the proposals to amend the investment policy as described above will need to be voted on by Shareholders at the General Meeting, and if Resolution 7 set out in the notice convening the General Meeting is passed by the Company, the Company will adhere to the restated investment policy set out in Part V of this Circular.

The Board believes that Seneca's track record for growth capital and private equity investment, and the potential for Seneca to generate tax-free dividend payments and total shareholder returns for the New "B" Share Pool, make the Offer an attractive proposition for existing Shareholders as well as new investors.

As stated above, notwithstanding the proposed appointment of Seneca as investment manager, the existing Ordinary Share Pool will continue to be separately managed by the Directors in accordance with the amended investment policy. Given the Ordinary Share class is already fully invested, and no new investments are envisaged, the Board will be permitted to make follow on investments in existing portfolio companies as they see fit. Provisions are set out in the Revised Articles to ring-fence the assets and liabilities of the Ordinary Share Pool from those of the New "B" Share Pool. No change to the existing performance fee arrangements in relation to the Ordinary Shares is being proposed in connection with the Offer.

As mentioned in the seventh paragraph in the section headed Notice of General Meeting above, it has been proposed that for the Initial Period the New "B" Share Pool will bear all of the Annual Running Costs of the Company. The New "B" Share Pool will also be responsible for the costs of the Offer, which will be underwritten by Seneca.

3.          Benefits of the Offer

The Board believes that the launch of the Offer will benefit Shareholders as follows:

• offer existing Shareholders (as well as new investors) the opportunity to invest in a new class of shares in the Company, the funds of which will be deployed by an award winning investment manager in making Qualifying Investments into dynamic companies in accordance with a wider generalist investment policy;
• as part of the creation of the New "B" Share class, the Board and Seneca have agreed that the New "B" Share Pool will take over all of the Annual Running Costs of the Company for the Initial Period (see the seventh paragraph in the section headed Notice of General Meeting above). This should benefit the existing Shareholders by improving the revenue returns on the existing Ordinary Share Pool. Seneca will be offering the New "B" Shareholders a cap on the Annual Running Costs attributed to the New "B" Share Pool together with any annual management fees (payable in relation to that pool), both during and after the Initial Period. To give effect to the cap, Seneca will effectively forego its management fees (down to nil if necessary) to the benefit of the New "B" Shareholders.

The Directors will continue to have the responsibility for investment decisions relating to the Ordinary Share Pool and no annual management fees will be payable to Seneca in relation to that pool. However, in view of Seneca becoming the investment manager with responsibility for overseeing the administration of the Company as a whole, Seneca has agreed with the Board that it will offer a cap on the Annual Running Costs allocated to the Ordinary Share Pool after the Initial Period, with the costs so allocated not to exceed 3% of the Net Asset Value of the Ordinary Share Pool.  Seneca will indemnify the Company to give effect to the cap in favour of the Ordinary Share Pool. 

The making of the Offer and raising new funds into the New "B" Share class will necessarily extend the life of the Company (since the Company will need to continue for at least another five years after the last allotment of Shares under the Offer so that the New "B" Shareholders can preserve any initial income tax relief they may receive on their subscription for New "B" Shares). The extension of the life of the Company also will benefit the Ordinary Shareholders who took advantage of CGT deferral when they subscribed for their Ordinary Shares.  

With regard to the New "B" Shares, in accordance with the proposed investment policy, Seneca will deploy at the New "B" Share funds in Qualifying Investments which will typically be in smaller, growing unquoted or AIM/NEX quoted companies, and until such funds are deployed in Qualifying Investments, they will be invested in Non-qualifying Investments. As stated above, it is proposed Seneca will be appointed as the Investment Manager to the Company and will be responsible for sourcing and making investments from the New "B" Share Pool. 

It is the Board's view that the Offer will appeal to investors and advisers due to the combination of a range of tax incentives and the potential of the Company to pay tax-free dividends on the New "B" Shares.

Further details of the Offer and the New "B" Shares are given in paragraph 4 below.

4.          Details of the Offer

It is intended that, subject to the approval of Shareholders of certain Resolutions and UKLA approval of the Prospectus, the Company will launch the Offer in early 2018. 

Further details of the Offer will be set out in the Prospectus, and Shareholders interested in investing in the Offer should read the Prospectus in full once it is published. Any decision to participate in the Offer should be made solely by reference to the information and the terms and conditions contained in that Prospectus.

The issue of New "B" Shares under the Offer will be conditional on applications being received in excess of the Minimum Subscription Threshold. Subject to the publication of the Prospectus and to applications being received in excess of the Minimum Subscription Threshold before 12.00 noon on 23 March 2018, it is proposed that a first allotment of New "B" Shares will take place on or before 5 April 2018. Subject to the terms and conditions of the Offer, it is the intention that Investors have the option to apply for New "B" Shares under the Offer in one or both of tax years 2017/18 and 2018/19.

5.          Adoption of the Revised Articles, Duration of Company and Use of Reserves

As well as dealing with the creation of the New "B" Shares, it is proposed that the Revised Articles contain revised duration provisions so that the continuation resolution to be put to shareholders at the annual general meeting of the Company in 2018 will instead be put to shareholders at the annual general meeting held after the fifth anniversary of the last allotment of shares in the Company from time to time. The Revised Articles also contain provisions enabling the Directors to use certain reserves which are referable to one share class for the benefit of the other share class.  Although these provisions will not allow a transfer of any net asset value between the different share classes, it may facilitate the Company (on an accounting basis) to pay dividends and buy back shares in respect of either of the share classes. The Revised Articles also provide for a conversion of Ordinary Shares into New "B" Shares on a relative net asset value basis (at a date to be determined by the Directors) in accordance with the provisions of the Revised Articles. The adoption of the Revised Articles is provided for in Resolution 1. Further details of the proposed changes to the Articles are set out in Part II of the Circular.

6.          Authority to allot New "B" Shares and disapply pre-emption rights

Under the CA 2006, the Company requires authority from its Shareholders to allot New "B" Shares (and this resolution is set out in Resolution 6 to be proposed at its General Meeting) and to disapply statutory pre-emption rights in relation to the issue of such shares (Resolution 2).

7.          Cancellation of the share premium account

The share premium account forms part of a company's capital and, except with the approval of shareholders and the Court, the use of this reserve is restricted. Cancelling the share premium allows a company to create a special reserve that can be used to fund distributions, assist in writing off losses or finance market purchases of a company's shares.

The Company has previously cancelled its share premium, in particular, to enhance the ability to make distributions and implement share buy backs. However, as a result of the New "B" Shares being issued under the Offer, additional share premium reserves will be created.

The Board, therefore, proposes to seek the approval of Shareholders pursuant to CA 2006 to cancel the share premium account pursuant to Resolution 3 to be proposed at its General Meeting, subject to the sanction of the Court.

8.          Authority to buy back New "B" Shares

The Company will also seek authority from its Shareholders (under the CA 2006) to make market purchases of New "B" Shares and this resolution is set out in Resolution 4. There is no intention at the current time to seek authority to buy back Ordinary Shares.

9.          Restructuring of the Share Capital of the Company

The Ordinary Shares of the Company have a nominal value of 50p per Share, which for a VCT is high. The total nominal value attributable to the Ordinary Shares represents more than 75% of the last published NAV (of 64.0p per share as at 30 September 2017). Having such a high nominal value may potentially restrict the ability of the Board to declare dividends and effect the return of funds to shareholders following realisations of investments in the future. Therefore, the Board proposes to restructure the share capital of the Company to result in the Ordinary Share class having a nominal value of 1p per share (a lower nominal value which is more in keeping with other VCTs). The Share Restructuring will be effected by each existing Ordinary Share being sub-divided into one Ordinary Share of 1p and one Restructuring Deferred Share of 49p. 

The Restructuring Deferred Shares will have restricted dividend rights, will not have rights to receive notice of, or attend or vote at, general meetings, will on a winding up only be entitled to 1p for every 1,000,000 Restructuring Deferred Shares (with no further right to participate in any further surplus assets of the Company), and will be capable of being purchased by the Company at any time for an aggregate price of 1p.

To allow the Share Restructuring to be effected, Resolution 5(b) will propose that the Revised Articles (as adopted by the passing of Resolution 1) are amended further to take into account the change in the nominal value of the Ordinary Shares as a result of the Share Restructuring.   

The Share Restructuring will create capital redemption reserves from the repurchase of the Restructuring Deferred Shares. These reserves (like the share premium created by the issue of the New "B" Shares under the Offer) can subsequently be cancelled, subject to the sanction of the Court, thereby creating further distributable reserves to assist in the payment of dividends or to assist in the return of funds to shareholders.

Immediately following the Share Restructuring, the number of Ordinary Shares in the Company held by an Ordinary Shareholder and the NAV per Ordinary Share will not change (the creation of Restructuring Deferred Shares as a result of the Share Restructuring and their repurchase merely being a mechanism by which the Share Restructuring will be effected). Shareholders who hold their shares in certificated form should note that their existing share certificates will still be valid after the Share Restructuring, and no new certificates will be issued.

The Share Restructuring is conditional on the approval of Shareholders of the Company. However, the Offer is not conditional on Shareholders approving the Share Restructuring.

10.        General Meeting

Notice of the General Meeting, which will be held at 11.00 a.m. on 19 January 2018 at the offices of Howard Kennedy LLP at No. 1 London Bridge, London SE1 9BG, is set out at the end of the Circular.

A summary of the resolutions to be proposed by the Company at its General Meeting is set out below:

Resolution 1 will approve the adoption of the Revised Articles (which will include the rights attached to the Ordinary Shares, the New "B" Shares, the Deferred Shares and the Restructuring Deferred Shares, new provisions relating to the duration of the Company, the use of reserves and the conversion of Ordinary Shares into New "B" Shares).  Further details of the changes to the Articles (that are contained in the Revised Articles) are set out in Part II of the Circular.

Resolution 2 (which is conditional on the passing of Resolution 6) will, under sections 570 and 573 of CA 2006, disapply pre-emption rights in respect of the allotment of equity securities up to an aggregate nominal value of £288,000. This represents approximately 7.1% of the aggregate nominal value of the issued Ordinary Share capital of the Company as at 14 December 2017 (this being the latest practicable date prior to publication of the Circular) and would represent approximately 354.9% of such aggregate nominal value if the Share Restructuring were implemented the day immediately before that date.

Resolution 3 will authorise the cancellation of the amount standing to the credit of the share premium account of the Company.

Resolution 4 will authorise the Board, pursuant to the CA 2006, to make one or more market purchases of New "B" Shares of up to 14.99% of the issued New "B" Share capital of the Company following the close of the Offer. The price paid must not be less than 1p per New "B" Share nor more than 5% above the average middle market price of a New "B" Share for the preceding five Business Days. The authority, unless renewed or revoked prior to such time will expire on the date falling 18 months from the passing of this resolution. Any New "B" Shares bought back under this authority may be cancelled by the Board. 

Resolution 5 is a composite resolution under CA 2006 to effect the Share Restructuring and to make further consequential changes to the Revised Articles.

Paragraph (a) of Resolution 5 will approve the sub-division of each Ordinary Share of 50p into one Ordinary Share of 1p and one Restructuring Deferred Share of 49p.

Paragraph (b) of Resolution 5 will amend various articles in the Revised Articles to deal with the change in the nominal value of the Ordinary Shares and Deferred Shares as a result of the Share Restructuring.

Paragraph (c) of Resolution 5 will approve the purchase of the Restructuring Deferred Shares.

Paragraph (d) of Resolution 5 will authorise the cancellation of the amount standing to the credit of the capital redemption reserve of the Company (which will be increased by the purchase of those Restructuring Deferred Shares resulting from the Share Restructuring).

Resolution 6 will authorise the Directors of the Company (under section 551 of the CA 2006) to allot New "B" Shares in the capital of the Company up to an aggregate nominal value of £288,000 in connection with the Offer and any subsequent top up offer of New "B" Shares. This authority shall expire on the date falling 18 months from the passing of this resolution (unless renewed, varied or revoked by the Company in a general meeting).

Resolution 7 will, as required by the Listing Rules, approve the proposed amendments to the Company's investment policy.

The Board intends to use the authorities in Resolutions 2 and 6 for the purposes of the Offer, though may also subsequently utilise the authorities for one or more further offer(s) for subscription or issue of New "B" Shares.

Resolutions 1 to 5 to be proposed at the General Meeting will be proposed as special resolutions, requiring the approval of 75% or more of the votes cast at the General Meeting to be passed. Resolutions 6 and 7 to be proposed at the General Meeting will be proposed as ordinary resolutions, requiring the approval of more than 50% of the votes cast at the General Meeting to be passed.

11.        Action to be taken

At the end of the Circular, there is a Form of Proxy for use at the General Meeting. Whether or not Shareholders propose to attend, they are requested to complete and return the Form of Proxy so as to be received not less than 48 hours before the General Meeting. Completion and return of a Form of Proxy will not prevent Shareholders from attending the meeting and voting in person should they wish to do so.

12.        Recommendations

The Board believes that the Proposals are in the best interests of the Shareholders as a whole and unanimously recommends that Shareholders vote in favour of the Resolutions to be proposed at the General Meeting, as the Directors of the Company intend to do in respect of their own beneficial holdings of 504,612 Ordinary Shares (representing approximately 6.22% of the issued share capital as at 14 December 2017, this being the latest practicable date prior to publication of the Circular).

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

Enquiries:

John Hustler, Hygea vct plc at [email protected]

    
EXPECTED TIMETABLE

CURRENT INVESTMENT POLICY

The current investment policy of the Company is as follows:

Investment Policy
The Company's objective is to provide shareholders with an attractive income and capital return by investing its funds in a portfolio of unquoted and quoted UK MedTech companies which meet the relevant criteria under the VCT Rules.

The Company's investment policy is designed to deliver absolute returns on its investments rather than a performance measured against the market indices. It is intended that at least 80% of the Company's assets will be invested in qualifying holdings, with the remainder held in cash and money market securities. The Board does not intend to vary the Company's investment policy. However, should a material change be deemed appropriate this will be done with shareholders' approval by the passing of an ordinary resolution at a General Meeting and in accordance with the Listing Rules.

The Directors control the overall risk of the portfolio by ensuring that the Company has exposure to a diversified range of quoted and unquoted companies from the MedTech sector. The Directors will continually monitor the investment process and ensure compliance with the investment policy.

Qualifying Investments

Compliance with required rules and regulations is considered with all investment decisions made. The Company is further monitored on a continual basis to ensure compliance. The main criteria to which the company must adhere include:

• At least 70% of investments must be made in qualifying shares or securities;
• At least 30% of the 70% of qualifying investments must be invested into Ordinary Shares with no preferential rights (70% for subscriptions after 6 April 2011);
• No single investment made can exceed 15% of the total HRMC company value at the time the investment is made or is added to.

The Finance Act 2014 amended the VCT Rules in respect of VCT shares issued on or after 6 April 2014, such that VCT status will be withdrawn if, in respect of shares issued on or after 6 April 2014, a dividend is paid (or other forms of distribution or payments are made to investors) from the capital received by the VCT from that issue within three years of the end of the accounting period in which shares were issued to investors.

Under further rule changes which took effect in November 2015, in order to qualify, companies must:

• have fewer than 250 full time equivalent employees; and
• have less than £15 million of gross assets at the time of investment and no more than £16 million immediately post investment; and
• be less than seven years old (or 10 years if a Knowledge Intensive Company) if raising State Aided funds for the first time; and
• have raised no more than £5 million of State Aided funds in the previous 12 months and less than the lifetime limit of £12 million (or £20 million if a Knowledge Intensive Company); and
• produce a business plan to show that its funds are being raised for growth.

Non-Qualifying Investments
Initially, an active approach was taken to managing the cash prior to investing in qualifying companies. Now the Company has reached its qualifying investment target to meet HMRC requirements and the Company is fully invested, any remaining funds will be invested in accordance with HMRC rules for non-qualifying investments, which may include money market funds and other instruments where the Board believes that the overall downside risk is low.

Risk Management and Borrowing
The Directors control the overall risk of the portfolio by ensuring that the Company has exposure to a diversified range of emerging companies with an objective that as much of the portfolio is AIM/NEX listed as possible. In addition, investments may also be made by way of loan stock and/or redeemable preference shares as well as ordinary shares to generate income.

The Company has an overdraft facility of £200,000 to manage short term cash requirements.

PROPOSED INVESTMENT POLICY

Subject to Shareholder approval of the proposals to change the investment policy, the investment policy of the Company will be as follows:

Investment Policy
The Company's objective is to provide shareholders with an attractive income and capital return by investing its funds in a portfolio of both unquoted and AIM/NEX quoted UK companies which meet the relevant criteria under the VCT rules.

The Company will target well managed businesses with strong leadership, that can demonstrate established and proven concepts, and are seeking an injection of growth capital to support their continued development.

At least the minimum required percentage of the Company's assets will be invested in Qualifying Investments as required by the VCT rules, with the remainder held in cash and money market securities.

Qualifying Investments
Compliance with required rules and regulations is to be considered with all investment decisions made. The Company is further monitored on a continual basis to ensure compliance.

Non-Qualifying Investments
An active approach will be taken to manage any cash held, both prior to its investment in Qualifying Companies and to any remaining cash after all investment qualification targets in the VCT rules have been satisfied. All cash will be invested in accordance with VCT rules for Non-qualifying Investments. Such Non-qualifying Investments may include liquid AIFs, UCITS or other money market funds including those managed by Seneca Investment Managers. 

Risk Management
The Directors control the overall risk of the portfolio by ensuring that the Company has exposure to a diversified range of unquoted and AIM/NEX quoted companies. In order to limit concentration risk in the portfolio that is derived from any particular investment, at the point of investment or addition to an existing investment no more than 15% of the Company by VCT value will be in any one investment. In addition, investments may also be made by way of loan stock and/or redeemable preference shares as well as ordinary shares to generate income, whilst ensuring compliance with whatever VCT rules apply at the time.

Borrowing
Whilst the Board does not intend that the Company will borrow funds (other than to manage short term cash requirements), the Company is entitled to do so subject to the aggregate principal amount at the time of borrowing not exceeding 25% of the value of the adjusted capital and reserves of the Company (being, in summary, the aggregate of the issued share capital, plus any amount standing to the credit of the Company's reserves, deducting any distributions declared and intangible assets and adjusting for any variations to the above since the date of the relevant balance sheet).

Changes to the Investment Policy

The Company will not make any material changes to its investment policy without Shareholder approval.

APPENDIX
DEFINITIONS

The following defined terms apply throughout this announcement and are extracted from the Circular , unless the context requires otherwise: