Prospect Japan Fund Circ. Relating to Exercise of Stock Acquisition Rights

 
TIDMPJF 
 
Prospect Japan Fund Limited 
 
   Recommended Proposal Relating to the Exercise of Stock Acquisition Rights 
 
Further to the announcement on 16 December 2015 regarding the purchase by 
Prospect Japan Fund Limited (the "Company") of stock acquisition rights 
("SARs") in Prospect Co., Ltd ("Prospect Co."), the Company is today publishing 
a circular (the "Circular") containing a recommended proposal relating to the 
exercise of the SARs pursuant to the terms of an agreement governing their 
exercise (the "Exercise Agreement"). A copy of the Circular will be sent to 
Shareholders and will be submitted to the National Storage Mechanism. 
 
The Chairman's Letter, as contained in the Circular, is set out below. 
 
"To the Shareholders 
 
Dear Sir or Madam 
 
Recommended Proposal Relating to the Exercise of Stock Acquisition Rights 
Issued by Prospect Co., Ltd 
 
INTRODUCTION 
 
I am writing to you in connection with the purchase by the Company on 21 
December 2015 of 1,440 stock acquisition rights from Prospect Co., Ltd 
("Prospect Co.") each of which gives the Company the right to purchase 100,000 
ordinary shares in Prospect Co. at ¥5.4 million per stock acquisition right (or 
¥54 per ordinary share) (the "SARs"). As announced on 16 December 2015, the 
Company purchased the SARs for ¥288 million (approximately $2.4 million). 
 
Since Prospect Co. is the parent company of the Manager, Prospect Asset 
Management (Channel Islands) Limited, the purchase of the SARs constituted a 
related party transaction for the purposes of the Listing Rules. Because the 
cost of the purchase was below certain size thresholds in the Listing Rules, 
the smaller related party provisions in the Listing Rules applied and the 
required announcement was made on 16 December 2015. 
 
TERMS OF THE SARS 
 
The Company purchased the SARs for ¥200,000 per SAR on 21 December 2015 for a 
total cost of ¥288 million pursuant to the terms of the Subscription Agreement 
(see paragraph 3 of Part II below for a summary of the terms of the 
Subscription Agreement). Each SAR gives the Company the right to purchase 
100,000 ordinary shares in Prospect Co. which can be exercised at any point 
from 21 December 2015 until 20 December 2020 (the "Exercise Period"). The SARs 
are exercisable at a price of ¥5.4 million per SAR (¥54 per Prospect Co. 
ordinary share) for a total cost to the Company of ¥7.776 billion. The Company 
was the sole subscriber for the SARs, the SARs are unlisted and are freely 
transferable. 
 
The initial exercise price of the SARs will be ¥5.4 million per SAR (or ¥54 per 
Prospect Co. ordinary share) but this exercise price will be subject to 
adjustment on the occurrence of certain anti-dilution adjustment events in 
accordance with the terms and conditions of the SARs as summarised in paragraph 
3 of Part II. 
 
In the event that the price of the Prospect Co. ordinary shares on the Tokyo 
Stock Exchange reaches ¥108 for a period of ten consecutive trading days, 
Prospect Co. has the right to repurchase the SARs from the Company at a price 
of ¥200,000 per SAR (or ¥2 per ordinary share). In the event that Prospect Co. 
exercises this right of repurchase it is required to give the Company ten 
business days' notice and the repurchase may take place on the 20th business 
day following the tenth trading day on which the Prospect Co. share price 
reached ¥108. 
 
The Company's Investment Policy provides that the Company may not "invest or 
lend more than 25 per cent. of its assets at the time the investment is made in 
securities of any one company or single issuer (other than obligations of the 
Japanese Government or its agencies or of the US Government or its agencies)". 
Therefore the Company is prohibited, by the terms of its Investment Policy, 
from exercising 1,440 SARs in one transaction. Furthermore, in order to provide 
clarity in relation to the timing and circumstances of the exercise of the SARs 
the Company has entered into an agreement, conditional on the approval of 
Shareholders, with Prospect Co. setting out the terms of exercise of the SARs 
(the "Exercise Agreement"). 
 
As set out below, the Exercise Agreement provides that the Company may only 
exercise the SARs in accordance with the terms of the Exercise Agreement. The 
discretion of the Company to choose to exercise the SARs pursuant to the terms 
of the Subscription Agreement has therefore been superseded by the terms of the 
Exercise Agreement, where Prospect Co. has the right subject to certain 
conditions to require the Company to exercise the SARs. In the event that the 
Exercise Agreement is terminated any further exercise of the SARs by the 
Company would be subject to the provisions of Listing Rule 11, and further 
Shareholder approval may be required. 
 
THE EXERCISE AGREEMENT 
 
The terms of the Exercise Agreement provide that Prospect Co. has the right to 
require the Company to exercise a predetermined number of SARs, subject to, 
inter alia, the share price of Prospect Co. closing at ¥56 or more per ordinary 
share on each day such right is exercised and the value of the Prospect Co. 
ordinary shares held by the Company amounting to less than 5 per cent. of the 
Company's gross assets. A summary of the terms of the Exercise Agreement is set 
out in paragraph 4 of Part II below. 
 
The Exercise Agreement may require the Company, subject to the conditions set 
out therein, to purchase in aggregate 144,000,000 ordinary shares in Prospect 
Co. for ¥54 per ordinary share, for a total cost of ¥7.776 billion 
(approximately $64.2 million). The Exercise Agreement also provides that the 
Company only exercises the SARs in accordance with the terms of the Exercise 
Agreement and that in the event the Company fails to exercise the required 
number of SARs, Prospect Co. is entitled to repurchase such number of SARs at ¥ 
200,000 per SAR (or ¥2 per ordinary share). 
 
The Listing Rules require the Company to consider the obligations set out in 
the Exercise Agreement in light of a potential total investment in Prospect Co. 
which could, in any 12 month period, total ¥7.776 billion (approximately $64.2 
million). Because of the size of the prospective transaction (if the SARs are 
exercised in full) the smaller related party provisions in the Listing Rules do 
not apply. 
 
Entering into the Exercise Agreement is therefore conditional upon Shareholder 
approval. The Resolution to approve the Exercise Agreement, which is to be 
proposed at the Extraordinary General Meeting as an ordinary resolution, is set 
out in the notice of the Extraordinary General Meeting at the end of this 
document. 
 
The purpose of this letter is to outline the reasons for entering into the 
Exercise Agreement and explain why the Board: (i) considers the Exercise 
Agreement to be in the best interests of the Company and Shareholders as a 
whole; and (ii) recommends that you vote in favour of the Resolution. Since 
Rupert Evans is a director of the Manager, he is not considered to be 
independent and has therefore not taken part in the Board's consideration of 
the Exercise Agreement. 
 
RATIONALE FOR THE PURCHASE AND EXERCISE OF THE SARS PURSUANT TO THE TERMS OF 
THE EXERCISE AGREEMENT 
 
Prospect Co. is listed on the Tokyo Stock Exchange (Tokyo Stock Exchange code: 
3528) with a market capitalisation of ¥7.99 billion ($66 million). It owns and 
operates a number of Japanese based businesses including a real estate 
developer, a construction company, an investment management business and, most 
recently, it has started a solar power generation business. Its investment 
management business is the Manager. 
 
On 17 November 2015 Prospect Co. announced to the Tokyo Stock Exchange that it 
proposed to issue the SARs to the Company, subject to receiving the required 
shareholder approvals. On 16 December 2015 the shareholders of Prospect Co. 
approved the issue of the SARs to the Company on the terms set out above. 
 
The proceeds received by Prospect Co. for the purchase of the SARs on 21 
December 2015 and the proceeds receivable by Prospect Co. in the event that the 
SARs are exercised will provide it with capital to develop its solar power 
generation business and extend its corporate activity in Japanese listed 
companies. The Company believes it is in the interest of Shareholders to invest 
in the SARs as it believes that the SARs are an attractive option on the 
ordinary shares of Prospect Co. and that the Prospect Co. share price is likely 
to exceed ¥54 during the Exercise Period. Furthermore, the corporate activism 
undertaken by Prospect Co. realises value for Shareholders in instances where 
it relates to the Japanese listed companies which are also held by the Company. 
 
The Exercise Agreement sets out clear parameters for when Prospect Co. is able 
to require exercise of the SARs. This will result in the requests to exercise 
the SARs only being made when the market price of Prospect Co.'s shares exceed 
the exercise price and the Company's investment in Prospect Co.'s ordinary 
shares is less than 5 per cent. of the Company's gross assets. Furthermore, 
since Shareholder approval is being sought now, the exercise of the SARs 
pursuant to the Exercise Agreement can be done on a timely basis thereby giving 
the Company greater trading flexibility in relation to the resulting ordinary 
shares in Prospect Co. 
 
As at 29 January 2016 (being the latest practicable date prior to the 
publication of this document) Prospect Co.'s share price was ¥49 (40 US cents) 
per ordinary share with a three month trading range to the same date of ¥42 to 
¥59 per ordinary share. 
 
RELATED PARTY TRANSACTION 
 
As noted above, Prospect Co. is the ultimate parent company of the Manager and, 
in light of being a member of the Manager's group, is accordingly classified as 
a related party of the Company. 
 
The Listing Rules require that a listed company related party transaction must

February 01, 2016 07:56 ET (12:56 GMT)

be approved by Shareholders other than the related party (or its Associates), 
unless certain exemptions apply. Entering into the Exercise Agreement may 
require the Company to acquire an investment in accordance with the Investment 
Policy, which in aggregate represents approximately 54.7 per cent. of the 
Company's gross assets as at the date of this letter. Since no exemptions are 
applicable in relation to the Exercise Agreement, the Exercise Agreement is 
subject to the passing of the Resolution, which will be proposed as an ordinary 
resolution and will require the approval of a majority of the Shareholders 
voting on the Resolution. The Manager has undertaken not to, and to take all 
reasonable steps to ensure that its Associates will not, vote on the 
Resolution. 
 
The Board, having been so advised by Stockdale Securities, considers the terms 
of the Exercise Agreement to be fair and reasonable insofar as Shareholders are 
concerned. In providing advice to the Board, Stockdale Securities has taken 
into account the Board's commercial assessments of the Exercise Agreement. 
 
RESOLUTION 
 
You will find set out at the end of this document, a notice convening an EGM of 
the Company to be held at 10.00 a.m. on 24 February 2016. The Resolution to be 
proposed at the EGM to approve the Exercise Agreement will be proposed as an 
ordinary resolution. 
 
Pursuant to Regulation 48 of the Uncertificated Securities (Guernsey) 
Regulations 2009, entitlement to attend and vote at the meeting and the number 
of votes which may be cast thereat will be determined by reference to the 
register of members of the Company at close of business on the day which is 48 
hours before the time of the meeting. Changes to entries on the register of 
members after that time shall be disregarded in determining the rights of any 
person to attend and vote at the meeting. 
 
ACTION TO BE TAKEN 
 
Whether or not you intend to attend the EGM you should ensure that your Proxy 
Appointment is returned in hard copy form by post, by courier or by hand to the 
Company's registrars, Computershare Investor Services (Jersey) Limited, c/o The 
Pavilions, Bridgwater Road, Bristol BS99 6ZY by no later than 48 hours before 
the time for holding of the EGM. To be valid, the relevant Proxy Appointment 
should be completed in accordance with the instructions accompanying it and 
lodged with the Company's registrars by the relevant time. 
 
Completion and return of the Proxy Appointment will not affect a Shareholder's 
right to attend, speak and vote at the EGM. 
 
RECOMMENDATION 
 
The Board are of the opinion that the Exercise Agreement is in the best 
interests of the Company and its Shareholders as a whole and unanimously 
recommends that Shareholders vote in favour of the Resolution to be proposed at 
the EGM. Rupert Evans has not taken part in the Board's consideration of the 
Exercise Agreement and has refrained from voting on any Board decisions with 
regard to it. 
 
Yours faithfully 
John Hawkins 
Chairman" 
 
Terms used and not defined in this announcement bear the meaning given to them 
in the Circular to be published today. 
 
Enquiries 
 
Northern Trust International Fund Administration Services (Guernsey) 
Limited 
 
Franczeska Hanford                                    +44 (0) 1481 745 918 
 
Stockdale Securities Limited 
 
Alastair Moreton                                      +44 (0) 20 7601 6118 
 
Rose Ramsden                                          +44 (0) 20 7601 6110 
 
 
 
END

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