MIXT Matrix I&G3

 
TIDMMIX TIDMMIXT 
 
JOINT ANNOUNCEMENT 
 
MATRIX INCOME & GROWTH VCT PLC 
 
MATRIX INCOME & GROWTH 3 VCT PLC 
 
14 APRIL 2010 
 
RECOMMENDED PROPOSALS FOR A MERGER BETWEEN MATRIX INCOME & GROWTH VCT PLC ("VCT 
1") AND MATRIX INCOME & GROWTH 3 VCT PLC ("VCT 3") TO BE COMPLETED BY PLACING 
VCT 3 INTO MEMBERS' VOLUNTARY LIQUIDATION PURSUANT TO SECTION 110 OF THE 
INSOLVENCY ACT 1986 AND THE TRANSFER BY VCT 3 OF ALL OF ITS ASSETS AND 
LIABILITIES TO VCT 1 IN CONSIDERATION FOR NEW ORDINARY SHARES OF 1 PENCE EACH 
IN THE CAPITAL OF VCT 1 ("VCT 1 NEW SHARES") AND THE CANCELLATION OF THE 
LISTING OF THE VCT 3 ORDINARY SHARES OF 1 PENCE EACH IN THE CAPITAL OF VCT 3 
("VCT 3 SHARES") ("THE SCHEME") 
 
SUMMARY 
 
VCT 1 and VCT 3, both of which are managed by Matrix Private Equity Partners 
LLP ("Matrix Private Equity"), announced on 9 February 2010 that agreement in 
principle had been reached for the merger of the two companies. 
 
Discussions have now been concluded and proposals for consideration of the 
Scheme have today been sent to both companies' shareholders. The Scheme will, 
if effected, result in the merger of VCT 3 with VCT 1, creating an enlarged 
company ("Enlarged Company") with net assets of over GBP32 million (taking into 
account the dividends to be paid by the companies on 21 April 2010). The merger 
is expected to deliver cost savings and other strategic benefits to both sets 
of shareholders. 
 
BACKGROUND 
 
VCT 1 was launched in July 2004 and has raised GBP20.9 million (net of expenses) 
since inception. VCT 3 was launched in September 2005 and has raised GBP18.9 
million (net of expenses) since inception. The objectives of both companies is 
to provide investors with a regular income stream by way of tax-free dividends, 
and to generate capital growth through portfolio realisations, which can be 
distributed by way of additional tax-free dividends. 
 
As at 31 December 2009, VCT 1 had investments in 18 companies with an aggregate 
value of GBP11,779,583 and audited net assets of GBP16,979,370 (83.34p per VCT 1 
Share). VCT 1 has paid dividends since launch totalling 16.3p per VCT 1 Share 
and has also declared an interim dividend for the year ended 31 December 2009 
of 5.0p per VCT 1 Share. VCT 1 has bought back 1,803,832 VCT 1 Shares for an 
aggregate consideration of GBP1,453,310. 
 
As at 31 December 2009, VCT 3 had audited net assets of GBP17,478,122 (90.04p per 
VCT 3 Share), and, in aggregate, investments in 18 companies. Since launch, 
dividends have been paid totalling 5.55p per VCT 3 Share (GBP1,109,018 in 
aggregate) and has also declared an interim dividend for the year ended 31 
December 2009 of 4.0p per VCT 3 Share. VCT 3 has bought back 691,970 VCT 3 
Shares for an aggregate consideration of GBP427,863. 
 
The two companies have made investments alongside each other and other funds 
managed by Matrix Private Equity benefiting from accessing larger transactions 
than might otherwise have been the case. As a venture capital trust ("VCT") 
becomes invested and, in light of changes to VCT investment restrictions, the 
benefits of having two separate VCTs with similar investment portfolios no 
longer outweigh the costs of separate listed companies. 
 
VCTs are required to be listed on the Official List of the UK Listing 
Authority, which involves a significant level of listing costs as well as 
related fees to ensure the VCT complies with all relevant legislation. As a VCT 
becomes fully invested, its net assets may start to decrease, primarily due to 
dividends, buy backs and annual expenses. The running costs can become a 
proportionately greater burden which may have an adverse effect on a VCT's 
return for its shareholders. A larger VCT should therefore be better placed to 
spread such running costs across a greater investment portfolio and, as a 
result, may be able to pay a higher level of dividends to shareholders over its 
life. 
 
With the above in mind, VCT 1, VCT 3 and Matrix Private Equity entered into 
discussions to consider a merger of the companies to create a single larger 
VCT; the aim being to achieve strategic benefits and reductions in the annual 
running costs for both sets of shareholders whilst, in respect of the 
arrangements with Matrix Private Equity, ensuring a fair and proportionate 
amalgamation of the current arrangements across the two companies. 
 
EXPECTED TIMETABLE 
 
VCT 1 and VCT 3 dividend payment date                  21 April 2010 
 
Date from which it is advised that dealings in VCT 3   3 May 2010 
Shares should only be for cash settlement and 
immediate delivery of documents of title 
 
VCT 1 annual general meeting                           11.00 am 12 May 2010 
 
VCT 3 annual general meeting                           11.15 am 12 May 2010 
 
VCT 1 extraordinary general meeting                    11.30 am 12 May 2010 
 
VCT 3 first extraordinary general meeting              11.45 am 12 May 2010 
 
Record date for VCT 3 shareholders' entitlements under 19 May 2010 
the Scheme 
 
VCT 3 register of members closed                       19 May 2010 
 
Calculation date of the Scheme                         after 5.00 pm 19 May 
                                                       2010 
 
Suspension of listing of VCT 3 Shares                  7.30 am 20 May 2010 
 
VCT 3 second extraordinary general meeting             11.00 am 20 May 2010 
 
Effective date for the transfer of assets and          20 May 2010 
liabilities of VCT 3 to VCT 1 and issue of VCT 1 New 
Shares ("Effective Date") 
 
Announcement of the results of the Scheme              20 May 2010 
 
Admission of and dealings in the VCT 1 New Shares to   21 May 2010 
commence 
 
Cancellation of the VCT 3 Share listing                8.00 am 21 May 2010 
 
CREST accounts credited with VCT 1 New Shares          24 May 2010 
 
Certificates for the VCT 1 New Shares dispatched       26 May 2010 
 
MERGER OF VCT 1 WITH VCT 3 
 
Following detailed consideration of the portfolios and financial position of 
each company agreement has been reached to recommend a merger of the companies. 
 
The merger will be completed by VCT 3 being placed into members' voluntary 
liquidation pursuant to a scheme of reconstruction under Section 110 of the 
Insolvency Act 1986. All of the assets and liabilities of VCT 3 will then be 
transferred to VCT 1 in consideration for VCT 1 New Shares (which will be 
issued directly to the shareholders of VCT 3). The merger will be completed on 
a relative net asset basis (unaudited net assets as at close of business on the 
day immediately preceding the Effective Date). 
 
The merger will result in the creation of an Enlarged Company and should result 
in material costs savings and simpler administration. As both companies have 
the same directors, investment manager, investment policies and advisers, this 
is achievable without major additional cost or disruption to the portfolio of 
investments. 
 
The merger will bring benefits to both groups of shareholders through: 
 
  * a reduction in annual running costs for the Enlarged Company compared to 
    the aggregate annual running costs of the separate companies, in particular 
    through the reduction in directors' and advisers' fees; 
 
  * the creation of a single VCT of a more efficient size with a greater 
    capital base over which to spread annual costs; 
 
  * participation in a large VCT with the longer term potential for a more 
    diversified portfolio thereby spreading risk across a broader range of 
    investments and creating an increased ability to support follow-on 
    investments; 
 
  * an increased ability to maintain a buy-back programme and the potential to 
    increase future dividends due to a reduced level of annual expenses, as 
    well as a reduced need to retain funds to meet them; 
 
  * increased flexibility in continuing to meet the various requirements for 
    qualifying VCT status; and 
 
  * the potential of greater liquidity in the secondary market. 
 
Annual running costs for VCT 1 and VCT 3 are approximately GBP632,000 and GBP 
627,000 respectively or GBP1,259,000 in total. These costs represent 3.7 per 
cent. of VCT 1's audited net asset value and 3.6 per cent. of VCT 3's audited 
net asset value, in each case as at 31 December 2009. It is considered that 
this level of continued administrative annual running costs can be materially 
reduced through the merger resulting in benefits to both groups of shareholders 
 
The aggregate anticipated cost of undertaking the merger is approximately GBP 
275,000 including VAT, legal and professional fees, stamp duty and the costs of 
winding up VCT 3. The costs of the merger will be split proportionately between 
the companies by reference to their respective roll-over value and merger 
value. 
 
On the assumption of the net asset value ("NAV") of the Enlarged Company 
remaining the same as immediately after the merger, annual cost savings for the 
Enlarged Company of at least GBP140,000 per annum (representing 0.43 pr cent. per 
annum of the expected net assets of the Enlarged Company) are anticipated to be 
achieved following completion of the merger. Again, assuming that the NAV of 
the Enlarged Company remains constant for this purpose, and on the basis that 
no new funds are raised or investments realised to meet annual costs, it is 
believed that the costs of the merger would, therefore, be recovered within two 
years. 
 
THE SCHEME 
 
The mechanism by which the merger will be effected is as follows: 
 
  * VCT 3 will be placed into members' voluntary liquidation pursuant to a 
    scheme of reconstruction under Section 110 Insolvency Act 1986; and 
 
  * all of the assets and liabilities of VCT 3 will be transferred to VCT 1 in 
    exchange for VCT 1 New Shares (which will be issued directly to holders of 
    VCT 3 Shares). 
 
This will result in the VCT 3 Shares effectively being merged into the VCT 1 
Shares by reference to the respective net asset value of each company. 
Following the transfer, the listing of VCT 3's Shares will be cancelled and VCT 
3 will be wound up. Shareholders should note that the merger by way of the 
Scheme will be outside the provisions of the City Code on Takeovers and 
Mergers. 
 
The merger by way of the Scheme is conditional upon the approval by the 
shareholders of VCT 1 and VCT 3 of resolutions to be proposed at the VCT 1 
extraordinary general meeting, the VCT 3 first extraordinary general meeting, 
VCT 3 second extraordinary general meeting and certain other conditions as 
further set out in the documentation sent to shareholders today. 
 
Example: 
 
As at 31 December 2009, the audited NAV per VCT 1 Share (taken from the audited 
accounts of VCT 1 to 31 December 2009) was 83.34p. The merger value ("Merger 
Value") per VCT 1 Share (this being the audited NAV of VCT 1 as at 31 December 
2009 after adjustments in relation to the Scheme, anticipated merger costs and 
recent interim dividends declared and then divided by the number of VCT 1 
Shares in issue) would have been 77.68p had the Scheme been implemented on that 
date. 
 
As at 31 December 2009, the audited NAV per VCT 3 Share (taken from the audited 
accounts of VCT 3 to 31 December 2009) was 90.04p. The roll-over value 
("Roll-Over Value") of a VCT 3 Share (this being the audited NAV of VCT 3 as at 
31 December 2009 after adjustments in relation to the Scheme, anticipated 
merger costs and recent interim dividends declared and then divided by the 
number of VCT 3 Shares in issue) would have been 85.27p (assuming no dissenting 
VCT 3 shareholders) had the Scheme been implemented on that date. 
 
The number of New VCT 1 Shares to be issued to VCT 3 shareholders would then 
have been calculated by multiplying the number of VCT 1 Shares in issue by the 
merger ratio, this being the Roll-Over Value per VCT 3 Shares divided by the 
Merger Value of a VCT 1 Share. The VCT 1 New Shares would then have been issued 
to VCT 3 shareholders pro-rata to holdings in VCT 3 (disregarding for these 
purposes dissenting VCT 3 shareholders and the amounts required to purchase 
such VCT 3 shares held). This would effectively have given 1.0977 New VCT 1 
Shares for every VCT 3 Share held (assuming no dissenting VCT 3 shareholders), 
21,306,522 New Shares in aggregate, had the merger been completed on 31 
December 2009. 
 
MANAGEMENT, ADMINISTRATION AND PERFORMANCE INCENTIVE ARRANGEMENTS 
 
Matrix Private Equity is the investment manager of VCT 1 and VCT 3 and, 
following a reorganisation of the Matrix group of companies, now also provides 
administration services to both companies in place of Matrix-Securities 
Limited. 
 
The current management and administration fees payable to Matrix Private Equity 
by the two companies is an annual management fee of 2 per cent. of the net 
assets of the relevant VCT (exclusive of VAT, if any) and an annual 
administration fee of 0.3 per cent. of the aggregate amount raised by that VCT 
(plus VAT). 
 
Matrix Private Equity is currently entitled to performance incentive fees in 
respect of VCT 1 of an amount equivalent to 20 per cent. of subsequent cash 
distributions made to shareholders in VCT 1 (whether by dividend or otherwise) 
over and above the Target Return in any accounting period. The Target Return 
for these purposes is dividends of 6p per VCT 1 Share per annum (index linked 
from the third accounting period) (subject to a pro rata reduction or increase 
for an accounting period which is less than or greater than 12 months), subject 
to maintenance of a High Watermark of NAV per VCT 1 Share of 100p (i.e. the 
original issue price of all VCT 1 Shares). Any cumulative shortfalls against 
the annual Target Return ("Shortfall") have to be made up in later years before 
any entitlement arises. An equivalent performance incentive fee entitlement 
exists in VCT 3 (save that the entitlement is shared between Matrix Private 
Equity and Matrix Group Limited in the ratio of 75:25 unless agreed otherwise 
between them). 
 
Matrix Private Equity will continue to provide investment management and 
administration services to the Enlarged Company following the merger. 
 
It is intended that the existing management and administration arrangements 
between VCT 1, Matrix Private Equity and Matrix-Securities Limited will be 
replaced with a new investment management agreement between the Enlarged 
Company and Matrix Private Equity covering both management and administration 
services. The new investment management agreement will provide for an annual 
fee in respect of the 2 per cent. of the net asset element only of an amount 
equivalent to 2 per cent. of the net assets of VCT 1 (exclusive of VAT, if any) 
plus GBP120,000 (inclusive of VAT, if any), the GBP120,000 being subject to 
increases in the Retail Prices Index. The terms of this new agreement will 
otherwise be substantially the same as those currently applicable for VCT 1 and 
VCT 3.. 
 
The existing performance incentive arrangements described above will remain 
broadly unchanged save that the High Watermark, the Target Return and the 
cumulative Shortfall will be adjusted to amounts representing the weighted 
average performance of VCT 1 and VCT 3 as follows: 
 
  * The High Watermark of 100p per VCT 1 Share will be replaced with an amount 
    equal to the average issue price per VCT 1 Share in issue following the 
    merger (calculated as the weighted average of the respective issue prices 
    of the shares in issue in VCT 1 and VCT 3). 
 
  * The Target Return of annual dividends of 6p per VCT 1 Share (index linked 
    from the third accounting period) will be adjusted to an average dividend 
    hurdle per VCT 1 Share in issue following the merger (calculated as the 
    weighted average of the respective target returns for VCT 1 and VCT 3). 
 
  * The cumulative Shortfall to the date of the merger will be deemed to be an 
    amount per VCT 1 Share equivalent to the average shortfall per VCT 1 Share 
    in issue following the merger (calculated as the weighted average of the 
    respective cumulative shortfall for VCT 1 and VCT 3). 
 
The aim of the adjustments is to equalise the existing VCT 1 and VCT 3 
performance incentive entitlements within the Enlarged Company. The 
arrangements following the merger will be solely with Matrix Private Equity as 
Matrix Group Limited has agreed to waive any entitlement by agreeing to the 
termination of the VCT 3 performance incentive agreement. Both Boards believe 
that these revised performance incentive arrangements going forward reflect a 
fair and proportionate amalgamation of the arrangements which currently apply 
to the two companies. 
 
The revised performance incentive arrangements ("Revised Performance Incentive 
Arrangements"), which are being entered into with Matrix Private Equity, a 
`related party' of VCT 1 under the Listing Rules, constitute a related party 
transaction requiring the approval of VCT 1 shareholders pursuant to the 
Listing Rules. 
 
The Revised Performance Incentive Arrangements will, therefore, only be entered 
into if the merger becomes effective and subject to VCT 1 shareholder approval. 
 
MATRIX PRIVATE EQUITY 
 
Matrix Private Equity, created by a merger between GLE Development Capital 
Limited and Matrix Private Equity Limited, is the private equity arm of Matrix 
Group Limited and manages funds primarily through a range of VCTs raised from 
private investors. Total funds under management are circa GBP120 million across 
six funds with the portfolio of equity investments in companies currently 
numbering forty. 
 
Matrix Private Equity specialises in backing management buy outs and takes a 
partnership approach to investing, working alongside ambitious, entrepreneurial 
management teams wishing to buy businesses. Equity investments, typically up to 
GBP7 million, are made in UK privately owned companies across a broad range of 
industries and sectors, helping entrepreneurial management teams to achieve 
substantial gains for all shareholders. Matrix Private Equity often works with 
a highly experienced operating partner who has direct management experience and 
a wide range of contacts. Matrix Private Equity is recognised as one of the 
most experienced teams and active investors in this segment of the private 
equity market. 
 
DIVIDENDS 
 
Both VCT 1 and VCT 3 have declared interim dividends for the year ended 31 
December 2009 of 5.0p per VCT 1 Share and 4.0p per VCT 3 Share. These dividends 
have been declared as interim dividends in respect of the relevant company for 
the year ended 31 December 2009, rather than final year end dividends, so that 
they can be paid prior to the merger being completed. 
 
VCT 1 BOARD CHANGES 
 
Christopher Moore is currently a director of Matrix Income & Growth 4 VCT plc, 
another VCT managed by Matrix Private Equity. It is intended that Christopher 
Moore will take over as chairman of Matrix Income & Growth 4 VCT plc and for 
these purposes he will need to be an independent director (common directors 
across VCTs managed by the same investment manager will no longer be regarded 
as independent under the Listing Rules) and was proposing to resign as a 
director of VCT 1 in September 2010. In addition, the size and future 
composition of the Enlarged Company's Board has been considered. It has been 
concluded that a board of three directors would be more cost effective going 
forward. in light of the merger, and subject to it becoming effective, 
Christopher Moore has agreed to bring his resignation as a director of VCT 1 
forward and resign following the merger becoming effective. 
 
VCT 1 SHARE ISSUE AND BUY-BACK AUTHORITIES AND CANCELLATION OF THE SHARE 
PREMIUM ACCOUNT 
 
In order to implement the merger, VCT 1 will need shareholder authority to 
issue New VCT 1 Shares pursuant to the Scheme the Company also proposes to 
renew its authorities to issue New Shares (having disapplied pre-emption 
rights) following the merger and make market purchases of its own shares. In 
addition, as the merger will create new share premium from the issue of New 
Shares Shareholder authority to cancel additional share premium to create 
(subject to court sanction) further distributable reserves is also being 
requested. The special reserve to be created following court sanction may be 
used to fund distributions to Shareholders and buy-backs, to set off or write 
off losses to and for other corporate purposes of the Company. 
 
DOCUMENTS AND APPROVALS 
 
VCT 1 shareholders will receive a copy of a circular convening the VCT 1 
extraordinary general meeting to be held on 12 March 2010 (together with the 
VCT 1 prospectus and annual report and accounts for VCT 1 for the year ended 31 
December 2009) at which VCT 1 shareholders will be invited to approve 
resolutions in connection with the Scheme, the Revised Performance Incentive 
Arrangement, renew share issue and share repurchase authorities and approve the 
cancellation of VCT 1's share premium account. 
 
VCT 3 shareholders will receive a circular convening the VCT 3 first 
extraordinary general meeting on 12 May 2010 and the VCT 3 second extraordinary 
general meeting on 20 May 2010 (together with the VCT 1 prospectus and annual 
report and accounts for VCT 3 for the year ended 31 December 2009) at which VCT 
3 shareholders will be invited to approve resolutions in connection with the 
Scheme. 
 
Copies of the VCT 1 annual reports and accounts for the year ended 31 December 
2009, the VCT 3 annual reports and accounts for the year ended 31 December 
2009, the prospectus and the circular for VCT 1 and the circular for VCT 3 have 
all been submitted to the UK Listing Authority and will be shortly available 
for inspection at the UK Listing Authority's Document Viewing Facility which is 
situated at: 
 
Financial Services Authority 
 
25 The North Colonnade 
 
Canary Wharf 
 
London E14 5HS 
 
Telephone: 0207 066 1000 
 
Investment Manager for VCT 1 and VCT 3 
 
Matrix Private Equity Partners LLP 
 
Mark Wignall 
 
Telephone: 020 3206 7000 
 
Administrator for VCT 1 and VCT 3 
 
Matrix Private Equity/Matrix-Securities Limited 
 
Robert Brittain / Sarah Penfold 
 
Telephone: 020 3206 7000 
 
Solicitors to VCT 1 and VCT 3 
 
Martineau 
 
Kavita Patel 
 
Telephone: 0870 763 2000 
 
Sponsor to VCT 1 
 
Charles Stanley Securities 
 
Ben Johnston / Jen Boorer 
 
Telephone: 020 7953 2000 
 
The directors of VCT 1 accept responsibility for the information relating to 
VCT 1 and its directors and proposed directors contained in this announcement. 
To the best of the knowledge and belief of such directors (who have taken all 
reasonable care to ensure that such is the case), the information relating to 
VCT 1 and its directors contained in this announcement, for which they are 
solely responsible, is in accordance with the facts and does not omit anything 
likely to affect the import of such information. 
 
The directors of VCT 3 accept responsibility for the information relating to 
VCT 3 and its directors contained in this announcement. To the best of the 
knowledge and belief of such directors (who have taken all reasonable care to 
ensure that such is the case), the information relating to VCT 3 and its 
directors contained in this document, for which they are solely responsible, is 
in accordance with the facts and does not omit anything likely to affect the 
import of such information. 
 
Martineau are acting as legal advisers for VCT 1 and VCT 3 and for no one else 
in connection with the matters described herein and will not be responsible to 
anyone other than VCT 1 and VCT 3 for providing the protections afforded to 
clients of Martineau or for providing advice in relation to the matters 
described herein. 
 
Charles Stanley, which is authorised and regulated in the United Kingdom by the 
Financial Services Authority, is acting as sponsor for VCT 1 and no one else 
and will not be responsible to any other person for providing the protections 
afforded to customers of Charles Stanley or for providing advice in relation to 
any matters referred to herein. 
 
                                       7 
 
 
 
END 
 

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