30th Jul 2008 07:00
Raven Russia Limited
('Raven Russia' or the 'Company')
Posting of the circular relating to the proposed Internalisation
and acquisition of Armbridge
Following the Company's announcement on 9 July 2008 in relation to the proposed Internalisation of its external property adviser, the Company announces that the circular convening the extraordinary general meeting to approve the Internalisation (the "Circular") has today been distributed to shareholders. The Circular is also available on the Company's website: http://www.ravenrussia.com.
In addition, the Company is pleased to announce that it has entered into an agreement with Raven Mount to purchase its 50 per cent. interest in Armbridge Consultancy Limited ("Armbridge"). Armbridge is the development management company jointly owned with Avalon Equity (Overseas) Limited ("Avalon"), which provides services to Megalogix (the Avalon/Raven Russia joint venture, details of which have been previously announced). The consideration under the agreement is £1 and in addition, Raven Mount will assign loans made to Armbridge, which were for the purposes of set up costs and general working capital, to the Company in consideration of the payment to Raven Mount in cash of the outstanding principal and interest payable under the loans, totalling approximately $3.1 million. The 50 per cent. interest is owned legally and beneficially by Raven Mount and Raven Mount has treated this investment as forming part of its services obligations under the Property Advisory Agreement and as such has not derived any benefit from its holding. This acquisition is not conditional on the proposed Internalisation.
The text of the Chairman's letter from the Circular setting out further details of the proposed Internalisation and the acquisition of Armbridge is set out below.
All definitions contained herein are as set out in the Circular.
Further enquiries:
Raven Russia Limited
Richard Jewson, Chairman Tel: +44 (0) 1603 757 909
Bell Pottinger Corporate & Financial Tel: +44 (0) 20 7861 3232
Charles Cook
Mike Davies
Zoe Sanders
Numis Securities Limited
Financial Adviser, Nominated Adviser and Joint Broker
Nick Westlake (Nomad) Tel: + 44 (0) 20 7260 1000
Nick Harland
Rupert Krefting
Proposed acquisition of Raven Russia's external property advisor, new incentive schemes, new Board appointments and Notice of Extraordinary General Meeting
1 Introduction
Raven Russia announced on 9 July 2008 that it had entered into a conditional agreement to internalise its external property adviser through the acquisition of both Raven Russia Property Management Limited ("RPML") and Raven Russia Property Advisors Limited ("RPAL") from Raven Mount in return for the payment of £15 million in cash and the issue of 80 million consideration shares, which in aggregate based upon the Company's closing share price of 85.5 pence on 8 July 2008 being the last business day prior to the publication of the Announcement, amounts to a consideration value of £83.4 million.
Glyn Hirsch, currently Executive Deputy Chairman of RPML, will join the Board of Raven Russia as Chief Executive Officer and Anton Bilton, currently Executive Chairman of RPML, will join the Board as Executive Deputy Chairman. Anton Bilton will devote up to three days a week of his time to the Enlarged Group. They will also become employees of one or more Enlarged Group companies. In addition, other key managers from RPML will become employees of the Enlarged Group.
Prior to the proposed Internalisation, the vendor, Raven Mount, intends to undertake the Re-organisation to facilitate the receipt of part of the share element of the consideration by Raven Mount and its shareholders in a tax efficient manner. It is proposed that the Internalisation will be implemented under the terms of the Framework Agreement.
It is currently envisaged that the Re-organisation will be completed by no later than 21 December 2008. However, if the Re-organisation is not completed by this date (or, if earlier, is incapable of completion) then, provided certain conditions have been satisfied under the terms of the Framework Agreement, Raven Mount and the Company have agreed that Raven Mount will sell to the Company the entire issued share capital of RPML and RPAL for the consideration set out above, plus, in certain circumstances, an additional £3 million in cash to partially compensate Raven Mount shareholders for the increase in potential tax liabilities that may be incurred by Raven Mount shareholders as a consequence of not being able to implement the Re-organisation. Further details relating to the Framework Agreement and the Re-organisation are set out at paragraph 3 of this Circular.
As part of the Internalisation, Raven Mount has agreed that no annual performance fee will be payable for this current year. In order to retain and incentivise the key employees joining the Enlarged Group pursuant to the Internalisation, the Board is proposing to replace the Existing EBT Scheme with the New Incentive Schemes, comprising an employee retention scheme under which 5 million shares will be issued to certain employees below the board level, if they remain within the Enlarged Group for a specified period, and an employee incentive scheme, under which options over a further 18.5 million shares can be issued with an initial pool of these being granted on Completion, exercisable at £1.15. Further details of the New Incentive Schemes are set out at paragraph 7 of this Circular.
The Company is also pleased to announce that it has entered into an agreement with Raven Mount to purchase its 50 per cent interest in Armbridge for a consideration of £1. Armbridge is the development management company jointly owned with Avalon which is the property management company for Megalogix (the Avalon / Raven Russia joint venture, details of which have previously been announced). This acquisition is expected to complete on 6 August 2008 and is not conditional upon the Internalisation. In addition, Raven Mount will assign its loans made to Armbridge, which were for the purposes of funding set up costs and working capital, to the Company in consideration of the payment to Raven Mount in cash of the outstanding principal and interest payable under the loans totalling approximately $3.1 million.
The purpose of this Circular is to provide you with information about the background to and the reasons for the Internalisation, the new board appointments and the New Incentive Schemes and to explain why the Directors recommend that you vote in favour of the Resolutions to be proposed at the EGM, notice of which is set out at the end of this Circular.
2 Background to and reasons for the Internalisation
When the Company was founded and admitted to trading on AIM in 2005, it was structured as a closed-ended investment company with an external property advisor (RPML), which was responsible for providing property advisory, management and development monitoring services. In consideration for these services, RPML receives an annual management fee equating to 2 per cent. of the committed gross property asset value of the Company and an annual performance fee based on total shareholder return achieved for Shareholders. RPML is a wholly-owned subsidiary of Raven Mount, a property company listed on AIM that invested £10 million in the original Raven Russia placing of July 2005. RPML undertakes the property advisory services in the UK directly and subcontracts the Russian element of the services to RPAL.
The structure was devised like many investment entities listed in the UK whose sole activity is investment. However, since the IPO, the Company has acquired through indirectly held subsidiaries (mainly joint ventures), both investment properties, producing a rental income stream, and development properties, where it has acted both as a developer and a partner providing development finance. As a result, the Board considers that the opportunities for the Company going forward can be capitalised on more effectively with a management team employed directly by the Enlarged Group.
The Board believes the benefits of the Internalisation include the matters set out below.
a) The Board believes that by the Enlarged Group directly employing the Property Investment Management Team there will be significant cost savings compared to the projected management fees and performance fees payable to RPML, as well as the removal of the uncertainty that the contingent payment of the performance fee presents.
b) The Property Investment Management Team has been built up to currently comprise over 45 employees (including the Armbridge Secondees) and, in the Board's view, represents one of the leading property and property finance teams in terms of experience in Russia, with a strong network of contacts in Moscow, St Petersburg and across the regions. The Company will gain greater benefit from such a team as employees of the Enlarged Group rather than as external advisors through a management contract.
c) Glyn Hirsch and Anton Bilton will join the Board, thereby making their skill and experience directly available to the Board and will become employees of one or more Enlarged Group companies. In addition, the Key Managers will become employees of the Enlarged Group companies. As a result of their service contracts, Glyn Hirsch and Anton Bilton and the Key Managers will provide management services to a number of Enlarged Group companies. Further details of the proposed employment arrangements are set out at paragraph 6 of this Circular.
d) There will be operational benefits as the Internalisation will provide for a simpler decision making process and it will align the interests of the Property Investment Management Team more closely with those of the Group.
e) Internalisation will create the ability to capitalise on the significant opportunities that exist in other property asset classes and regional geographies.
The Board considers that the Internalisation will ensure an alignment of interests between Shareholders and the Property Investment Management Team, and will provide the Group with a capable and committed management team with the ability to generate value for Shareholders through growth of the Company's existing business and potentially by exploitation of the opportunities further described in this Circular. The Board believes that the Team has proved its ability to deliver within the Russian Warehousing sector and expects that performance to continue for the benefit of Shareholders in what the Board considers to be a marketplace that presents significant opportunities.
3 Summary of the Internalisation and the Re-organisation
Raven Mount and the Company have entered into the Framework Agreement, under the terms of which Raven Mount has agreed to the conditional sale of RPAL to the Company and Raven Mount has undertaken to complete the relevant steps in order to implement the Re-organisation and for the Company to acquire Newco 1 (which will own RPML) pursuant to the Second Scheme. The consideration payable by the Company for the acquisition of RPAL and Newco 1 (which will own RPML) will be the issue of 80 million consideration shares and the payment of £15 million in cash. This consideration is subject to adjustment primarily to take into account the accrued management fee to Completion under the Property Advisory Agreement. However, if the Internalisation is not completed by the Long Stop Date (or, if earlier, is incapable of completion) then, provided certain conditions have been satisfied under the terms of the Framework Agreement, Raven Mount and the Company have agreed that Raven Mount will sell to the Company the entire issued share capital of RPML and RPAL for the consideration set out above, plus, in certain circumstances, an additional £3 million in cash to partially compensate Raven Mount shareholders for the increase in potential tax liabilities that may be incurred by Raven Mount shareholders as a consequence of not being able to implement the Re-organisation. Further details relating to the Re-organisation are set out below.
Raven Mount has undertaken to use its reasonable endeavours to implement the Re-organisation so as to ensure, as far as possible, that 64 million of the Consideration Shares are received directly by Raven Mount shareholders in a tax efficient manner. It is intended that the Re-organisation will involve the steps set out below.
Step 1
A new public limited company (Newco) will acquire Raven Mount by way of a scheme of arrangement under Section 895 Companies Act 2006, under which the existing shares in Raven Mount are cancelled and new shares in Raven Mount issued to Newco (the First Scheme) such that Raven Mount becomes a wholly owned subsidiary of Newco.
Step 2
Following the First Scheme becoming effective (i) Newco will issue shares to former Raven Mount shareholders in the same proportions as they hold shares in Raven Mount prior to the First Scheme becoming effective; and (ii) Raven Mount's admission to trading on AIM will be cancelled, leaving Newco as an unlisted entity.
Step 3
Raven Mount (which will then be wholly owned by Newco) will distribute its shares in RPML to Newco by way of a dividend in specie.
Step 4
After a period of 3 weeks following the First Scheme becoming effective, Newco will be placed in members' voluntary liquidation. In accordance with the procedure set out in section 110 of the Insolvency Act 1986:
(a) Newco's shares in RPML will be distributed to a new private limited company (Newco 1) in consideration of an issue of new shares in Newco 1 to the shareholders of Newco in proportion to their shareholdings in Newco; and
(b) Newco's shares in Raven Mount will be distributed to a new public limited company, (Newco 2), in consideration of an issue of new shares in Newco 2 to the shareholders of Newco in proportion to their shareholdings in Newco.
Step 5
Newco 2 (which will be owned by former Raven Mount shareholders in the same proportions as they held shares in Raven Mount immediately prior to the First Scheme becoming effective) will then apply to be admitted to AIM.
Step 6
The Company will acquire Newco 1 by way of a scheme of arrangement under Section 895 Companies Act 2006 under which the existing shares in Newco 1 are cancelled and new shares issued to the Company (the Second Scheme). The Company will then issue 64 million new Raven Russia ordinary shares (being the Consideration Shares attributable to RPML) directly to the shareholders of Newco 1 (being the former shareholders of Raven Mount immediately prior to implementation of the First Scheme).
Upon the Second Scheme becoming effective, the acquisition of RPAL by the Company from Raven Mount pursuant to the terms of the Framework Agreement will also complete, and the £15 million cash and remaining 16 million of Consideration Shares will be paid to Raven Mount.
It is intended that the business of the Company should continue to be controlled from Guernsey. Accordingly, in accordance with advice, it is proposed that the Articles be amended to reflect certain protocols regarding the location of and composition of board and shareholder meetings following the Internalisation. A summary of the changes is set out at paragraph 14 of this Circular.
Further details relating to the Framework Agreement are set out at Part 2 of this Circular.
4 Armbridge
The Company has also today entered into an agreement with Raven Mount to purchase its 50 per cent. Interest in Armbridge for a consideration of £1. This is expected to complete on 6 August 2008 and is not conditional upon the Internalisation. In addition, Raven Mount will assign loans made to Armbridge, which were for the purposes of funding set up costs and working capital, to the Company in consideration of the payment to Raven Mount in cash of the outstanding principal and interest payable under the loans totalling approximately $3.1 million. Armbridge is the development management company jointly owned with Avalon which is the property management company for Megalogix (the Avalon / Raven Russia joint venture, details of which have previously been announced). Ambridge has approximately 30 employees and has not to date made a profit as it has been in its start-up phase. The 50 per cent. Interest is owned legally and beneficially by Raven Mount and Raven Mount has treated this investment as forming part of its services obligations under the Property Advisory Agreement and as such has not derived any benefit from its holding.
5 Future strategy and Move to the Official List
Raven Russia's developments in regional Russia have good prospects with strong tenant demand. This tenant-led approach encourages us to look for sites which feed the same demand but outside Russia (e.g. Ukraine, Belarus and Kazakhstan). Whilst the focus of the Enlarged Group's strategy will remain the investment in and development of Warehouses in the CIS, the Directors believe that there will be further potential opportunities in the property sector outside this scope, and the Enlarged Group will seek such other property opportunities, either for direct investment by entities within the Enlarged Group or investment with co-investment partners.
In light of the above, and in light of the Company no longer being an externally managed investment company, it is proposed as part of the Internalisation that the Enlarged Group will no longer be subject to the restrictions of its formal investment strategy that is set out in the AIM Admission Document and subsequent announcements, nor, following Internalisation, will the Company be considered an investing company under the AIM Rules.
The Company has been in discussions with its advisers and currently intends to move to the Official List some time during the second quarter of 2009 after the publication of its audited results for the financial year 2008.
6 Management
On Completion, the Property Investment Management Team, made up of over 45 employees (including the Armbridge Secondees), will join the Enlarged Group. As part of the Internalisation, Glyn Hirsch will become Chief Executive Officer of the Company and Anton Bilton will become Executive Deputy Chairman of the Company, devoting up to 60 per cent. Of his time to the Raven Russia business. Glyn Hirsch and Anton Bilton will also become employees of one or more Enlarged Group companies, and the Key Managers will become employees of the Enlarged Group. In addition, Colin Smith, who is currently a senior employee of the Company, will become an executive director and the Chief Operating Officer of the Company. Details of the new directors' service agreements are set out below.
Glyn Hirsch
Glyn Hirsch will become the new Chief Executive Officer of the Company. He will enter into a service agreement with one or more companies within the Enlarged Group and his management and property expertise will be available to a number of companies within the Enlarged Group. He will also become a director of the Company. The annual salary under his service agreement will be £450,000 and he will be entitled to a discretionary bonus which is to be determined by the remuneration committee. The service agreement will include a notice period of 12 months and will also contain restrictive covenants. He will also be continuing as a director of Raven Mount.
Glyn Hirsch (47) qualified as a Chartered Accountant with Peat, Marwick Mitchell & Co in 1985. Until 1995 he worked in the corporate finance department of UBS (formerly Phillips & Drew), latterly as an Executive Director specialising in UK smaller companies. From 1995 until 2001 he was Chief Executive of CLS Holdings plc, the listed property investment company. He is a former Director of Citadel Holdings plc, the specialist French property investor and former Chairman of Property Fund Management plc, the listed property fund management business. Glyn is also a non-executive director of a number of public and private companies, including Liontrust Asset Management plc.
Anton Bilton
Anton Bilton will become the new Executive Deputy Chairman of the Company. He will enter into a service agreement with one or more companies within the Enlarged Group on a part time basis. He will devote such time as is reasonably necessary for the proper performance of his duties, not to exceed three days a week of his time, to the Enlarged Group. The service agreement will include a notice period of 12 months and will also contain restrictive covenants. The annual salary under his service agreement will be £300,000 and he will be entitled to a discretionary bonus which is to be determined by the remuneration committee.
Anton Bilton (43) is currently executive Chairman of RPML and Raven Mount. He has been a founder and director of three other companies that have floated on AIM.
Colin Smith
Colin Smith will enter into a new service agreement with the Enlarged Group on a full time basis. He will also become an executive director of the Company and Chief Operating Officer of the Company. The service agreement will include a notice period of 12 months and will also contain restrictive covenants. The annual salary under his service agreement will be £160,000 and he will be entitled to a discretionary bonus which is to be determined by the remuneration committee.
Colin Smith (38) is a senior employee of Raven Russia, acting as the key liaison between its non-executive Board of directors and its service providers, including the property advisor and administrators in Guernsey and Cyprus. Prior to joining the Company, he was a director in the audit and assurance division of the chartered accountant practice of BDO in Guernsey. He was with BDO in Guernsey since 1994, having qualified as a Chartered Accountant with Stoy Hayward's Glasgow office. He is also a non-executive director and chairman of the audit committee of Tethys Petroleum Limited and a non-executive director of the Da Vinci CIS Private Sector Growth Fund Limited.
7 Incentives arrangements
The Company believes that the recruitment and retention of quality employees is vital for the growth and development of the Company and in its best interest. The Company therefore intends to adopt share incentive schemes to provide equity incentives to its employees.
These share incentive schemes are intended to be put in place instead of the Existing EBT Scheme. Three tranches of options over a total of 25,088,757 Ordinary Shares were granted by the Company to the trustee of the Existing EBT Scheme on 25 July 2005, and the number of shares and exercise price for each tranche were calculated on 29 July 2005, 29 July 2006 and 29 July 2007 respectively. These options are held in the Existing EBT Scheme for the benefit of the beneficiaries of the Existing EBT Scheme. It is proposed that the Existing EBT Option will be cancelled, subject to the approval of the trustee of the Existing EBT Scheme, which the Company, together with Raven Mount, will seek to obtain before Completion.
Following or simultaneously with the cancellation of the Existing EBT Option as referred to above and in place of the existing incentive arrangement under the Existing EBT Scheme, it is intended that the Company would establish two share incentive schemes. The first would be an employee retention scheme for key management below the main board level. The second incentive arrangement would take the form of an unapproved share option scheme over a 'share pool' of 18.5 million Ordinary Shares in the Company. In addition, three 'stand alone' unapproved option agreements will be entered into with three founders of Raven Russia, namely, Bim Sandhu, Mark Kirkland and Alan Pereira, which in aggregate will be over circa 2.1 million shares.
7.1 Raven Russia Employee Benefit Trust
Under the employee retention scheme, a new employee benefit trust, namely the Raven Russia Limited Employee Benefit Trust ("New EBT") would be established by the Company on or around Completion for the benefit of employees below the board level (including their spouses and dependants) of the Enlarged Group. Following the establishment of the New EBT, the trustee of the New EBT will subscribe for 5 million new Ordinary Shares in the Company which will be used to retain and incentivise key senior employees below board level by awarding them future contingent entitlements to new Ordinary Shares dependent on their continued employment. The Company will fund the trustee of the New EBT with sufficient cash to enable the trustee to subscribe for such Ordinary Shares at par value.
Under the rules of the employee retention scheme, the Company intends to recommend, immediately before the date of the publication of the final audited financial result of the Company for the accounting period ending on 31 December 2010 (the "Publication Date"), that the trustee of the New EBT makes share awards of such number of new Ordinary Shares to selected employee-beneficiaries as the Company considers appropriate, such number of new Ordinary Shares not to exceed in aggregate 5 million, provided that the relevant employee-beneficiary remains in continued employment with the Company (or any member of the Enlarged Group) as at the Publication Date.
Subject to the exercise of the discretion by the trustee of the New EBT, it is intended that without creating any binding obligation on the trustee of the New EBT and without presently conferring any entitlement or interest to any person, the trustee would gift these new Ordinary Shares to the recommended employee-beneficiaries at the appropriate time provided that the relevant employee-beneficiary satisfies the continued employment condition and provided further that the relevant employee-beneficiary bears the income tax and employee national insurance contributions liabilities on receipt of the gifted new Ordinary Shares. The Company will however bear the cost of any employer's national insurance contributions. It is further intended that the trustee of the New EBT would be entitled to receive dividends or other distributions in respect of any new Ordinary Shares held by the trustee between the subscription of the new Ordinary Shares and the transfer of the Ordinary Shares to the relevant employee-beneficiaries, and the trustee will distribute such distributions to the relevant employee-beneficiaries at the time it transfers the new Ordinary Shares in the retention scheme.
7.2 Raven Russia Limited 2008 Unapproved Employee Share Option Scheme
It is proposed that following Completion, the Company (and the trustee of the New EBT) would adopt the Raven Russia Limited 2008 Unapproved Employee Share Option Scheme ("Unapproved Scheme") over a 'share pool' of 18.5 million Ordinary Shares in the Company to enable the Company and/or the trustee of the New EBT to grant unapproved options (the "Options") to the employees of the Enlarged Group on a discretionary basis. The main features of the Unapproved Scheme are summarised below.
Grant
Options may only be granted within the 42 day period commencing on the business day immediately following: the adoption of the proposed Unapproved Scheme by Shareholders; the announcement of the final or interim results of the Company or other document containing equivalent information; the day when changes to legislation affecting discretionary option schemes are announced, effected or made, and; the day on which the remuneration committee resolves that exceptional circumstances exist which justify the grant of Options.
Eligibility
Options can be granted to any employee or director.
Share Option Scheme limits
No Option can be granted if, as a result, the aggregate number of Ordinary Shares which might fall to be or have already been issued upon the exercise of options under the Unapproved Scheme, or pursuant to any other share option schemes after the date of adoption of the Unapproved Scheme would exceed 5 per cent. of the issued Ordinary Shares from time to time in any ten year period.
Individual limits
There is no individual limit on the grant of Options.
Payment
No payment shall be required for the grant of Options.
Exercise price
The exercise price per Ordinary Share is a price which the Company or the trustee of the New EBT (as applicable) determines to be appropriate on the date on which the Option is granted or a price that is the greater of (a) the average of its middle market quotation on the three business days immediately preceding the date of grant (or the market value of the Ordinary Shares, if the Ordinary Shares are not so listed), and (b) its nominal amount (the "Option Price").
The Option Price may be adjusted in the event of a rights issue, capitalisation issue or upon consolidation, sub-division or reduction of the Company's share capital, subject to the written certificate of the auditors that such adjustment is fair and reasonable provided that no increase is made to the aggregate exercise price relating to any option.
When Options may be exercised
In normal circumstances, in addition to meeting any relevant conditions as to the performance of the Company and/or the Option Holder which have been set at the respective dates of grant and the Option Holder remaining an employee, the Options may only be exercised between the third and tenth anniversaries of the date of grant.
Subject to the satisfaction of any applicable performance conditions (appropriately modified and time apportioned, where applicable) Options become exercisable (earlier than the normal three year period) on the death of an Option Holder, or on his ceasing to be an employee of the Group by reason of retirement at or after the age of 55, retirement with the consent of the directors before the age of 55, injury, disability, redundancy, or the sale or transfer out of the Group of his employing company, business or part of the business to which the employment relates.
Except as described in the paragraph above, Options will lapse on the employee ceasing to be employed with the Enlarged Group unless the Company (or the trustee of the New EBT, as applicable) in their absolute discretion allow the Option Holder to exercise his Option on a once and for all basis within a specified period.
Rights of exercise will, subject to the satisfaction of any applicable performance conditions (appropriately modified and time apportioned, where applicable), also arise on a person obtaining control of the Company subject to the exercise of rollover rights described below.
Voting, dividend, transfer and other rights
Until Options are exercised, Option Holders will have no voting rights in respect of the Ordinary Shares comprised in their Options. Ordinary Shares issued pursuant to the exercise of the Option will rank pari passu in all respects with the Ordinary Shares already then in issue, except that they will not rank for any dividend or any other distribution paid or made by reference to a date falling prior to the date of exercise of the Option, nor for any dividend to be paid before the date of exercise of such Option.
On a change of control of the Company pursuant to a general offer, rights to exercise Options may, with the consent of the company acquiring control of the Company, be released in consideration of the grant of options over the shares of the acquiring company or a company controlling it. Otherwise, the options are not transferable.
Exercise
In the event of a takeover offer the Option Holder shall be entitled within the period of six months after the change in control to exercise his Options in full. The remuneration committee may give Option Holders advance notice of a potential takeover offer and require them to: (i) exercise their Options conditional upon the change of control of the Company, failing which they will lapse, or; (ii) exercise their Options prior to such takeover offer becoming unconditional or by a specified date, failing which they will lapse.
Option Holders may provide the Company with an assurance to pay the Option Price in lieu of the actual remittance.
Application will be made for admission to trading on AIM in respect of the Ordinary Shares under Options when they fall due to be issued following the exercise of such Options pursuant to the rules of the Unapproved Scheme and such Ordinary Shares will rank pari passu with the then existing Ordinary Shares.
Administration and amendment
The remuneration committee may amend the scheme rules. Certain amendments require prior approval of the Company in general meeting. In particular, general meeting approval will be required for any amendment affecting the class of persons eligible for the grant of Options; the calculation of the exercise price; the total number of shares available for the scheme and the limits on the grant or exercise of Options; the rights attaching to Options; and the basis on which any adjustment to Options may be made.
The Directors may only make alterations to the performance conditions applying to an Option if an event or events happen which mean that the original performance conditions are no longer achievable and they may only make such alterations as the auditors for the time being of the Company shall have confirmed in writing to be in their opinion fair and reasonable and on the whole not more onerous than before the alteration.
The subsisting rights of Option Holders may not be adversely altered without their consent.
On a variation in the share capital of the Company arising from any reduction of capital or subdivision or consolidation of capital or issue of shares by way of capitalisation of profits or reserves or by way of rights (including in the latter case an offer to holders of Ordinary Shares to subscribe additional shares proportionately to their existing shareholdings whether or not such additional shares are provisionally allotted on a nil paid basis), the number of Ordinary Shares comprised in each Option and/or the Option Price may be adjusted in such manner as the Committee (with the written concurrence of the Auditors that in their opinion the adjustments proposed are fair and reasonable) may deem appropriate in that such adjustment is necessary to take account of any variation in the share capital of the Company provided always that no increase shall be made in the aggregate Option Price relating to any Option.
PAYE, National Insurance and Joint Election
The Option Holder is required to pay to and indemnify the Company against all income tax and employee national insurance contributions that will arise on or is attributable to the exercise of an Option. The Company will bear the employer's national insurance contributions liabilities. If the Company so requires, the Option Holders will be required to enter into a joint election under section 431(1) of the Income Tax (Earnings and Pensions) Act 2003.
Benefits under the Unapproved Scheme will not be pensionable.
Termination
The Unapproved Scheme may be terminated at any time by a resolution of the Board or by the Company in general meeting and shall in any event terminate 10 years after its date of adoption, following which no further Options may be granted.
Termination of the Scheme will not affect the then subsisting rights of Option Holders.
7.3 Grant of Options under the Unapproved Scheme
It is intended that immediately following Completion or within a reasonable period thereafter, the Company will grant unapproved options under the Unapproved Scheme over an aggregate of 16.5 million Ordinary Shares to selected employees, including the following executive directors in respect of the number of shares set out against their names:
Options
Anton Bilton 1,500,000
Glyn Hirsch 1,500,000
Colin Smith 300,000
These unapproved options would have an option exercise price of £1.15 per share and these shares will only be exercisable if the relevant Option Holder remains in continued employment with the Enlarged Group between the date of grant and the publication of the final audited financial results of the Company for the accounting period ending on 31 December 2010. These options will not have any performance conditions. Save as aforesaid, these options will be bound by all the other terms of the Unapproved Scheme. In respect of the remaining 2 million Ordinary Shares, Options may be granted at the discretion of the Board in accordance with the terms of the Unapproved Scheme.
7.4 Grant of options to certain non-employees
It is further intended that under three 'stand alone' unapproved option agreements, the Company would grant, immediately following Completion or within a reasonable time thereafter, three options over in aggregate circa 2.1 million shares in the Company to two Raven Mount employees and one former Raven Mount employee who were original founders of Raven Russia and who will no longer have a continuing role in Raven Russia going forward, namely, Bim Sandhu, Mark Kirkland and Alan Pereira. The terms of their option grant and the application for admission to trading on AIM following exercise will be the same as described in the preceding paragraphs except that they will not be required to satisfy the employment condition but such options will vest on the publication of the final audited financial results of the Company for the accounting period ending on 31 December 2010 and not be subject to any performance conditions.
7.5 Raven Mount Bonuses
Existing Raven Mount incentive arrangements provide for the allocation of 20 per cent. Of, inter alia, the cumulative net profits arising from Raven Mount's Russian property fund management business, after certain deductions, in any year to be paid out as performance bonuses to Raven Mount executives. Such bonuses are likely to be calculated and paid by Raven Mount following the announcement of New Raven Mount's preliminary results for the financial year ending 31 December 2008. The profits generated from the disposal would form part of the bonus calculation for the financial year ending 31 December 2008. Raven Mount's directors (including Anton Bilton and Glyn Hirsch) are likely to be substantial beneficiaries of any such arrangements.
7.6 Remuneration Committee
In line with good corporate governance practice, the Board will also create a remuneration committee made up of Richard Jewson, Stephen Coe, David Moore and Christopher Sherwell.
8 Financial Implications of the Internalisation
The principal effect of the Internalisation will be to bring into the Enlarged Group the income that would otherwise have been payable to RPML under the Property Advisory Agreement (comprising management and performance fees) and the costs of the Team and to retain within the Enlarged Group the fees that would otherwise have been payable to RPML under the Property Advisory Agreement. The Board believes that the savings in projected management fees compared to the ongoing operating costs of the Enlarged Group post Internalisation will be significant. In addition, the savings in potential performance fees is likely to be substantial. The estimated costs of the Internalisation for the Company are £2.7 million.
9 Background information on the Company and current trading
The Company was formed in July 2005 to invest in the Russian real estate market with an initial focus on the Warehouse market in the Moscow and St. Petersburg regions. The Company was admitted to AIM at that time and raised £153 million before expenses through a placing of Ordinary Shares. In April 2006, the Company raised a further £310 million before expenses through a further placing of Ordinary Shares. The Company seeks to generate an attractive rate of return for Shareholders by taking advantage of property investment opportunities in the CIS.
The Directors consider that the Russian commercial property market, in particular the Russian Warehouse market, continues to present an attractive investment opportunity due to:
The Company continues to expand its business in line with its plan. Construction is progressing across the Company's portfolio and we have carried out a number of lettings at rents ahead of expectations.
Inflation continues to rise in Russia and whilst this is inevitably causing construction costs to increase it is also contributing to rental increases.
In addition, the rouble's strength against the dollar whilst impacting on construction costs is making our dollar rents more affordable for our tenants. This is another factor helping to push rents higher.
The Company's financing plans are also continuing to progress and we have recently announced a series of new bank facilities. With US LIBOR at low levels we can afford to pay the increased margins required by our debt providers in these difficult times whilst maintaining our high equity returns.
As set out in our financial statements, the Group's US Dollar cash funds are held in liquidity funds managed by Goldman Sachs and Credit Suisse. They are reported on a mark to market basis. The returns on these balances are unlikely to be at the same level as previously achieved. This is principally due to increased volatility in credit and financial markets and the fact that US interest rates currently average 2.55% as against an average of 5.05% in 2007. In addition, due to the current levels of market volatility, the Group has taken the decision to move from the current managed funds to lower risk but lower yielding liquidity funds and bank deposit accounts.
The Group's accounting policy allows revaluation of property assets only on completion of construction. Given the significant number of development projects underway and the impact of construction completions and revaluations on our results, the Board intends that in the event of any project completions after the financial year end, it will publish an updated valuation statement in respect of such projects using independent external property valuations at the appropriate time. This will enable shareholders to assess the positive impact of completed projects on the annual results.
10 Dividend Policy
The Board intends to continue a progressive dividend strategy although the Directors no longer propose to be bound by any obligation to pay out 85 per cent. Of the distributable profits of the Company. Dividends of 6.5 pence were paid for the full 12 months of 2007 and the Board hopes to continue to make progress towards an annual dividend of 9 pence when the current property developments are completed and income generating.
11 Change of Auditors
Colin Smith was previously employed by BDO Novus Limited and is now proposed to be appointed as an executive director and Chief Operating Officer of the Company. To comply with the Audited Practices Board's Ethical Standards, it is proposed that BDO Novus Limited, the Company's joint auditor, resign and that BDO Stoy Hayward LLP, the Company's other joint auditor, take over as sole auditor of the Company.
12 Listing, dealings and settlement of Consideration Shares
Application will be made for Admission in respect of the Consideration Shares when they fall due to be issued. It is expected that Admission will become effective and dealings in the Consideration Shares will commence on AIM shortly after Completion. The Consideration Shares will rank pari passu with the existing Ordinary Shares.
13 Tax
It is the intention of the Directors to continue to conduct the affairs of the Enlarged Group so that the management and control of the Company is exercised in Guernsey and that the Company does not carry on any trade in the UK (whether or not through a permanent establishment situated there). Having taken advice, the Directors will be putting in place certain protocols with regard to the conduct of the Company's affairs, including amendments to the Articles, to assist with this.
On this basis, the Company should not itself (as opposed to some of the subsidiaries of the Enlarged Group) be resident in the UK for taxation purposes and therefore should not be liable for UK tax on its income and gains.
The Directors are satisfied, following advice, that following the implementation of new protocols and procedures and the proposed amendments to the Articles, the changes to the composition of the Board should not adversely affect the tax residence of the Company.
Following the Internalisation, certain companies in the Enlarged Group (including RPML and RPAL) may be taxable in the UK and certain of the activities may give rise to permanent establishments in Russia which will be taxable in Russia.
The policy of the Enlarged Group will be to continue to manage and operate each Enlarged Group company in a way that is intended to ensure that it is resident for tax purposes only in the jurisdiction in which it is incorporated or domiciled and that it has no taxable permanent establishments or other taxable presence in any other jurisdiction, other than in the case of those companies providing advisory and staff services which may have permanent establishments in Russia or the UK. In particular, the Enlarged Group intends to try to ensure, following advice, that any activities of the Company, RPML, RPAL or other Enlarged Group companies carried out in Russia post-Internalisation will not create permanent establishments in Russia that could lead to reliefs under the Cyprus-Russia treaty being withdrawn or other Russian tax exemptions not being available.
14 Extraordinary General Meeting
You will find set out at the end of this Circular a notice convening the Extraordinary General Meeting to be held at Company's registered offices, Regency Court, Glategny Esplanade, St. Peter Port, Guernsey, GY1 3ST on 28 August 2008 at 4.00p.m. At the meeting, the Resolutions will be proposed and are summarised as follows:
an ordinary resolution to approve the Internalisation (including that the Company will no longer be subject to its investment strategy as a result);
an ordinary resolution to remove BDO Novus Limited as auditors of the Company and to approve BDO Stoy Hayward LLP as sole auditors of the Company;
an ordinary resolution to approve the New Incentive Schemes, to approve the grant of options to Bim Sandhu, Mark Kirkland and Alan Pereira, and to disapply the pre-emption provisions in the Articles affecting the allotment of shares to Bim Sandhu, Mark Kirkland and Alan Pereira pursuant to those options; and
a special resolution to amend the Articles to make the following principal changes:
a) all board meetings, save for one per annum which must be held outside the UK, must be held in Guernsey;
b) a quorum requires a majority of non-UK resident directors;
c) the majority of the board must be physically present at the location set for each board meeting;
d) remote attendance is forbidden where the director is physically present in the UK;
e) the Chairman, or acting Chairman, must be physically present in Guernsey or at the location set for each board meeting;
f) the authority of any director appointed to any executive office shall not exceed the authority of any director appointed to any non-executive office;
g) committee quorum requires one person to be physically present in Guernsey, no person to be physically present in the UK and a majority of non-UK resident directors;
h) the company seal shall be kept and used outside the UK;
i) general meetings must be held outside the UK.
15 Action to be taken
A Form of Proxy for use at the EGM accompanies this Circular. The Form of Proxy should be completed in accordance with the instructions thereon and returned to the Company's registrars, Capita Registrars, The Registry, Proxy Department, 34 Beckenham Road, Beckenham, Kent BR3 4TU, as soon as possible, but in any event so as to be received by 4.00p.m. on 26 August 2008. The completion and return of a Form of Proxy will not preclude Shareholders from attending the EGM and voting in person should they so wish.
16 Letters of Intent and Irrevocable Undertakings
The Company has received support in favour of the proposed Resolutions from shareholders in Raven Russia, representing 35.5 per cent. of the existing issued Ordinary Shares, including a letter of intent from Invesco Asset Management Ltd, representing 21.3 per cent. of the existing issued Ordinary Shares and further irrevocable undertakings representing 14.2 per cent. of the existing issued Ordinary Shares
17 Related party transactions and recommendation
(I) Related party transactions
Owing to the Property Advisory Agreement and Raven Mount's position as owner of RPML, the property manager of the Company, Raven Mount is a related party of the Company for the purposes of the AIM Rules. Therefore, the Internalisation and the Armbridge Acquisition will constitute related party transactions for the purposes of the AIM Rules. The Directors consider, having consulted with Numis Securities, the Company's nominated adviser, that the terms of the Internalisation and the Armbridge Acquisition are fair and reasonable insofar as Shareholders are concerned.
(II) Recommendation
The Directors consider the Internalisation and the proposed changes to the Articles proposed in this Circular to be in the best interests of the Company and its Shareholders as a whole and, accordingly, unanimously recommend that you vote in favour of the Resolutions to be proposed at the EGM as they have irrevocably undertaken so to vote in respect of their own beneficial holdings amounting, in aggregate, to 151,853 Ordinary Shares.
Yours faithfully
Richard JewsonChairman
Related Shares:
RAV.L