CONTENTS SUMMARY 3 RISK FACTORS 5 LETTER FROM THE CHAIRMAN 7 EXPECTED TIMETABLE AND OFFER STATISTICS 9 PART ONE Introduction to The Offer 10 PART TWO The Investment Policy 13 PART THREE The Investment Opportunity 14 PART FOUR The Investment Manager 16 PART FIVE The Board 18 PART SIX Management Remuneration and Other Costs 19 PART SEVEN Other Information 20 PART EIGHT Taxation Considerations for Investors 21 PART NINE Conditions to be met by Venture Capital Trusts 22 PART TEN Additional Information 23 Directors and Advisers 39 Definitions 40 PART ELEVEN Terms and Conditions of Application 42 Application Procedure Application Forms 2
SUMMARY BACKGROUND VCTs were introduced by the UK government in 1995 to encourage individuals to invest in UK smaller companies. The government achieved this by offering VCT investors a series of attractive tax benefits. As a result of these tax benefits, the total invested in VCTs between 1995 and 31 December 2010 was more than £3.9 billion. Recently, investment in VCTs has surged, with industry commentators, such as the Financial Times, noting that “Investors have been flocking to these schemes since the government introduced restrictions on pensions”. TYPICAL INVESTOR PROFILE A typical investor for whom the Offer is designed is a UK income tax-payer over 18 years of age with an investment range of between £3,000 and £200,000 who, having reviewed the risk factors, considers the investment policy of the VCT to be attractive. This may include retail, institutional and sophisticated investors and high net worth individuals who already have a portfolio of non-VCT investments. SUMMARY OF THE INVESTMENT POLICY Octopus VCT 2 will invest in a portfolio of unquoted companies (which may include AIM traded or PLUS Market traded companies) in a variety of sectors and technologies where the Octopus team is confident that investments can be structured with a higher level of capital security with the objective of building a portfolio of lower-risk investments. The VCT follows a similar investment mandate to Octopus VCT, which was launched in 2009 and saw its £50 million fund raising target oversubscribed by March 2010, making it the largest ever VCT on launch. Whilst Octopus VCT 2 will have the ability to invest in a variety of sectors and technologies, the focus will be on building a portfolio of lower-risk investments in the renewable energy sector, with a particular focus on solar energy. Prior to investment into Qualifying Investments, Octopus VCT 2 will invest in money market funds, short-dated bonds and other investments where Octopus believes that the overall downside risk is low. AN AWARD WINNING INVESTMENT MANAGER Octopus VCT 2 will be managed by Octopus, one of the UK’s leading specialist fund management companies with more than £2 billion under management across its range of products (as at 31 December 2010). Octopus currently manages 16 VCTs - more than any other fund manager. Financial advisers have voted Octopus ‘VCT Provider of the Year’ at the Professional Adviser awards in each of 2007, 2008, 2009 and 2010. Octopus was also named VCT Manager of the Year at the unquote” British Private Equity Awards for 2010. Octopus has more than 180 staff, including approximately 50 investment professionals, and has twice been voted as one of the ‘Top 100 Small and Medium-Sized Companies to Work For’ in the Sunday Times. Octopus has also received an AAA rating for financial planning from Citywire for two years in succession. The Octopus team will source, introduce and structure investment opportunities for Octopus VCT 2. In respect of solar opportunities, Octopus will draw on the expertise of Lightsource Renewable Energy Limited in sourcing investments and providing ongoing project management, installation and operational services to investee companies, although it will be Octopus who will structure the investments for the VCT. A significant potential pipeline of solar installation locations have already been identified, including commercial roof-top and brownfield ground-based sites. AN EXPERIENCED BOARD The Board consists of three non-executive directors, Ian Pearson (Chairman), Richard Hodgson and Chris Hulatt. Ian Pearson and Richard Hodgson are independent of Octopus and the other funds that it manages, and between them have broad experience in venture capital businesses and renewable energy. In particular, Richard was recently chief financial officer of Reconomy Holdings Limited (the Reconomy Group), a private equity backed waste management company, and Ian has spent time as the Minister for Climate Change and the Environment during his senior parliamentary career. Chris sits on the investment committees of a number of funds managed by Octopus and is also a director of five other VCTs managed by Octopus. The Board has overall responsibility for Octopus VCT 2 and its affairs, including its investment policy. COMPELLING TAX BENEFITS A qualifying investor will receive up to 30% up-front income tax relief on an investment in Octopus VCT 2, provided Ordinary Shares are held for five years. This means that if an investor invests £10,000 in the VCT, their income tax bill for the tax year in which the investment is made will be reduced by £3,000. Therefore, an investment of £10,000 will only cost £7,000 after receipt of the income tax relief, providing an effective return of 35% on the net investment (after initial costs) before the VCT makes its first investment. In addition, dividends paid by the VCT and capital gains on the Ordinary Shares are both tax-free for qualifying investors. DESIGNED FOR LIQUIDITY Octopus VCT 2 is designed to enable the return of capital to investors after five years – a period which will enable investors to retain their up-front income tax relief. In order to do this, the intention is to seek Shareholder approval at the annual general meeting in 2016 to approve a winding-up of the VCT. The Directors will then arrange for all of the VCT’s remaining investments to be sold, thereby allowing capital to be returned to Shareholders. Additionally, the Directors will be operating a buyback policy, which will mean that if Shareholders need to sell Ordinary Shares during the five year holding period, they will be able to do so at the latest published net asset value (subject to the VCT having sufficient distributable reserves and adhering to Listing Rules). Given the intended life of the VCT, the Directors do not intend to buy back any Ordinary Shares on or after the fifth anniversary of the first allotment. Shareholders need to bear in mind that they will lose any up-front tax relief received if the five year holding period is not met. A FEE STRUCTURE APPROPRIATE FOR A LOWER RISK VCT When designing the investment structure for Octopus VCT 2, Octopus reviewed investor and adviser feedback and has opted for a lower risk approach. Consistent with this approach, two elements of the fee structure ensure that the interests of Octopus are aligned with those of Shareholders. First, the management fees are contingent on Shareholders obtaining the targeted return. Secondly, there is no performance fee on excess returns. The Board believes that it would 3
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