REG - Chrysalis Invs Ltd - Shareholder Update and Consultation

Chrysalis InvestmentsAnnouncement

13/10/2023 07:45

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RNS Number : 0567Q  Chrysalis Investments Limited  13 October 2023

The information contained in this announcement is restricted and is not for
publication, release or distribution in the United States of America, any
member state of the European Economic Area (other than to professional
investors in Belgium, Denmark, the Republic of Ireland, Luxembourg, the
Netherlands, Norway and Sweden), Canada, Australia, Japan or the Republic of
South Africa.

 

The information contained within this announcement is deemed by the Company to
constitute inside information as stipulated under the Market Abuse Regulation
(EU) No. 596/2014 which forms part of domestic law in the United Kingdom
pursuant to The European Union Withdrawal Act 2018, as amended by The Market
Abuse (Amendment) (EU Exit) Regulations 2019.

 

 

13 October 2023

 

Chrysalis Investments Limited ("Chrysalis" or the "Company")

 

Shareholder Update and Consultation

 

Announcement of a capital allocation policy, details on the proposed changes
to the existing performance fee and the commencement of Shareholder
consultation process

 

At the Interim Results the Board announced its intention to publish details of
proposed revisions to the performance fee and to canvas Shareholders for their
views around capital allocation in light of the emerging maturity of some of
the Company's investments and the material discount to NAV at which the
Company's shares trade.

The Board today sets out a proposed capital allocation policy for the Company
and a detailed overview of the performance fee proposal building on what has
previously been announced. Both the capital allocation policy and the
performance fee have been agreed with Jupiter Investment Management Limited
(the "Portfolio Manager").

The Board intends that this announcement shall form the basis of a
consultation with Shareholders commencing shortly. The Board would also
welcome Shareholders' broader views during this consultation on the way
forward for Chrysalis beyond next year's AGM at which the continuation vote
will be proposed. It is also intended that the revised performance fee, which
will constitute a related party transaction for the purposes of the Listing
Rules, will be voted on as a related party transaction at a Shareholder
meeting that immediately follows the AGM. The Board considers that this timing
provides Shareholders with the opportunity to agree the future of Chrysalis as
a whole.

Summary of capital allocation policy

The proposed policy sets out a framework for disciplined capital usage, based
around three principles:

·    The Company will aim at all times to maintain a prudent cash reserve
- the Board and Portfolio Manager guide that an appropriate cash reserve is
currently believed to be £50 million;

 

·    Having met the cash reserve requirement, the Company will next
prioritise distributions to Shareholders - the Board currently intends to
utilise its existing authority to buy back up to 15% of its share capital and,
if required, seek further authority from Shareholders to continue share buy
backs until £100 million of cash has been distributed, conditional on the
ongoing discount; and

 

·    Thereafter the Company will balance its capital allocation between
further distributions to Shareholders and portfolio investments, aiming to
distribute up to 25% of net cash profits on realisations.

 

Further details on the proposed capital allocation policy are set out in the
Appendix to this announcement.

 

Summary of proposed performance fee arrangements

 

The Company and the Portfolio Manager have agreed changes to the existing
performance fee payable under the portfolio management agreement between the
Company and the Portfolio Manager (the "Portfolio Management Agreement"). In
doing so, the Company has sought to ensure long-term alignment between the
Portfolio Manager's management team and Shareholders' interests. The proposed
variation to the payment terms and vesting provisions of the performance fee
are further detailed at the Appendix to this announcement. The changes to the
performance fee will not take effect until approved by Shareholders.

The proposed changes to the performance fee will be considered a related party
transaction pursuant to the Listing Rules and accordingly will require the
approval of Shareholders by way of a simple majority of votes cast on an
ordinary resolution at a general meeting to be held of the same day as the
AGM. The Board is publishing full details of the proposed changes to the
performance fee now in connection with the wider consultation exercise and a
separate circular will be published in due course in order to convene that
meeting.

The Board is unanimous in believing that the amendments to the performance fee
are in the best interests of the Company and its Shareholders as a whole, for
the following reasons:

 

1.               it will result in a reduction in the overall
performance fee level that is potentially payable by the Company to the
Portfolio Manager in respect of any single financial year (or other
calculation period) of the Company from 20% to 12.5%;

2.               it will introduce a cap as to the level of
performance fees paid in any single financial year (or other calculation
period) of the Company to 2.75% of the audited Net Asset Value;

3.               it will implement a primarily share-based
performance fee, which is to ultimately be paid to members of the Portfolio
Manager's management team, creating greater alignment between the Portfolio
Manager's management team and Shareholders;

4.               75% of any performance fee in respect of a
particular financial year of the Company will be deferred and subjected to
conditions based on the long-term performance of the Company, ensuring that
the Portfolio Manager's management team is incentivised to generate long-term
value creation; and

5.               the High Water Mark will be retained, meaning
that no performance fee will become payable unless the previous High Water
Mark (being 251.96 pence) is reached.

Andrew Haining (Chairman) comments:

"In deriving the proposed capital allocation policy, the Board has sought to
balance its recognition of the compelling opportunity to buy back the
Company's shares at what we believe is an attractive discount, with our intent
to drive long-term returns by providing disciplined support for the current
portfolio companies and potentially by allocating to new opportunities in the
future. The proposed amendments to the performance fee also reflect an
alignment of interests between the Company and the portfolio management team
which has been welcomed by Shareholders since the initial announcement of the
key terms and we are pleased to provide additional detail today in advance of
the resolutions being proposed next year alongside the continuation vote.

Both the Board and the Portfolio Manager are excited about the current
prospects for the portfolio and remain confident in the Chrysalis investment
strategy, which backs high growth, innovative businesses which are leading
transformation within their sectors. The Board looks forward to discussions
with Shareholders in the coming months regarding the proposed capital
allocation framework and the future direction of the Company."

Shareholder Consultation

The Board will shortly be beginning a Shareholder consultation, demonstrating
its commitment to proactive Shareholder engagement ahead of convening its 2024
AGM, at which a continuation resolution is required to be proposed. It is the
Board's intention that the AGM Notice will be sent to Shareholders in the
first quarter of 2024 and that the AGM will be held no later than 30(th) April
2024. As noted above, a resolution to approve the performance fee amendments
will also be proposed on the same day.

In addition to discussions on the changes to the existing performance fee and
the proposed capital allocation policy, the Board would welcome Shareholders'
feedback on the Company's existing portfolio and its future investment
strategy, including the approach to crossover situations. Rothschild & Co
has been engaged by the Company to conduct the consultation process and will
be contacting Shareholders with regards to their participation. The Board asks
for Shareholders' full and frank cooperation in order that the Company can
gain a comprehensive insight into views on the best way forward for Chrysalis.
 

For further information, please contact:

 Media

 Montfort Communications:                        +44 (0) 7976 098 139

 Charlotte McMullen / Toto Reissland /           chrysalis@montfort.london

 Lesley Kezhu Wang

 Jupiter Asset Management:                       +44 (0) 20 3817 1696

 James Simpson

 Liberum:                                        +44 (0) 20 3100 2000

 Chris Clarke / Darren Vickers / Owen Matthews

 Numis:                                          +44 (0) 20 7260 1000

 Nathan Brown / Matt Goss

 Maitland Administration (Guernsey) Limited:     +44 (0) 20 3530 3109

 Chris Bougourd

 

LEI: 213800F9SQ753JQHSW24

A copy of this announcement will be available on the Company's website at
https://www.chrysalisinvestments.co.uk
(https://www.chrysalisinvestments.co.uk)

The information contained in this announcement regarding the Company's
investments has been provided by the relevant underlying portfolio company and
has not been independently verified by the Company. The information contained
herein is unaudited.

This announcement is for information purposes only and is not an offer to
invest. All investments are subject to risk. Past performance is no guarantee
of future returns. Prospective investors are advised to seek expert legal,
financial, tax and other professional advice before making any investment
decision. The value of investments may fluctuate. Results achieved in the past
are no guarantee of future results. Neither the content of the Company's
website, nor the content on any website accessible from hyperlinks on its
website for any other website, is incorporated into, or forms part of, this
announcement nor, unless previously published by means of a recognised
information service, should any such content be relied upon in reaching a
decision as to whether or not to acquire, continue to hold, or dispose of,
securities in the Company.

 

APPENDIX

Details of capital allocation policy

Cash reserve

Both the Board and Portfolio Manager believe that it is essential to hold a
certain level of capital reserve to attend to the estimated costs of running
the Company over a reasonable period and to fund anticipated follow-on
investments into existing portfolio companies; these requirements are seen as
more working capital in nature. Additionally, they believe it prudent to hold
capital on a more strategic basis, to guard against currently unknown funding
needs in the portfolio, which can increase in times of economic stress and/ or
periods of funding market dislocation.

The absolute size of the appropriate cash reserve is likely to change over
time, an appropriate cash reserve is currently believed to be £50 million,
c.6% of net assets, which compares with a current total liquidity position of
approximately £33 million.

Distributions to Shareholders

The Board and the Portfolio Manager are also keenly aware of the deep discount
at which the Company's shares trade versus the NAV per share, which they
believe makes retiring shares an attractive allocation of capital.

Therefore, having first met the cash reserve requirement, the Company proposes
to prioritise distributions to Shareholders in its allocation of any cash
which becomes available following realisations. The Board reserves its
discretion on the mechanism for distributions, but currently intends to return
capital to Shareholders by exercising its AGM authority to buy back shares in
the market, equivalent to c.15% of issued share capital and, conditional on
the ongoing discount between the share price and NAV per share, to continue
share buybacks until £100 million, c.27% of the Company's current market
capitalisation, has been distributed.

Ongoing allocations

Thereafter, the Board, following input from the Portfolio Manager, currently
intends that up to 25% of ongoing net realised cash profits will be
distributed through share buybacks, again subject to the Board's discretion on
the mechanism for doing so and on the prevailing discount.

In proposing this ongoing policy, the Board is seeking to balance capital
allocations between potential further opportunities to enhance near-term
Shareholder returns through buying back shares and the opportunity to drive
long-term returns through continuing to provide capital in pursuit of the
Company's investment objective. The Portfolio Manager will be setting out more
fully its assessment of the state of the late-stage, private market as part of
its submission for the Company's continuation resolution. In summary, it
believes that the trends which led to the Company's foundation in 2018 have
continued subsequently, and in fact gained momentum, such that the Company
remains an attractive mechanism for private investors and other market
participants to access late-stage, fast growth businesses which are staying
private for longer.

Details of changes to the performance fee

At present, the Portfolio Manager is entitled to receive a performance fee,
the sum of which equals 20 per cent. of the amount by which the Company's
Adjusted Net Asset Value at the end of a Calculation Period exceeds the higher
of a performance hurdle and a high water mark and payment of which is subject
to certain conditions relating to realisations (or listings) of investments
within the portfolio.  The key proposed revisions to the performance fee
arrangements are summarised as follows:

1.    A reduction in the overall performance fee level from 20 per cent. to
12.5 per cent. of the amount by which the adjusted net asset value exceeds the
higher of the High Water Mark and the Performance Hurdle (as defined below).
The High Water Mark and Performance Hurdle calculations will continue on the
basis previously calculated since the launch of the Company and neither will
be re-set as a result of the proposed changes. See the section "Performance
fee Calculation" below for a summary of how the performance fee will be
calculated.

2.    A cap on the aggregate performance fee payable (as described below)
in respect of any one financial year (or other calculation period) equal to
2.75 per cent. of the audited Net Asset Value of the Company as at the end of
the immediately preceding Calculation Period.

3.    Save as set out in point 4 below, the performance fee is to be
satisfied in Shares at the Deemed Issue Price, being a price equal to the
higher of:

a)   the average daily closing price per Share in the calendar month to the
last Business Day in the relevant Calculation Period; and

b)  the audited Diluted NAV per Share as at the end of the relevant
Calculation Period.

4.    The performance fee may be satisfied in cash in the following
circumstances:

a)    in respect of any Covered Tax Liabilities, being (i) any corporation
tax required to be paid by the Portfolio Manager in respect of the relevant
Performance Fee Amount (or equivalent amounts payable on termination of the
Portfolio Management Agreement or liquidation of the Company (respectively a
"Termination Performance Fee Amount" and "Liquidation Performance Fee
Amount")); (ii) any employer national insurance contributions and
apprenticeship levy (or any equivalent amount payable in any jurisdiction
outside the United Kingdom) which are required to be paid by the Portfolio
Manager or any of its affiliates; and (iii) any employee PAYE or national
insurance contributions (or any equivalent amount payable in any jurisdiction
outside the United Kingdom) which are required to be paid by the Portfolio
Manager or any of its affiliates as an employer ("Employee Taxes") in respect
of the relevant Performance Fee Amount or in respect of a Termination
Performance Fee Amount or a Liquidation Performance Fee Amount or any Share
Transfer made on or around the Initial Payment Date or a Subsequent Payment
Date or the Termination Date or Liquidation Commencement Date (as applicable),
in each case calculated net of any cash tax saved (or that will be saved in
the then current accounting period for tax purposes) as conclusively
determined by the Portfolio Manager by virtue of obtaining and utilising any
Relief arising in connection with the relevant Performance Fee Amount,
Termination Performance Fee Amount, Liquidation Performance Fee Amount or
Share Transfer;

b)    where the performance fee is payable in respect of stub financial
periods in which the Portfolio Management Agreement is terminated (other than
for the Portfolio Manager's cause) or in which the Company enters liquidation;

c)    to the extent that the Company is limited or prohibited from issuing
Shares, or the Escrow Agent is prohibited from transferring Escrow Shares, to
the Portfolio Manager or its Designates (each as defined below) by any
applicable law or regulation;

d)    to the extent that the acquisition of the Shares would require the
Portfolio Manager or any member of the Portfolio Manager's team (individually
or as in concert with other parties) to make a mandatory bid for the Company
under Rule 9 of the City Code on Takeovers and Mergers; and/or

e)    where applicable, if the Company does not have authority to issue the
relevant Shares on a non-pre-emptive basis by the Business Day immediately
following the next annual general meeting of the Company.

5.    The introduction of a revised deferred settlement structure, whereby
(subject to the cap described in paragraph 2 above and cash payments to be
made as described in paragraph 4 above) 25 per cent. of the Shares due for any
period where a performance fee is to be paid will be immediately issued to the
Portfolio Manager or its Designates (such date being the "Initial Payment
Date"), with the remaining 75 per cent. of the payment being issued to an
escrow agent as may be agreed by the Portfolio Manager and the Company from
time to time (the "Escrow Agent"). Subject to the test set out in point 6
below and other limitations imposed on the release of Escrow Shares by the
Portfolio Management Agreement, up to 25 per cent. of the Performance Fee
Amount in respect of a Calculation Period shall be released to the Portfolio
Manager or its Designates on or around each of the first, second and third
anniversaries of the Initial Payment Date (each a "Subsequent Payment Date").
The Company has undertaken to procure that no voting rights attaching to
Escrow Shares which are held by the Escrow Agent for the benefit of the
Company (until such time as they are transferred to the Portfolio Manager or
its Designates or repurchased by the Company for cancellation in accordance
with the terms of the Portfolio Management Agreement), are exercised by the
Company. Dividends or other distributions payable on any such shares shall be
renounced by the Company in favour of other Shareholders.

6.    The release of Escrow Shares by the Escrow Agent to the Portfolio
Manager or its Designates shall be dependent on whether, on the relevant
Subsequent Payment Date, the average daily closing price per Share in the
calendar month to 30 September in the relevant year is equal to or greater
than the audited Diluted NAV per Share as at the end of the relevant
Calculation Period in which the Performance Fee Amount first accrued (the
"First Condition"). If the First Condition is satisfied on a Subsequent
Payment Date, the full amount of Escrow Shares available at that Subsequent
Payment Date (being an amount equal to 25 per cent. of the Performance Fee
Amount corresponding to the relevant Calculation Period) will be transferred.
In the event that the First Condition is not satisfied on this Subsequent
Payment Date, if the average daily closing price per Share in the calendar
month to 30 September in the relevant Calculation Period is higher than the
Diluted NAV per Share which is attributable to the calculation of the
immediately preceding Performance Fee (for this purpose "NAV-1") then a
proportion of the Escrow Shares will be released. The amount of the total
Escrow Shares to be released as at that Subsequent Payment Date will be 25 per
cent. of the Performance Fee Amount reduced by a pro rata amount according to
the calculation:

(Relevant Share price minus NAV-1) / (Diluted NAV per Share at end of relevant
Calculation Period minus NAV-1).

7.    If there are any unreleased Escrow Shares as a result of the
condition set out in paragraph 6 above not being satisfied in full or in part
following the third Subsequent Payment Date in relation to the relevant
Calculation Period, then such Escrow Shares shall be transferred to the
Portfolio Manager or its Designates on the fifth anniversary of the relevant
Initial Payment Date if the average daily closing price per Share in the
calendar month to the last Business Day in the relevant year (i.e. the date of
the fifth anniversary of the Initial Payment Date) is equal to or greater than
the sum of the audited Diluted NAV per Share as at the end of the relevant
Calculation Period in which the performance fee first accrued, increased by 8
per cent. (calculated as an annual rate and adjusted to the extent the
Calculation Period is greater or shorter than one year).

8.    The Portfolio Manager is required to allocate the Shares solely to
the members of the management team (meaning existing or future officers and
employees of the Portfolio Manager engaged to perform the services to the
Company specified in the Portfolio Management Agreement) to ensure alignment
of the management team with the Company's Shareholders. No automatic clawback
rights exist in relation to Shares issued or transferred in satisfaction of
performance fees payable by the Company and so, if a member of the management
team ceases to provide services to the Company under the Portfolio Management
Agreement, then that person shall be entitled to retain any Shares which they
hold (subject to any private arrangements which may exist from time to time
between the Portfolio Manager and the members of the management team).

9.    Unless otherwise approved in writing by the Company, if the Portfolio
Management Agreement (as amended) is terminated:

 

a)    by the Company for the Portfolio Manager being in breach of certain
provisions of the Portfolio Management Agreement (including any unremedied
material breach of the Portfolio Management Agreement by the Portfolio
Manager); or

b)    by the Portfolio Manager (other than for the Company's breach of
certain provisions of the Portfolio Management Agreement including any
unremedied material breach of the Portfolio Management Agreement by the
Company),

the Portfolio Manager shall immediately cease to be entitled to the transfer
of any Escrow Shares (or equivalent cash alternative, as contemplated).

10.  If the Portfolio Management Agreement is terminated other than as set
out above:

a)    a performance fee calculation shall be made in respect of the
incomplete Calculation Period in which termination occurs. The performance fee
(if payable) in such circumstances shall be payable in cash on the date of
termination of the Portfolio Management Agreement (the "Termination Date") in
full (i.e. without deferral); and

b)    calculations shall be made to determine whether or not any Escrow
Shares (or cash equivalent) are to be released to the Portfolio Manager or its
Designates. For each tranche of Escrow Shares (a tranche being all Escrow
Shares relating to a particular Calculation Period), if the average daily
closing price per Share in the 20 Business Days to the Termination Date is
equal to or greater than the audited Diluted NAV per Share as at the end of
the relevant Calculation Period in which the Performance Fee Amount first
accrued in respect of that tranche of Escrow Shares, all Escrow Shares of that
tranche will be transferred to the Portfolio Manager on the Termination Date.
To the extent that any such Escrow Shares are not transferred to the
performance hurdle on the Termination Date, such Escrow Shares shall become
Stale Shares.

11.  If an order has been made or an effective resolution passed for the
winding-up or liquidation of the Company (except a voluntary liquidation for
the purpose of reconstruction or amalgamation upon terms previously consented
to in writing by the Portfolio Manager, such consent not to be unreasonably
withheld or delayed) then:

(a)             a performance fee calculation shall be made in
respect of the incomplete Calculation Period in which the liquidation event
occurs. The performance fee (if payable) in such circumstances shall be
payable in cash on the date falling two Business Days prior to the
commencement of the liquidation or winding-up (the "Liquidation Commencement
Date") (the "Liquidation Payment Date") in full (i.e. without deferral); and

(b)             calculations shall be made to determine whether or
not any Escrow Shares (or cash equivalent) are to be released to the Portfolio
Manager or its Designates. For each tranche of Escrow Shares (a tranche being
all Escrow Shares relating to a particular Calculation Period), if the average
daily closing price per Share in the 20 Business Days to the Termination Date
is equal to or greater than the audited Diluted NAV per Share as at the end of
the relevant Calculation Period in which the Performance Fee first accrued in
respect of that tranche of Escrow Shares, all Escrow Shares of that tranche
will be transferred to the Portfolio Manager on the Liquidation Payment Date.
To the extent that any such Escrow Shares are not transferred to the Portfolio
Manager on the Liquidation Payment Date, such Escrow Shares shall become Stale
Shares,

provided that, in the event that a resolution is not passed (or an order not
made) for the liquidation or the winding-up of the Company on the Liquidation
Commencement Date, the Portfolio Manager shall procure that all cash and
shares paid or transferred to it on the Liquidation Payment Date are promptly
transferred to the Escrow Account.

12.  The Company shall be entitled to designate the following Escrow Shares
as "Stale Shares" and repurchase for cancellation any such Stale Shares for 1p
each in the following circumstances:

a)    any Escrow Shares which are not transferred to the Portfolio Manager
or its Designates (as applicable) on or before the Subsequent Payment Date
falling on or around the fifth anniversary of the Initial Payment Date in
respect of the relevant Calculation Period because (i) the condition set out
in paragraph 7 above has not been satisfied; or (ii) such transfer would be in
breach of the fee cap described in paragraph 2 above;

b)    any Escrow Shares which are not transferred to the Portfolio Manager
or its Designates (as applicable) on termination of the Portfolio Management
Agreement as described in paragraph 10 above or in connection with the
liquidation or winding-up of the Company as described in paragraph 11 above;
or

c)    any Escrow Shares which would have been transferred to  the
Portfolio Manager or any of its Designates (as applicable) in accordance with
the Portfolio Management Agreement, but were not so transferred because a cash
payment was made in respect of the relevant Performance Fee Amount in one of
the circumstances set out in paragraph 4 above.

Shareholders' attention is drawn to the fact that item 2 above (relating to a
total cap on fees) varies from the proposal set out in the Company's
announcement of 30 November 2022 which accounted for a cap on the performance
fee payable in any one year based on the performance fee payment not resulting
in the Company's total expense ratio (TER) exceeding 3.75 per cent. in that
year.

The Board has carefully considered and endorses the above variation to the
proposed Portfolio Manager's performance fee arrangements described in the
announcement of 30 November 2022.

Performance fee calculation

The following paragraphs within this subsection headed "Performance fee
calculation" describe the terms used in calculating whether or not a
performance fee is payable to the Portfolio Manager in respect of a
Calculation Period. The conditions for payment of any calculated performance
fee are as described above.

Subject to the passing of the Resolution, under the terms of the Portfolio
Management Agreement the Portfolio Manager shall be entitled to receive a
performance fee, the sum of which shall be equal to 12.5 per cent. of the
amount by which the Adjusted Net Asset Value at the end of a Calculation
Period exceeds the higher of: (i) the Performance Hurdle; and (ii) the High
Water Mark.

Definitions

For the purposes of this Appendix and announcement:

"Adjusted Net Asset Value at the end of a Calculation Period" shall be the
audited NAV in Sterling at the end of the relevant Calculation Period: (i)
plus an amount equal to any Performance Fee Amount (whether in cash or by the
transfer of Escrow Shares at the applicable Deemed Issue Price) actually paid
to the Portfolio Manager or its Designates in respect of that Calculation
Period or any prior Calculation Period; (ii) plus an amount equal to all
dividend or other income distributions paid to Shareholders that have been
declared and paid on or prior to the end of the relevant Calculation Period;
(iii) minus the amount of any distribution declared in respect of the
Calculation Period but which has not already reduced the audited NAV; (iv)
minus the Net Capital Change where the Net Capital Change is positive or,
correspondingly, plus the Net Capital Change where such Net Capital Change is
negative (which, for this purpose, includes the Net Capital Change in the
relevant Calculation Period and each preceding Calculation Period); and (v)
minus any increase in the NAV during the Calculation Period attributable to
Investments attributable to C Shares prior to the conversion of those C
Shares;

"Board" the board of Directors of the Company;

"Business Day" a day on which the London Stock Exchange and commercial banks
in London and Guernsey are normally open for business;

"Calculation Period" means each 12-month period ending on 30 September, (with
the first Calculation Period having been the period commencing on 6 November
2018 and ending on 30 September 2019);

"City Code on Takeovers and Mergers" means the City Code on Takeovers and
Mergers of the UK;

"Company" Chrysalis Investments Limited;

"Deemed Issue Price" means a deemed issue price equal to the higher of:

(a)       the average daily closing price per Share in the calendar
month to the last Business Day in the relevant Calculation Period; and

(b)       the audited Diluted NAV per Share as at the end of the
relevant Calculation Period;

(c)       "Deed of Amendment" means the deed of amendment to the
Portfolio Management Agreement entered into between the Company and the
Portfolio Manager, subject to Shareholder approval;

"Designate" means an entity nominated by the Portfolio Manager to receive
amounts of cash and/or Shares in settlement of performance fees payable to the
Portfolio Manager under the Portfolio Management Agreement;

"Diluted NAV per Share" means the net asset value of the Company divided by
the number of Shares in issue (including, for the avoidance of doubt, any
Escrow Shares which have not been transferred to the Portfolio Manager or its
Designates in accordance with the terms of the Portfolio Management Agreement
as at the date of calculation);

"Escrow Agent" such escrow agent as may be agreed by the Portfolio Manager and
the Company from time to time and acting as bare trustee for the benefit of
the Company;

"Escrow Shares" the Shares to be held in escrow pursuant to the terms of the
Deed of Amendment;

"FCA" the United Kingdom Financial Conduct Authority (or any successor entity
or entities);

"High Water Mark" means the 'Adjusted Net Asset Value at the end of a
Calculation Period' in respect of which a Performance Fee Amount was last
earned (which at the date of this announcement is 251.96 pence);

"Net Asset Value" the value of the assets of the Company less its liabilities
determined in accordance with the accounting policies and principles adopted
by the Board from time to time;

"Net Capital Change" equals I minus R, where:

"I" is the aggregate of the net proceeds of any Share issue over the relevant
period (other than the first issue of Ordinary Shares and any issue of Shares
pursuant to the terms of the Portfolio Management Agreement); and

"R" is the aggregate of amounts disbursed by the Company in respect of Share
redemptions or repurchases over the relevant period (except redemptions or
repurchases of any Escrow Shares designated by the Company as "Stale Shares"
pursuant to the terms of the Portfolio Management Agreement);

"Net Proceeds of the Initial Issue" means the net proceeds of the Initial
Issue, where:

"Initial Issue" means the initial placing, the intermediaries offer and the
offer for subscription, as contemplated by the prospectus of the Company dated
11 October 2018; and

"Gross Issue Proceeds" means the aggregate value of the Ordinary Shares issued
under the Initial Issue at the Initial Issue price;

"Listing Rules" the listing rules made by the FCA under section 73A of FSMA;

"Ordinary Shares" ordinary shares in the capital of the Company from time to
time;

"Performance Fee Amount" means in relation to a Calculation Period, the
performance fee calculated as being payable in accordance with the Portfolio
Management Agreement;

"Performance Hurdle" means, in relation to each Calculation Period, (A
multiplied by B) + C, where: "A" is 8 per cent. (expressed for the purposes of
this calculation as 1.08) (calculated as an annual rate and adjusted to the
extent that the Calculation Period is greater or shorter than one year);

"B" is:

(a)       in respect of the first Calculation Period, the Net Proceeds
of the Initial Issue; or

(b)       in respect of each subsequent Calculation Period, the sum of
this calculation as at the end of the immediately preceding Calculation
Period: (a) excluding any changes made pursuant to paragraphs (i) and (ii)
below in that preceding Calculation Period; and (b) plus (where such sum is
positive) or minus (where such sum is negative) the Net Capital Change
attributable to share issues and repurchases in all preceding Calculation
Periods (the amount in this paragraph (b) being the "Aggregate NCC"),

in each case, plus (where such sum is positive) or minus (where such sum is
negative) the sum of:

(i)        in respect of each Share issue undertaken in the relevant
Calculation Period being assessed (other than any issue of Shares pursuant to
the terms of the Portfolio Management Agreement), an amount equal to the Net
Capital Change attributable to that Share issue multiplied by the sum of the
number of days between admission to trading of the relevant Shares and the end
of the relevant Calculation Period divided by 365 (such amount being the
"Issue Adjustment"); minus

(ii)       in respect of each repurchase or redemption of Shares
undertaken in the relevant Calculation Period being assessed (other than
redemptions or repurchases of any Stale Shares pursuant to the terms of the
Portfolio Management Agreement), an amount equal to the Net Capital Change
attributable to that Share purchase or redemption multiplied by the number of
days between the relevant disbursement of monies to fund such repurchase or
redemption and the end of the relevant Calculation Period divided by 365 (such
amount being the "Reduction Adjustment"); and

"C" is the sum of: the Issue Adjustment for the Calculation Period; the
Reduction Adjustment for the Calculation Period; and the Aggregate NCC
multiplied by -1.

"Portfolio Management Agreement" the portfolio management agreement between
the Company and the Portfolio Manager dated 1 July 2022, or any replacement
thereof between the Company and an entity controlled by Richard Watts and Nick
Williamson;

"Relief" means any relief, exemption, allowance, set-off, deduction or credit
relevant to the computation of any liability to make a payment of or relating
to corporation tax or any repayment of or saving of corporation tax;

"Shares" Ordinary Shares of no par value each in the capital of the Company;

"Shareholders" the holders of Shares;

"Share Transfer" means the allocation or transfer of any Shares received by
the Portfolio Manager or its Designates to any member of the Portfolio
Manager's investment management team pursuant to the terms of the Portfolio
Management Agreement;

"Stale Shares" Escrow Shares designated by the Company as "Stale Shares" in
accordance with the terms of the Portfolio Management Agreement and which may
therefore be repurchased by the Company for cancellation for consideration of
1p each; and

"United Kingdom" or "UK" means the United Kingdom of Great Britain and
Northern Ireland.

 

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