Phantom Carried Interest Scheme

Adoption of Phantom Carried Interest Scheme and Related Party Transaction

EMV Capital plc (AIM: EMVC), the deep tech and life sciences VC investment group, today announces the adoption of its phantom carried interest scheme (PCI Scheme) in favour of its Executive Directors and certain PDMRs.

Background to and rationale for the adoption of the PCI Scheme

The Company has previously announced its desire to implement the PCI Scheme as a means of providing long-term incentives to key employees in line with typical venture capital (and private equity) industry standards.

The purpose of the PCI Scheme is to provide the Company with additional means of:

• providing long-term incentives to key employees to augment remuneration packages that may be limited by the current-day cash resources of the Company, bringing them in line with competitors and rewarding high performance;
• aligning participants with the long-term objectives of the Company and the interests of its shareholders;
• consolidating, developing and promoting the Group's collegiate culture and to working as a team to actively drive the value of its portfolio companies through to profitable exits; and
• retaining and recruiting a strong team, providing infrastructure and opportunity to grow and progress long-term careers within the Group.

A summary of the principal terms of the PCI Scheme follows.

Determination of Phantom Carried Interest under the PCI Scheme

The PCI Scheme creates a cash bonus pool from a proportion of investment returns (Investment Returns) paid to the Group upon the exit of each of its interests in portfolio companies. The proportion of Investment Returns to be added to that pool (Phantom Carried Interest or PCI) is determined each year by reference to Investment Returns received in the previous financial year. PCI is determined in the following two ways:

· for each of the Group's direct investments in portfolio companies, by subtracting from the Investment Return: (i) the total investment amount or for a limited number of portfolio companies, their fair value in August 2020; and (ii) a 'hurdle' rate (expected to be 8 per cent.). Of that resulting amount, 20 per cent. shall constitute Phantom Carried Interest and a 'catch-up' shall be applied to ensure an overall 80:20 division between the Company's and Participants' respective interests in profits arising from each exit. Where there are any realised losses in respect of direct interests in portfolio companies, 20 per cent. of those losses would be subtracted from the PCI pool. Similarly, 20 per cent. of material unrealised losses would be subtracted from the PCI pool (and added back should such unrealised losses cease to be material); and

• for each of the Group's indirect interests in portfolio companies (being interests arising from the Group's rights to contractual payments of performance fees/carried interest due from third party investors in portfolio companies upon profitable exits, which interests are not investments made from the Group's balance sheet), PCI is determined as 40 per cent. of Investment Returns after subtracting any amounts due to third parties in connection with their services for capital introductions to portfolio companies.

Participants in the PCI Scheme

The PCI Scheme is intended for the Executive Directors and certain members of the Senior Leadership Team (SLT), with participants (Participants) being admitted by the Remuneration Committee.

The initial Participants comprise the Executive Directors, Ilian Iliev and Ed Hooper, and PDMRs (and members of the SLT), Anesh Patel, Nick Salisbury and Harry Miller.

Awards under the PCI Scheme

Participants are awarded with points (Points) with each Point having an equal right (amongst the other qualifying Points) to a share of Phantom Carried Interest.

In total, 233 Points have been initially awarded as shown in the table below.

The Remuneration Committee may:

• award new Points to new Participants, setting vesting dates and/or conditions in respect thereof; and/or making Points specific to only some portfolio companies; and
• adjust a Participant's Points and/or award bonus Points, thereby adjusting the potential payments to Participants but not affecting the total payments to all Participants.

No Points may be awarded after the tenth anniversary of the date of adoption of the PCI Scheme.

Payments under the PCI Scheme

PCI shall be divided between Participants (who have passed any vesting or other conditions) by reference to their respective Points. To assist with retention, payments to each Participant are to be divided into three equal tranches over three years.

The Remuneration Committee may:

• defer the payment of initial instalments in circumstances where cash is required for going concern purposes; and
• settle up to 50 per cent. of payments to any Participant in the form of ordinary shares in the capital of the Company.

Acceleration of payments under the PCI Scheme shall occur on the change of control of the Company and certain liquidation and insolvency scenarios.

Customary 'malus and clawback' provisions apply to the PCI Scheme.

Departing Participants

The PCI Scheme contains customary provisions dealing with the departure of Participants, categorised as 'good leavers', 'intermediate leavers' and 'bad leavers' and is designed to reward long term service, with good leavers maintaining a crystalised right to future PCI following their departure, intermediate leavers receiving a discounted amount of future PCI and bad leavers ceasing to have any further rights to PCI.

Related party transaction

The Directors, excluding Ilian Iliev and Ed Hooper (by reason of their participation in the PCI Scheme), consider that the above-mentioned awards to Ilian Iliev and Ed Hooper under the PCI Scheme are fair and reasonable in so far as the Company's shareholders are concerned.

EMV Capital Non-Executive Chair, Charles Spicer, commented:

"Our new PCI Scheme is designed to align our senior leadership team directly with shareholders. Rewards are only generated from successful exits, after capital and performance hurdles are met, meaning the team benefits only when shareholders do. It reflects venture capital practice, supports long-term value creation at EMV Capital, as well as enabling us to attract and retain top talent from the industry."