Cumulative Total Return
PART TWO: THE OFFER Introduction to the Offer
Terms of the Offer Use of Funds
Intermediary Charges Investment Policy Tax Benefits for Investors Octopus
Dividend Policy and Dividend Reinvestment Scheme Share Value
Dividends for potential income or growth Buy-back Policy
The Board
The Investment Team Management Remuneration Example Investments
Introduction to the Offer
VCTs were introduced by the UK Government in 1995 to encourage individuals to invest in UK smaller companies. According to the Association of Investment Companies (AIC), almost £436 million was invested in VCTs in the 2013/2014 tax year, and the total amount invested in VCTs currently stands at an impressive £3.2 billion.
An investment under the Offer will provide individuals with exposure to a diversified portfolio of unquoted smaller companies with the aim of generating returns over the medium to long-term. The net proceeds of the Offer will be invested in accordance with the Company’s investment policy, as set out below.
The Company is seeking to raise £20 million under the Offer, with an over allotment facility of a further £10 million. The Offer is conditional upon (i) the Merger completing and (ii) the passing by Shareholders of Resolutions 2 and 7 at the General Meeting.
Terms of the Offer
The Offer Price will be determined by the following formula:
the most recently announced NAV per Ordinary Share, divided by 0.95
The application of the above formula will be adjusted for investors who are existing, or who were previously, shareholders of any Octopus VCT, who will benefit from the costs of the Offer being reduced by 0.5%.
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Where the Ordinary Share price of the Company has been declared ex-dividend on the London Stock Exchange, the NAV used for determining the Offer Price will be ex-dividend. For the purpose of determining the Offer Price, the NAV per Ordinary Share will be rounded up to one decimal place and the number of Offer Shares to be issued will be rounded down to the nearest whole number (fractions of Offer Shares will not be allotted). Where there is a surplus of application funds, these will be returned to applicants, without interest, except where the amount is less than the Offer Price of one Offer Share, as above, in which case it will be donated to charity.
The Offer will remain open until 1 October 2015 unless fully subscribed at an earlier date and the Board reserves the right to close the Offer earlier and to accept applications and issue Offer Shares at any time following the receipt of valid applications. Offer Shares issued will rank pari passu with the existing Ordinary Shares from the date of issue.
Example
On the assumption that an investor does not receive any advice in respect of their Application, an illustration of the pricing formula for an aggregate investment of £10,000 under the Offer (using the most recently published NAV of Apollo as at the date of this document) is set out below:
Unaudited NAV as at 31 July 2014 (p)
Offer Price (p) Application (£)
Number of Offer Shares to be allotted
86.9 91.5 £10,000 10,928
The Offer Price may vary between allotments based on the movement in the published NAV of the Ordinary Shares.
The full terms and conditions applicable to the Offer are set out on pages 108 to 114.
Use of funds
The success to date has highlighted that the model used by Octopus is one that can lead to significant returns.
The Board believes that the Company’s portfolio is well positioned to continue this trend, delivering capital growth to those investors able to take a long-term view to investing in well-run UK companies. The Board also believes that the funding gap created by the banks’ reluctance to invest into smaller companies means that there are plenty of strong investment opportunities that can be accessed.
The funds raised under the Offer will be invested in accordance with the Company’s investment policy. Some of the funds raised will be used to invest into new portfolio companies and some will be used to further support the Company’s existing portfolio.
The aggregate net proceeds of the Offer, assuming a £30 million subscription and the maximum initial charge, will be £27.9 million.
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Intermediary Charges
There are four options, which are determined by the circumstances of each investor and their explicit instructions, in respect of which payments can be made to advisers and other intermediaries. Investors are required to give explicit authority and direction for transparent methods of adviser remuneration. Investors will fall into one of four categories:
1. Investors who have not invested their money through a financial intermediary and have invested directly into the Company (Direct investors)
2. Investors who have invested their money through a financial intermediary and have received advice for an upfront fee and will pay an ongoing annual charge (Advised Investors)
3. Investors who have invested their money through a financial intermediary and have received advice for an upfront fee and will not pay an ongoing annual charge (Advised Investors)
4. Investors who have invested their money through a financial intermediary and have not received advice (Non-advised investors)
Details of the adviser remuneration for each of the categories set out above is included in the Terms and Conditions of the Offer on pages 108 to 114. The category applicable to the investor will determine the options available to them to remunerate their financial intermediary. The Board encourages investors to read carefully the Application Form and complete the sections that are relevant to their circumstances and choices. If anything is unclear, the investor should speak to a financial adviser or call Octopus on 0800 316 2295. Please note that Octopus cannot advise in respect of an investment under the Offer.
For all investors, the Offer Price will be determined by a formula reflecting the NAV per Ordinary Share adjusted for an allowance for the majority of the costs of the Offer. The formula is:
the most recently announced NAV per Ordinary Share, divided by 0.95
As stated on page 23, the application of the above formula will be adjusted for those investors who are existing, or who were previously, shareholders of any Octopus VCT.
Investment Policy
The Company’s investment policy is designed to enable the Company to comply with the VCT qualifying conditions. It is intended that the long-term disposition of the Company’s assets will be not less than 80% in a portfolio of unquoted investments and up to 20% in cash or near cash investments to provide a reserve of liquidity which will maximise the Company’s flexibility as to the timing of investment acquisitions and disposals, dividend payments and share buy-backs.
Investments are structured using various unquoted investment instruments, including ordinary and preference shares, loan stocks and convertible securities, to achieve an appropriate balance of income and capital growth, having regard to the venture capital legislation. The portfolio is diversified by investing in a broad range of industry sectors and by holding investments in companies at various stages of maturity in the corporate
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development cycle, though investments are not generally made in early stage companies which have yet to achieve profitability and cash generation. The normal investment period is in the range from three to seven years. Any uninvested funds are typically held in cash and money market funds.
Where one or more of the companies managed or advised by Octopus wishes to participate in an investment opportunity, allocations will be made in accordance with Octopus’ allocation policy as at the date of allocation. The policy provides that allocations should be initially offered to the Company on a basis which is pro-rata to its net asset value (or as otherwise agreed by the Board and Octopus). In the event of a conflict of interests on the part of Octopus or where co-investment is proposed to be made other than on a pro-rata basis (or as otherwise agreed by the Board and Octopus), such an investment requires the approval of those members of the Board who are independent of Octopus.
Risk is spread by investing in a number of different businesses within different industry sectors using a variety of securities. The maximum amount invested in any one company is limited to any HMRC annual investment limits and, generally, no more than 15% of the Company’s assets, at cost, are invested in the same company.
The value of individual investments is expected to increase over time as a result of trading progress and a continuous assessment is made of investments’ suitability for sale. The Company’s VCT qualifying investments are held with a view to long-term capital growth as well as income and will often have limited marketability; as a result it is possible that individual holdings may grow in value to the point where they represent a significantly higher proportion of total assets prior to a realisation opportunity being available. Investments are normally made using shareholders’ funds and it is not intended that the Company will take on any long-term borrowings.
Investment Process