Edge Performance VCT public limited company

LEI Number: 213800PAOE1WTGQGSH39

3 February 2023

Publication of Circular

Further to the announcement made by Edge Performance VCT public limited company (the "Company") on 14 December 2022, the Company has today published a circular (the "Circular") to the Company's Shareholders setting out recommended proposals (the "Proposals") for a members' voluntary liquidation of the Company and an associated related party transaction.

The Proposals are subject to Shareholder approval and the Circular contains a notice convening a general meeting of the Company to be held at the offices of Simons Muirhead Burton LLP, 87-91 Newman Street, London W1T 3EY at 10.00 a.m. on 28 February 2023 (the "General Meeting").

Introduction

As announced by the Company on 14 December 2022, following lengthy discussions with Edge Investments Limited (the "Investment Manager") as to the Company's current position and the overall market outlook, your Board does not foresee any reasonable opportunity for the Company to grow in the short term. Accordingly, after careful consideration, the Board believes that it is in Shareholders' best interests that the Company be wound up, with the intention that there will be an orderly winding-down of the Company, realisation for cash of the Company's assets and a return of that cash to Shareholders in a manner which will be intended to preserve VCT tax-reliefs. The Board's aim in making this recommendation is to seek to ensure the most efficient and maximum return to Shareholders as is possible.

In order to ensure an efficient realisation process and in seeking to maximise value for Shareholders, the Board and the proposed Liquidators have agreed, subject to Shareholder approval, that the Company enters into an advisory agreement with the Investment Manager. Under this agreement, the Investment Manager will be paid a fee, which includes a performance incentive element, to assist the Liquidators with the asset realisation process during a period of up to two years (which may be extended by mutual agreement between the Liquidators and the Investment Manager) following the commencement of the liquidation. The entry into this advisory agreement will constitute a related party transaction under the FCA's Listing Rules (the "Related Party Transaction") and a summary of its material terms is set out in Part 2 of the Circular.

Background to the Proposals

As Shareholders will be aware, the Company's Net Asset Value has reduced significantly since the previous financial year end, with payments to Shareholders by way of (i) dividends totalling £4,058,489 and (ii) share buybacks totalling £888,791, and contractual performance incentive fees payable in accordance with the terms of the existing Investment Management Agreement of £2,586,146 paid to the Investment Manager, having depleted the Company's cash, in addition to market-related reductions in the portfolio valuations. As a result, the Board and the Investment Manager are of the opinion that the Company is sub-scale and that the Company's ongoing charges ratio (being approximately 17.61 per cent.) renders the ongoing operation of the Company uneconomic.

In addition, without raising additional capital to invest, the Company faces the issue of potentially having to make further investments to meet the requirements of the VCT Rules which could delay the return of Shareholders' funds whilst also potentially resulting in the Company having insufficient cash to operate.

The existing Investment Management Agreement, and the associated obligations of the parties, including the Company's obligations to pay the Investment Manager its annual management charge and performance incentive fee and the Investment Manager's obligations in respect of the cost cap, will terminate automatically in accordance with the terms of the relevant agreements on the Company's entry into liquidation with no further amounts payable in respect of such arrangements.

However, the Board considers it critical to maximising the return of funds to Shareholders as a result of any asset realisation process that the Investment Manager's services be retained in respect of such process. The Investment Manager made the investments in the portfolio companies, holds the relationships with portfolio management teams and possesses full knowledge of the portfolio companies, the markets in which they operate and the detailed insight into individual company performance. The Investment Manager has therefore agreed, pursuant to an advisory services agreement (the "EIL Advisory Services Agreement") and subject to Shareholder approval of this appointment as a related party transaction, to assist the Liquidators with the realisation of the Company's remaining assets during the course of the proposed liquidation. Retaining the Investment Manager whilst removing the Company's listing and reducing the Board size will minimise the Company's ongoing running costs and the impact that these would have on Shareholders' future returns.

Accordingly, after careful consideration, the Board has concluded that it is in Shareholders' best interests that the associated Related Party Transaction with the Investment Manager be approved by Shareholders.

The Board has considered the Proposals in the context of ensuring periodic distributions will continue to be made to Shareholders. The Board is satisfied that this will be the case and that the Liquidators will be able to pay out net realisation proceeds to Shareholders as part of the liquidation process (although the timing and quantum of any such distributions will be at the Liquidators' sole discretion).

The members' voluntary liquidation

The Board is recommending that the Company be placed into the members' voluntary liquidation. This requires the approval of Shareholders at the General Meeting.

It is proposed that Paul Cooper and Asher Miller, both licensed insolvency practitioners of Begbies Traynor (London) LLP, 29th Floor, 40 Bank Street, London, E14 5NR be appointed as joint liquidators of the Company (the "Liquidators"), and that their remuneration shall be determined by the Company. The winding-up of the Company will be a solvent winding-up in which it is intended that all creditors will be paid in full. The appointment of the Liquidators becomes effective immediately upon the passing of Resolution 2 at the General Meeting, at which point the powers of the Directors will cease.

The Liquidators will then assume responsibility for the winding-up of the Company, including the realisation of the remaining assets of the Company, the payment of fees, costs and expenses, the discharging of the liabilities of the Company, obtaining and, where they consider it appropriate, acting upon advice from the Investment Manager in its advisory capacity (if appointed) and the distribution of the Company's surplus assets to Shareholders.

The net proceeds of the realisation of the Company's assets will be distributed to Shareholders after the Company's outstanding liabilities and the costs of implementing the Proposals, including the Liquidators' and the Investment Manager's fees, have been met. Cash held by the Company will be distributed to Shareholders through one or more distributions in accordance with the provisions of the Articles.

In order to facilitate the implementation of the Proposals, the Shares will be suspended from listing on the Official List and from trading on the London Stock Exchange with effect from 7.30 a.m. on 28 February 2023, being the date of the General Meeting.

If Resolution 2 is subsequently passed at the General Meeting, this will also result in the cancellation of the listing of the Shares on the Official List and the Shares ceasing to trade on the London Stock Exchange. It is expected that the cancellation of listing and trading would take effect from 8.00 a.m. on 1 March 2023.

Distributions to Shareholders

Assuming Resolution 2 is passed, the Liquidators expect to make an initial capital distribution to Shareholders in May 2023 (the "Initial Distribution"). It is estimated that the value of the Initial Distribution will be not less than 5 pence per Share and this is in place of the previously announced intention pay a dividend of 5 pence per Share prior to the Company's entry into liquidation.

As the Liquidators realise the Company's assets, and once they have satisfied the claims of creditors of the Company and paid the costs and expenses of the liquidation, it is expected that the Liquidators will make further periodic distributions to Shareholders.

All Shareholders on the Register as at 6.00 p.m. on 27 February 2023 will be entitled to any distributions made during the course of the liquidation.

Related Party Transaction

As noted above, the Board believes it is critical to maximising the return of funds to Shareholders, and ensuring this is achieved in an orderly manner, that the Investment Manager's services are retained in respect of the asset realisation process. Accordingly, the Company has entered into the EIL Advisory Services Agreement with the Investment Manager and the Liquidators pursuant to which the Investment Manager has agreed to provide discretionary investment advisory services to the Company for the two years immediately following the Company's entry into members' voluntary liquidation. The EIL Advisory Services Agreement will not become effective unless and until Shareholders pass both Resolutions at the General Meeting.

Under the terms of the EIL Advisory Services Agreement and in consideration for providing such services, the Investment Manager will be entitled to the following fees, payable by the Company:

1.   a fixed management fee of £150,000 per annum payable for each of the first two years following the Company's entering liquidation; and

2.   a performance incentive fee of 20 per cent. of any increase in cash realised for the Company, from realisations of the Company's Qualifying Portfolio which are completed or legally committed to during the Investment Manager's appointment, over the Net Asset Value of the Company's Qualifying Portfolio as at 24 February 2023, subject to a 6 per cent. annual hurdle. For the avoidance of doubt, no performance incentive fee will be paid to the Investment Manager until the Company has received, in cash, an amount equal to the NAV of the Qualifying Portfolio as at 24 February 2023 plus the hurdle amount and any such amount will be calculated on total Qualifying Portfolio returns and not on an asset by asset basis.

The Investment Manager is a related party of the Company and the entry into the EIL Advisory Services Agreement constitutes a related party transaction for the purposes of LR11.1.5(1). As such, the Company will seek the approval of the Independent Shareholders for the Company's entry into the EIL Advisory Services Agreement.

It will be at the sole discretion of the Liquidators to extend the two year term of the EIL Advisory Services Agreement if they believe that to do so would be in Shareholders' best interests at the relevant time.

Once in liquidation, the Company will not make any further investments other than a follow-on investment in an existing Qualifying Portfolio Company which is intended to help facilitate the Company's sale or other disposal of such investment.

Expected Timetable

Note: All references to time in this announcement are to UK time. Each of the times and dates in the above expected timetable (other than in relation to the General Meeting) may be extended or brought forward. If any of the above times and/or dates change, the revised time(s) and/or date(s) will be notied to Shareholders by an announcement through a Regulatory Information Service.

General

This announcement does not contain all the information which is contained in the Circular and Shareholders should read the Circular before deciding what action to take in respect of the Proposals.

Defined terms used in this announcement have the meanings given in the Circular unless the context otherwise requires.

A copy of the Circular will be submitted to the Financial Conduct Authority and will be available for inspection at the National Storage Mechanism which is located at https://data.fca.org.uk/#/nsm/nationalstoragemechanism and on the Company's website at https://edge.vc/investor-portal/.

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