LMS Capital : Publication of Circular &Notice of General Meeting

Publication of Circular &Notice of General Meeting

Released : 05/11/2019

RNS Number : 3458S

LMS Capital PLC

05 November 2019

5 November 2019

For immediate release

LMS Capital plc (the "Company")

Publication of Circular and Notice of General Meeting

Following the announcement made by the Company on 27 September 2019 with regards to the Company's investment management arrangements, the Board of LMS Capital plc announces that it will be posting a circular (the "Circular") to all shareholders today seeking shareholder approval for:

( a )	the proposal made by Gresham House Asset Management Limited ("GHAM") as detailed in the Circular which is
	recommended by the Board (acting by a majority which consists of each of the Independent Directors) for the Company's
	ongoing investment management arrangements; and

1. associated amendments to the performance fee payable to GHAM under the Company's Investment Management Agreement as a related party transaction pursuant to the Listing Rules

(together, the "Proposal").

The Notice of the General Meeting at which an ordinary resolution (the "Resolution") to approve the Proposal will be considered is set out at the end of the Circular. The Resolution, if approved, will result in GHAM continuing to act as the Company's AIFM with the Investment Management Agreement being amended on the terms summarised in Part II of the Circular, which constitutes a related party transaction under the Listing Rules.

The General Meeting will be held at 10 Snow Hill London EC1A 2AL at 10.00 a.m. on 28 November 2019. The Resolution will be proposed as an ordinary resolution; this means that more than half of the votes cast must be in favour for the resolution to be passed.

The Board (acting by a majority which consists of each of the Independent Directors) considers that the Proposal is in the best interests of the Company and its Shareholders as a whole.

The Board (acting by a majority which consists of each of the Independent Directors) recommends that Shareholders vote in favour of the Resolution to be proposed at the General Meeting and which are set out in the Form of Proxy.

In the event that Shareholders do not pass the Resolution approving the Proposal, and as previously announced, the Independent Directors (being all of the current directors other than Mr Rayne) intend to resign from the Board of the Company with immediate effect following the General Meeting. In these circumstances, it is expected that Mr. Rayne, together with the replacement directors selected by him, would seek to implement the internal management proposal that is referenced in the Circular.

Expected timetable of principal events:
Date of the Circular	5 November 2019
Latest time and date for receipt of Forms of Proxy	10.00 a.m. on 26 November 2019
General Meeting	10.00 a.m. on 28 November 2019
Announcement of results of the General Meeting	28 November 2019

References to times in the Circular and above are to London times unless otherwise stated. Any changes to the expected timetable will be notified by the Company through a Regulatory Information Service.

Defined terms contained in this announcement shall have the meaning given to them in the Circular.

Further details of the Proposal and the Resolution which will be put to Shareholders at the General Meeting are set out below.

BACKGROUND

Management Review Process

On 26 July 2019, the Company announced that ahead of the third anniversary of the appointment of GHAM as the incumbent investment manager of the Company, the Board would commence a review of its investment management arrangements. In conducting this review, the Company received proposals from GHAM, Mr. Rayne (in respect of an internal management proposal) and certain other third‐party investment managers. Since the proposals received included one made by Mr. Rayne, it was resolved by the Board that the Independent Directors (being Messrs. Knight, Birkett and Lerner) should carry out the review to ensure any potential conflict of interest could be carefully managed.

Each proposal received by the Company was assessed by the Independent Directors against the following criteria:

1. total implementation and annual running costs applied to the Company under the proposed arrangements;
2. practical deliverability of the proposal;
3. ability, resources and track record of the proposed management team to manage a listed investment company;
4. an ability to find, manage and exit investments in a manner that would be accretive to net asset value; and
5. evidence of a plan to narrow the share price discount to net asset value.

Following presentations and written submissions in respect of each of the proposals, the Independent Directors unanimously concluded that the reappointment of GHAM on the terms described in Part II of the Circular was in the best interests of the Company.

On 27 September 2019, the Company announced the conclusions of the majority of the Board (which comprised all of the Independent Directors), namely that GHAM should continue as the appointed investment manager of the Company. This decision was made on the basis of GHAM's proposal on the terms described in Part II of the Circular , including a reduction in the annual management fee attributable to cash balances in the Company's portfolio.

In conducting the management review, the Independent Directors sought to ensure that all proposals were treated in an equal manner. This included the management proposals being required to be submitted by a defined date and no party being permitted to make subsequent submissions in order to avoid any undue delay to the process. The Independent Directors' decision was therefore based on the information submitted to them in line with the timetable given to all interested parties . This was particularly relevant in the context of the internal management proposal which, in the opinion of the Independent Directors, did not contain sufficient information on the likely annual running costs to allow the Independent Directors to make a definitive conclusion on whether costs would increase or decrease as compared to the current arrangements, or as to whether the internal management proposal would have the resources which the Independent Directors consider are required to drive long‐term performance and Shareholder value.

Internal Management Proposal

Mr. Rayne continues to support an internal management proposal and has stated to the Board that his view is also supported by a number of Shareholders that he represents.

Notwithstanding the conclusion of the Independent Directors, it was acknowledged that Mr. Rayne and his family represent a significant number of Ordinary Shares in the Company. The internal management proposal made to the Company included reference to a shareholder consent being required in order to implement a proposed incentive scheme for the management team (in respect of which any Shareholder connected to the management team could not vote in accordance with the Listing Rules). Reference was also made during discussions of the internal management proposal to a potential return of capital that would also require Shareholder consent. In order to assess the deliverability of the internal management proposal prior to making the announcement on 27 September, the Independent Directors offered Mr. Rayne the chance to demonstrate that a majority of Shareholders (by voting rights) who were not represented by him or his family supported his approach. Mr. Rayne was unable to provide the Independent Directors with evidence of such support.

The Independent Directors emphasise that the Company could have entered into revised management arrangements with GHAM by a majority board decision with only the proposed amendments to the performance fee being subject to Shareholder approval. Notwithstanding this, the Board has decided to make its majority decision to reappoint GHAM subject to approval by Shareholders in accordance with good corporate governance and to seek to provide certainty for shareholders going forward.

In the event that Shareholders do not pass the Resolution approving the Proposal, and as previously announced, the Independent Directors intend to resign from the Board of the Company with immediate effect following the General Meeting. In these circumstances, it is expected that Mr. Rayne, together with the replacement directors selected by him, would seek to implement the internal management proposal with the approval of proposed management incentivisation arrangements being sought from Shareholders within the next year. Shareholders should note that the Company and GHAM have agreed that if notice is served by the Company to terminate the Investment Management Agreement on any date before 30 November 2019, that notice shall expire (and GHAM's appointment shall be terminated) with effect from 31 May 2020.

Dividend Policy and Continuation Vote

Subject to market conditions, applicable law and the Company's performance, financial position and financial outlook, should the Resolution be approved it is also the Directors' intention to pay dividends to Shareholders on a twice‐yearly basis from the beginning of 2020 onwards. Whilst not forming part of its investment policy, the Company will target the payment of dividends which equate to a yield of 4 per cent. per annum on the Company's current estimated unaudited net asset value (being 73.3 pence per Ordinary Share as at 30 June 2019), payable in twice‐yearly instalments (the "Target Dividend"). The Company will also target a progressive increase in the Target Dividend over time. Dividends may be paid out of either or both of income and capital, subject to applicable legal requirements.

The Target Dividend is a target only and does not constitute a profit forecast. There can be no assurance that the Target Dividend can or will be achieved from time to time and should not be seen as an indication of the Company's expected or actual results or returns. Accordingly, Shareholders should not place any reliance on the Target Dividend or assume that the Company will make any distributions at all.

The Board also intends to introduce a 5‐year continuation vote. The Directors will propose an ordinary resolution that the Company continues its business as a closed‐ended investment company (a "Continuation Resolution") at the annual general meeting of the Company held in 2024. If the Continuation Resolution is passed, the Directors will put a further Continuation Resolution to Shareholders at the annual general meeting of the Company every five years thereafter.

If a Continuation Resolution is not passed, the Directors will be required to put forward proposals for the reconstruction, reorganisation or winding‐up of the Company to the Shareholders for their approval within six months following the date on which the relevant Continuation Resolution is not passed. These proposals may or may not involve winding‐up the Company or liquidating all or part of the Company's then existing portfolio of investments and, accordingly, failure to pass a Continuation Resolution will not necessarily result in the winding‐up of the Company or liquidation of all or some of its investments.

RESOLUTION

The Proposal is subject to the approval of Shareholders, and the Notice of the General Meeting at which the Resolution to approve the Proposal will be considered is set out at the end of the Circular. The Resolution, if approved, will result in GHAM continuing to act as the Company's AIFM with the Investment Management Agreement being amended on the terms summarised in Part II of the Circular, which constitutes a related party transaction under the Listing Rules.

If the Resolution is not approved, Shareholders should expect that Mr. Rayne and the new directors will proceed with alternative proposals.

ACTION TO BE TAKEN BY SHAREHOLDERS

The General Meeting will be held at 10 Snow Hill London EC1A 2AL at 10.00 a.m. on 28 November 2019 to approve the Resolution described in the Circular.

The Resolution will be proposed as an ordinary resolution; this means that more than half of the votes cast must be in favour for the resolution to be passed.

Subject to the applicable restrictions on voting on related party transactions in the Listing Rules, all Shareholders are entitled to attend and vote at the General Meeting. In accordance with the Articles, all Shareholders present in person or by proxy shall upon a show of hands have one vote and upon a poll shall have one vote in respect of each share held. To ensure that a quorum is present at the General Meeting, two Shareholders entitled to vote must be present, whether in person or by proxy (or, if a corporation, by a representative).

The Notice of the General Meeting is set out at the end of the Circular and a Form of Proxy is enclosed with the Circular.

Shareholders are asked to complete and return the Form of Proxy enclosed with the Circular, together with any power of attorney or other authority under which they are signed or a notarially certified or office copy thereof, in accordance with the instructions printed thereon Link Asset Services, Corporate Actions, 34 Beckenham Road, Beckenham, Kent, BR3 4TU, as soon as possible and, in any event, so as to arrive by no later than 10.00 a.m. on 26 November 2019. Alternatively, Shareholders may submit their proxy vote electronically via the Registrar's website by visiting www.signalshares.com. For an electronic proxy to be valid, the appointment must be received by the Registrar by no later than 10 . 00 a . m . on 26 November 2019 . Shareholders who hold their Shares electronically may submit their votes through CREST. Shareholders are requested to complete and return a Form of Proxy, vote electronically or submit their votes through CREST, whether or not they wish to attend the General Meeting.

This announcement contains inside information.

For further information, please contact:
LMS Capital plc	+ 44(0)20 7935 3555
Martin Knight, Chairman
J.P. Morgan Cazenove (Corporate Broker)	+ 44(0)20 7742 4000
Michael Wentworth‐Stanley

LEI: 2138004UJ1TW8UCELX08

Important Information

The initial yield target is a target only and does not constitute a profit forecast. There can be no assurance that the initial yield target can or will be

achieved from time to time and neither should be seen as an indication of the Company's expected or actual results or returns. Accordingly, investors should not place any reliance on the initial yield target in deciding whether to invest in the Company.

In addition, this announcement includes statements that are, or may be deemed to be, "forward‐looking statements". These forward‐looking statements can be identified by the use of forward‐looking terminology, including the terms "believes", "estimates", "anticipates", "expects", "intends", "may", "will", or "should" or, in each case, their negative or other variations or comparable terminology . These forward ‐ looking statements relate to matters that are not historical facts regarding the Company's investment strategy, financing strategies, investment performance, results of operations, financial condition, prospects and dividend policies of the Company and the instruments in which it will invest. By their nature, forward‐looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward‐looking statements are not guarantees of future performance. There are a number of factors that could cause actual

results and developments to differ materially from those expressed or implied by these forward‐looking statements. These factors include, but are not limited to, changes in general market conditions, legislative or regulatory changes, changes in taxation regimes or development planning regimes, the Company's ability to invest its cash in suitable investments on a timely basis and the availability and cost of capital for future investments.

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact [e-mail] visit www.rns.com.

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