Northern 2 VCT PLC – Circular to Shareholders

17th October 2007

RNS Number:9340F
Northern 2 VCT PLC
18 October 2007

18 October 2007

Northern 2 VCT PLC (the ‘Company’)

Circular to Shareholders re: Proposed share issue and related Extraordinary
General Meeting, dividend policy and secondary market liquidity

A copy of the above document has now been posted to shareholders. The full text
of the Chairman’s letter contained in the Circular is set out below.


This letter gives you information on a proposal to (i) launch an issue of up to
16 million new Ordinary Shares to existing Shareholders and new investors to
raise up to approximately #15 million (before expenses) and (ii) amend the
Articles of Association so that the resolution for the continuation of the
Company is first considered at the annual general meeting in 2013 instead of
2011, and asks for your support for the enabling resolutions set out in the
Notice of Extraordinary General Meeting on page 6. This letter also contains a
statement as to dividend policy and your Directors’ views on secondary market

Proposal to raise additional capital

At 31 July 2007 the Company had total equity shareholders’ funds of #43.1
million and liquid resources (listed fixed-interest securities and cash) of #6.7
million. Whilst the maturing venture capital portfolio continues to generate
substantial inflows of cash from disposals (#3.2 million in the six months ended
31 July 2007), new investments completed in the same period totalled #3.8
million and the Company also paid ordinary dividends of #2.2 million and
purchased shares in the market for cancellation at a cost of #0.6 million.
After careful consideration your Board has concluded that it is now appropriate
to seek to raise additional funds through a further issue of Ordinary Shares,
with a view both to ensuring that the Company has sufficient liquidity to meet
future requirements and to increasing the Company’s capital base (assuming full
subscription) to well in excess of #50 million.

Shareholders will be aware that the Finance Act 2007 introduced new restrictions
on the criteria for qualifying investments made by VCTs using funds raised after
5 April 2007. The Directors have given careful consideration to the possible
effect of these restrictions in the light of the Company’s current and
prospective investment activity, and they do not believe there will be any
significant impact on the company’s ability to pursue its existing investment
policy whilst maintaining its approved VCT status.

Your Board is therefore seeking authority from Shareholders to issue up to 16
million new Ordinary Shares for cash, representing 33.5% of the current issued
share capital of the Company at the date of this letter (the Company holds no
treasury shares). This authority will expire on 31 October 2012; to the extent
that the authority is not used in relation to the Proposal the Directors may use
it at any time up to 31 October 2012 to issue or agree to issue further shares.
In addition Shareholders are asked to increase the authorised share capital of
the Company to facilitate the Proposal by the creation of 5,000,000 additional
Ordinary Shares representing an 8% increase in the Company’s authorised share

It is intended that new Ordinary Shares will be issued at a price based on the
latest published net asset value of the Company, after deducting (if not already
deducted) the interim dividend of 2.0 pence per Share in respect of the period
ended 31 July 2007, divided by 0.945 to allow for issue costs of 5.5% of the
amount raised, rounded up to the nearest whole penny per Share. As an
indication, based on the net asset value as at 31 July 2007 of 90.1 pence per
Share less the proposed interim dividend of 2.0 pence per Share, the issue price
would be 94 pence per Share.

Any new Ordinary Shares so issued will rank pari passu in all respects with the
existing Ordinary Shares, except that they will not rank for interim or final
dividends declared in respect of the financial year ending 31 January 2008.
Application will be made for Admission of any new Ordinary Shares issued as part
of the Proposal and it is proposed that Admission will be effected at the
earliest practicable opportunity for each tranche of Ordinary Shares so issued.
In each case, it is envisaged that definitive share certificates in respect of
any Ordinary Shares issued under the Proposal will be despatched within 21 days
of Admission. No temporary documents of title will be issued. Ordinary Shares
so issued may be dematerialised at the option of the recipients and entered on
the CREST system as the existing Ordinary Shares presently are.

Your Board’s current intention, assuming Shareholders approve the necessary
resolutions, is to issue a prospectus in connection with the issue of the new
Ordinary Shares as soon as practicable after the Extraordinary General Meeting.
As explained above, it is intended that the issue price will be fixed at a level
such that after taking account of issue costs there should be no dilution of the
net assets per Share attributable to existing Shareholders. Potential benefits
of the Proposal to Existing Shareholders include a broader spread of portfolio
investments expected to be possible with the enlarged assets of the Company, the
ability to spread the fixed running costs of the Company over a wider capital
base and the possible impact on secondary market liquidity of an increase in the
absolute size of the Company. New investors will share in the potential benefit
from future growth in the value of the Company’s existing investments, which are
already generating a steady flow of dividend distributions to Shareholders.

Amendment to the Articles of Association

The Company’s Articles of Association presently require that a resolution for
the continuation of the Company be put to the annual general meeting of the
Company in 2011 and, unless defeated, at five-yearly intervals thereafter.
Under current VCT legislation, subscribers for new Ordinary Shares in the
proposed share issue will be required to hold their shares for at least five
years in order to retain the benefit of initial income tax relief and your Board
does not consider that it would be appropriate to hold a continuation vote
during this period. It is therefore proposed that the Articles of Association
be amended so as to require the continuation resolution to be considered at the
2013 annual general meeting (expected to be held in May 2013) and every five
years thereafter.

Resolution 1 in the notice of the Extraordinary General Meeting, which is a
special resolution requiring the support of 75% of Shareholders voting in person
or by proxy, substitutes in Article 27 the 2013 annual general meeting for the
2011 annual general meeting for the purposes of the continuation vote and
deletes additional wording relating to the original listing of the Company’s
shares which is now not required. Article 27 of the Articles of Association of
the Company in its current form is set out below:

27 Duration of the Company

At the annual general meeting of the Company held in 2011, following the
admission of the Ordinary Shares to the Official List of the London Stock
Exchange and, if the Company has not then been liquidated, unitised or
reconstructed, at each fifth subsequent annual general meeting of the Company
convened by the Directors thereafter, the Directors shall propose an ordinary
resolution that the Company should continue as a venture capital trust for a
further five year period. If such ordinary resolution is not passed, the
Directors shall draw up proposals for the voluntary liquidation, unitisation or
other re-organisation of the Company for submission to the members of the
Company at an extraordinary general meeting to be convened by the Directors for
a date not more than nine months after the date of the meeting at which such
ordinary resolution was not passed. The Directors shall use all reasonable
endeavours to ensure that such proposals for the liquidation, unitisation or
reconstruction of the Company as are approved by special resolution are
implemented as soon as is reasonably practicable after the passing of such
resolution. For the purposes of this Article only an ordinary resolution will
have not been passed only if those members in person or by proxy who vote
against the resolution hold in aggregate not less than 25% of the issued share
capital of the Company at such time entitled to attend and vote at such a

Dividend policy and secondary market liquidity

The Company has now been in existence for over eight years and your Board
believes that it is in the interests of Shareholders generally that there should
be a more active secondary market in the Company’s Ordinary Shares. The Company
has continued to provide liquidity to Shareholders by purchasing Shares in the
market at a 10% discount to net asset value, and the Board intends to maintain
this policy subject to market conditions and periodic review in the light of
circumstances, but the Board also wishes to encourage demand from secondary
market purchasers who wish to take advantage of the ability of VCTs to
distribute income and capital gains to their shareholders free of tax.

With this objective in mind, the Board has reviewed its policy in relation to
dividend payments to Shareholders and intends as far as possible to declare an
annual dividend in future of not less than 5.5 pence per Share, subject to the
availability of sufficient distributable profits. The Company has paid a
dividend of at least this amount in each of the three financial years ended 31
January 2005, 2006 and 2007. Based on a mid-market share price of 80 pence per
Ordinary Share, a dividend of 5.5 pence per Share represents an annual tax-free
dividend yield of 6.9%, equivalent to a 10.2% gross dividend yield to a
higher-rate taxpayer. Your Board believes that a recurring dividend yield of
this size should prove attractive to secondary market purchasers. The indicated
figure is not intended to be a maximum and the Board may declare a higher
dividend where the profits in a given year make this possible.

The Board has also reviewed the provision of corporate broking services to the
Company, as a result of which it was announced on 16 October 2007 that
Landsbanki Securities (UK) Limited (formerly Teather & Greenwood Limited) have
been appointed as brokers to the Company with immediate effect.

Extraordinary General Meeting

Page 6 of this Circular contains a notice convening an Extraordinary General

Meeting of the Company to be held at 2.00pm on Monday 12 November 2007 at the
Company’s registered office, Northumberland House, Princess Square, Newcastle
upon Tyne NE1 8ER, when the following resolutions will be proposed:

1. to amend Article 27 of the Articles of Association;

2. to increase the authorised share capital of the Company by #250,000 by the
creation of 5,000,000 additional Ordinary Shares; and

3. to authorise the Directors to allot up to 16,000,000 new Ordinary Shares for
cash and in relation to the issue of those shares to disapply section 89(1) of
the Companies Act 1985 (which gives Shareholders certain pre-emption rights on
the issue of shares).

Action to be taken by shareholders

It is important that you complete the Form of Proxy and return it to the
Company’s registrars, Equiniti Limited, at Aspect House, Spencer Road, Lancing
BN99 6DA by no later than 2.00pm on Friday 9 November 2007. Completion and
return of the Form of Proxy will not preclude you from attending the
Extraordinary General Meeting and voting in person should you so wish.


The Directors consider that the Proposal is in the best interests of the Company
and its Shareholders as a whole and they unanimously recommend Shareholders to
vote in favour of the resolutions to be proposed at the Extraordinary General
Meeting, as they intend to do in respect of their own beneficial holdings which,
in aggregate, amount to 560,148 Ordinary Shares representing approximately 1.2%
of the issued Ordinary Share capital of the Company.

Yours faithfully

Dr Matt Ridley


In this letter, unless the context otherwise requires, the following expressions
bear the following meanings:

‘Admission’ admission of Ordinary Shares to the Official List of the UK Listing
Authority and to trading on the London Stock Exchange’s market for listed

‘Circular’ this document dated 17 October 2007, addressed to the Shareholders

‘Company’ Northern 2 VCT PLC

‘CREST’ the computerised settlement system to facilitate the transfer of title to
securities in uncertified form operated by CRESTCo Limited

‘Directors’ or ‘Board’ the directors of the Company, whose names are set out
on page 1 of this

‘Extraordinary General the extraordinary general meeting of the Company to be
held at
Meeting’ Northumberland House, Princess Square, Newcastle upon Tyne NE1 1ER at
2.00pm on Monday 12 November 2007

‘Form of Proxy’ the form of proxy for use at the Extraordinary General

‘Manager’ NVM Private Equity Limited which is authorised and regulated in the conduct
of investment business by the Financial Services Authority

‘Offer’ the offer for subscription of new Ordinary Shares referred to in this

‘Ordinary Share’ or ‘ an ordinary share of 5 pence in the capital of the
Share”Proposal’ the proposed issue of new Ordinary Shares and amendment to the Articles of

‘Shareholders’ holders of Ordinary Shares

‘UK Listing Authority’ the Financial Services Authority acting in its capacity
as the competent
authority for the purposes of Part VI of the Financial Services and Markets
Act 2000

‘VCT’ a venture capital trust as defined in section 842AA of the Income and
Corporation Taxes Act 1988 (as amended)

For further enquiries please contact the Company Secretary:

Christopher Mellor

(0191 244 6012)


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