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Rugby Estates plc ('Rugby Estates' or the 'Company')

Proposed Reduction of Capital, Return of Cash to Shareholders of 50 pence per Existing Ordinary Share by way of either a Capital Repayment or a Special Dividend and Notice of General Meeting

1. Introduction

On 11 December 2008, following a strategic review of its business, the Company announced its intention to return approximately 50 pence per share to Shareholders and to do so in a tax efficient manner. The Company is now pleased to announce details of the return of capital, which involves, inter alia, the Share Split, Reduction of Capital, the Capital Repayment, the Special Dividend and the Share Capital Consolidation (the 'Proposals'). Full details of the Proposals are set out in a Circular which is expected to be posted to Shareholders today and are summarised below. Terms used in this announcement have the meaning set out in Appendix 1.

The Proposals involve the issue to Shareholders of B Shares and/or C Shares which is intended to give Shareholders, where eligible under their prevailing tax regime (such as in the UK), the flexibility to receive a return of cash from the Company as capital or income for tax purposes, or a combination of the two. The Directors believe the Proposals represent the most efficient and effective way to return cash to Shareholders.

The Proposals require the approval of Shareholders, which will be sought at a General Meeting to be held at 4 Farm Street, Mayfair, London W1J 5RD at 10.00 a.m. on 15 June 2009. The notice of the General Meeting is set out in the Circular being sent to Shareholders. The Reduction of Capital included in the Proposals is also subject to the confirmation of the Court. 

It is intended that the market price of the Company's ordinary shares should remain approximately equal before and after the return, subject to market movements, and consequently the Proposals (through the Share Capital Consolidation) will reduce the number of such ordinary shares in issue to reflect the return of cash to Shareholders. For every 5 Existing Ordinary Shares held at the Record Time (5.00 p.m. on 7 July 2009), Shareholders will receive 4 New Ordinary Shares. The New Ordinary Shares will be traded on AIM in the same way as Existing Ordinary Shares and will be equivalent in all material respects to the Existing Ordinary Shares, including as to their dividend rights. 

At the General Meeting approval will also be sought for a resolution to approve new Incentive Schemes, further details of which are set out in paragraph 9 below, to support the new business strategy of the Company described in paragraph 2 below. In addition, approval will be sought at the General Meeting of resolutions to renew the Company's authority to make market purchases of shares and to renew the Directors' authority to allot shares pursuant to section 80 of the 1985 Act and to disapply section 89 of the 1985 Act, in each case to take account of the Reduction of Capital and the Share Capital Consolidation.

2. Background to the Proposals

The ongoing challenging market conditions have led the Company's board to review Rugby Estates' strategy and direction. The Directors believe that, with its small capital base, Rugby Estates will be better placed to enhance Shareholder value by using the expertise of its highly focused management team to develop further its successful asset management business and reduce the capital employed in direct property holdings.

The Group's key focus will be to grow its asset management business, which has relatively low capital requirements, under the Rugby Asset Management brand. Rugby Asset Management Limited is currently property adviser to ING Covent Garden Limited Partnership, O Twelve Estates Limited and Rugby Estates Investment Trust plc.

The Group's directly owned property portfolio, which had an aggregate valuation of approximately £46 million as at 31 January 2009, will continue to be managed with a view to maximising net rental income and, in due course, capital receipts through disposals. Whilst it is very difficult to forecast how long it will take for an orderly market in commercial properties to return, the Directors expect realisation of the portfolio to take place over the next three to five years. The Directors do not intend to reinvest the portfolio realisation proceeds in the acquisition of new properties. Subject to retaining sufficient resources for the needs of the asset management business, surplus funds will be returned to Shareholders as and when significant realisations are made. The present proposal to return 50 pence per share to Shareholders is therefore intended to be the first of a number of cash returns.

3. Summary of the Proposals

The implementation of the Proposals involves a number of steps, which are all subject to approval of Shareholders at the General Meeting.

• Each Existing Ordinary Share in issue on the Share Split Record Date (5.00 p.m. on 7 July 2009) will be sub-divided into one ordinary share of 10 pence together with either one C Share of 10 pence or (at the election of Shareholders) one B Share of 10 pence. The B Shares will entitle their holders to receive the Capital Repayment of 50 pence per B Share and the C Shares will entitle their holders to receive the Special Dividend of 50 pence per C Share.

• Shareholders will receive C Shares unless they elect for B Shares.

• Following the Share Split, and subject to the confirmation of the Court, the Company will seek to reorganise its share capital to return 50 pence per B Share to the holders of such shares.

• The Company will then cancel the B Shares and the C Shares.

• The Proposals to implement the above involve the reduction of the Company's share capital in order to (i) create the additional distributable reserves (if any) required to fund the Special Dividend and (ii) create a reserve in order to fund the Capital Repayment. In addition, a further reduction of the Company's share premium account is being proposed to create additional distributable reserves such that after completion of the Proposals the Company will have distributable reserves of approximately £16.3 million. These distributable reserves will provide a substantial cushion against further losses which may arise from falling capital values of property assets with the balance being available, subject to any requirements of the Court and the Companies Acts, for future distribution to Shareholders.

• The Court will require to be satisfied that the interests of the Company's creditors will not be prejudiced as a result of the Reduction of Capital. The Company will put into place such form of creditor protection (if any) as the Court may require.

• Following the Reduction of Capital becoming effective, the ordinary share capital will be subdivided and consolidated on the basis of 4 New Ordinary Shares for every 5 Existing Ordinary Shares held at the Record Time. The Share Capital Consolidation is intended to maintain comparability of the Company's future and historic share price. 

• New Ordinary Shares will be traded on AIM in the same way as Existing Ordinary Shares and will be equivalent in all other respects to the Existing Ordinary Shares, with the exception of the difference in nominal value and subject to the rights of the B Shares and the C Shares.

• In the event that the Court does not confirm the Reduction of Capital, or the Reduction of Capital is otherwise not implemented by the Long-Stop Date, the share capital of the Company will be reorganised so as to leave the Company's share capital in its current position and Shareholders holding their current numbers of Existing Ordinary Shares of 20 pence each.

Further details of the steps required to implement the Proposals are set out in the Circular to Shareholders.

4. The return of cash

The Proposals will return 50 pence per Existing Ordinary Share to Shareholders. Under the Proposals, Shareholders will receive, in respect of their holding of Existing Ordinary Shares at the Record Time: 

• 1 B Share or 1 C Share (as they may elect) for every 1 Existing Ordinary Share; and

• 4 New Ordinary Shares for every 5 Existing Ordinary Shares.

Shareholders will be able to elect between the following Alternatives as to how they receive their cash: 

- the Capital Alternative in respect of the B Shares (cash expected to be sent by 22 July 2009); and/or

-  the Dividend Alternative in respect of the C Shares (cash expected to be sent by 22 July 2009).

Shareholders may split the aggregate amount to be returned to them between the Alternatives. The Alternatives and the Share Capital Consolidation are described more fully below in paragraphs 5 and 6.

5. The Alternatives

The Alternatives available to Shareholders are summarised below and explained in further detail in the Circular to Shareholders. Shareholders may split the aggregate amount to be returned to them between the Alternatives.

Shareholders who do not make a valid election will be deemed to have elected for the Dividend Alternative in respect of ALL of their Share Entitlement.

The general guidance on the UK tax treatment included below is only a summary, is based on current UK law and practice as at the date of this announcement and applies only to Shareholders who are resident and, if they are individuals, ordinarily resident in the UK for tax purposes and who hold their Existing Ordinary Shares, B Shares and/or C Shares beneficially as investments and not on trading account. UK tax resident Shareholders should read Part 7 of the Circular as the Alternatives will have different UK tax consequences.

Shareholders who are in any doubt as to their tax position, or are subject to tax in a jurisdiction other than the United Kingdom, should consult an appropriate professional adviser without delay.

● Alternative 1 - Capital Alternative (B Shares)

Shareholders who elect for the Capital Alternative in respect of some or all of their Share Entitlement will receive one B Share for each corresponding Existing Ordinary Share they hold at the Record Time. It is expected that the B Shares will be cancelled pursuant to the Reduction of Capital by 9 July 2009 and that the Capital Repayment of 50 pence will be made in respect of each cancelled B Share. Proceeds will be sent to Shareholders by 22 July 2009. 

The amounts received under the Capital Alternative should generally be taxed as capital for UK tax purposes. UK tax resident Shareholders should read Part 7 of the Circular for further information. The attention of Non-United Kingdom Shareholders is drawn to paragraph 6 of Part 5 of the Circular.

● Alternative 2 - Dividend Alternative (C Shares)

Shareholders who elect or are deemed to have elected for the Dividend Alternative in respect of some or all of their Share Entitlement will receive one C Share for each corresponding Existing Ordinary Share they hold at the Record Time. A Special Dividend of 50 pence will become payable on each such C Share by 9 July 2009 and we expect to send the Special Dividend to such Shareholders by 22 July 2009. C Shares will be cancelled following declaration of the Special Dividend pursuant to the Reduction of Capital.

The amounts received under the Dividend Alternative should generally be taxed as income for UK tax purposes. UK tax resident Shareholders should read Part 7 of the Circular for further information. The attention of Non-United Kingdom Shareholders is drawn to paragraph 6 of Part 5 of the Circular.

Details of how to complete and return an Election Form are set out in Part 4 of the Circular. Shareholders electing through CREST should refer to paragraph 2 of Part 4 of the Circular for further information.

Shareholders wishing to receive the Special Dividend in respect of all of their Share Entitlement need NOT complete or return the Election Form or make an election through CREST as C Shares will be issued and the Special Dividend paid automatically in respect of all of the Share Entitlement in relation to which a Shareholder has not elected for either of the Alternatives. 

6. The Share Capital Consolidation

The return of cash proposed to be made pursuant to the Proposals represents approximately 21.9 per cent of the Company's market capitalisation as at 27 May 2009, based on the closing middle-market price of 228.5p per Existing Ordinary Share on that date. The Share Capital Consolidation will reduce the number of the Company's ordinary shares in issue by approximately the same percentage as the return of cash bears to the market capitalisation of the Company.

For every 5 Existing Ordinary Shares held at the Record Time, Shareholders will receive 4 New Ordinary Shares. The intention is that, subject to market movements, the market price per New Ordinary Share immediately after Admission should be approximately equal to the market price per Existing Ordinary Share immediately prior to the Proposals whilst the market capitalisation will reflect the return of cash pursuant to the Proposals.  Any fractional entitlements resulting from the Share Capital Consolidation will be aggregated into New Ordinary Shares and sold in the market for the benefit of the Company.

The New Ordinary Shares will be traded on the London Stock Exchange in the same way as the Existing Ordinary Shares and will be equivalent in all material respects to the Existing Ordinary Shares, including as to their dividend rights. Application will be made for the New Ordinary Shares to be admitted to trading on AIM and Admission is expected to take effect at 8.00 a.m. on 9 July 2009. It is expected that share certificates representing the New Ordinary Shares will be sent to Shareholders who hold their Existing Ordinary Shares in certificated form by 22 July 2009. The CREST accounts of Shareholders who hold their Existing Ordinary Shares in CREST are expected to be credited with New Ordinary Shares at approximately 8.00 a.m. on 9 July 2009.

7. Rugby Estates Share Schemes

Separate letters are being sent to participants in the Rugby Estates Share Schemes in respect of the Proposals. The intention is broadly to preserve, subject to market fluctuations, the value of each option and award under the Rugby Estates Share Schemes through the Share Capital Consolidation. Therefore, the current intention is that no adjustments to share entitlements will be made under the Rugby Estates Share Schemes where holders of options and awards will not participate in the Return of Cash with respect to such entitlement. Accordingly, entitlements will relate to the same number of New Ordinary Shares as they currently do to Existing Ordinary Shares. Participants in the Rugby Estates Share Schemes will be able, subject to the terms of the Rugby Estates Share Schemes, to exercise options between the date of the Circular and the Record Time.

8. Proposed amendments to the Articles of Association

A number of amendments to the Articles of Association are required to implement the Proposals and require approval at the General Meeting. The proposed amendments relate to the rights and restrictions attaching to the B Shares and C Shares and certain consequential amendments to the Articles of Association. 

9. New Incentive Schemes

In light of the Company's new business strategy, the Remuneration Committee recently undertook a detailed review of its current remuneration policy to ensure the policy supports the new business strategy and continues to enable the Company to attract, motivate and retain executives of the calibre necessary to deliver the corporate strategy over the next four to five years. It is proposed that a new incentive structure be implemented to support this strategy consisting of:

• the Rugby Estates Plc 2009 Property Realisation Incentive Plan (the 'PRIP') which will give executives the opportunity to earn cash bonuses directly related to distributions to Shareholders generated from the realisation of the Company's property portfolio by 31 January 2014; and

• the Rugby Estates Plc 2009 Value Creation Plan (the 'VCP'), the overriding principle of which is to allow executives to be awarded equity with a value equivalent of up to 20 per cent of the value created for Shareholders driven by the growth in value of the asset management business.

This new incentive structure is designed to align the interests of the executive Directors and other executives with those of Shareholders, as well as ensuring that a significant proportion of potential total reward will be conditional on short and long-term performance and that rewards are linked to the satisfaction of clear and targeted objectives which are the main drivers of Shareholder value.

Further details of the proposed Incentive Schemes are set out in Appendix 2 of this announcement. 

At the General Meeting a resolution will be proposed seeking approval of the proposed Incentive Schemes. If the Incentive Schemes are approved, no new awards will be made under the Company's existing Long Term Incentive Plan.

The Incentive Schemes are deemed to be a related party transaction pursuant to the AIM Rules due to the involvement of the executive Directors. The non-executive Directors, being the independent Directors for the purposes of the Incentive Schemes, consider, having consulted with the Company's nominated adviser, Fairfax I.S. PLC, that the Incentive Schemes are fair and reasonable insofar as Shareholders are concerned.

10. Action to be taken

A Form of Proxy for use in connection with the General Meeting will be sent to Shareholders with the Circular. Whether or not Shareholders intend to be present at the General Meeting, they are requested to complete and sign the Form of Proxy and return it, in accordance with the instructions printed on it, by post or (during normal business hours) by hand to Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6ZL to arrive as soon as possible and, in any event, by no later than 10.00 a.m. on 13 June 2009. Shareholders who hold their Existing Ordinary Shares in CREST may appoint a proxy by completing and transmitting a CREST Proxy Instruction to Equiniti so that it is received by no later than 10.00 a.m. on 13 June 2009.

The return of a completed Form of Proxy or the transmission of an electronic proxy or CREST Proxy Instruction will not prevent a Shareholder from attending the General Meeting and voting in person (in substitution for their proxy vote) should they wish to do so and are so entitled.

An Election Form for use by Shareholders (with the exception of Shareholders who hold their Existing Ordinary Shares in CREST) in connection with the Alternatives is being sent to Shareholders with the Circular. To be valid, Election Forms must be validly completed and returned in the prepaid envelope provided so as to be received by Equiniti by no later than 11.00 a.m. on 7 July 2009. If Shareholders do not use the envelope provided, the Election Form should be sent by post or delivered by hand (during normal business hours) to Equiniti, Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA and postage will (where applicable) be payable. Shareholders who hold their Existing Ordinary Shares in CREST will not be sent Election Forms and may only elect in respect of the Alternatives through CREST. 

11. Recommendation

The Board believes the Proposals and the Incentive Schemes to be in the best interests of Shareholders as a whole. Accordingly, the Board unanimously recommends that Shareholders vote in favour of the Resolutions, as the Directors intend to do in respect of their own beneficial holdings, amounting in aggregate to 2,264,654 Existing Ordinary Shares representing approximately 13.4 per cent of the current issued share capital of Rugby Estates Plc. The executive Directors will abstain from voting their beneficial holdings amounting in aggregate to 2,177,330 Existing Ordinary Shares, representing approximately 12.9 per cent of the current issued share capital of Rugby Estates Plc, on Resolution 5 (Incentive Schemes). In addition, the executive Directors have been advised that Rugby Estates Plc Retirement Benefits Scheme will vote a minimum of 544,169 Existing Ordinary Shares, representing approximately 3.2 per cent of the current issued share capital of Rugby Estates Plc, in favour of Resolutions 1 to 4 inclusive. Undertakings to vote in favour of the Resolutions have been received from other Shareholders in respect of, in aggregate, 4,731,928 Existing Ordinary Shares representing approximately 28.0 per cent of the current issued share capital of Rugby Estates Plc.

12. Expected timetable of key events

Latest time and date for receipt of the Form of Proxy or CREST Proxy Instruction for the General Meeting	10.00 a.m. on 13 June 2009
General Meeting	10.00 a.m. on 15 June 2009
Latest time and date for receipt of Election Forms or TTE Instructions from CREST holders in relation to the Alternatives	11.00 a.m. on 7 July 2009
Existing Ordinary Shares disabled in CREST and Existing Ordinary Share register closed	5.00 p.m. on 7 July 2009
Share Split Record Date	5.00 p.m. on 7 July 2009
Record Time (for determining entitlement to the Capital Repayment on the B Shares and the Special Dividend on the C Shares)	5.00 p.m. on 7 July 2009
Court hearing to confirm the Reduction of Capital	8 July 2009
Latest time and date for dealings in Existing Ordinary Shares	4.30 p.m. on 8 July 2009
Effective date for Reduction of Capital	9 July 2009
Cancellation of trading of Existing Ordinary Shares	8.00 a.m. on 9 July 2009
New Ordinary Shares admitted to trading on AIM and dealings in the New Ordinary Shares commence	8.00 a.m. on 9 July 2009
CREST accounts credited with New Ordinary Shares	9 July 2009
Credit CREST accounts with, make BACS payments to mandated accounts in respect of or despatch cheques in respect of the Capital Repayment on the B Shares and the Special Dividend on the C Shares	on or around 22 July 2009
Despatch of share certificates in respect of New Ordinary Shares	on or around 22 July 2009

Notes:

1. References to times in this announcement are to London times. If any of the above times or dates should change, the revised times and/or dates will be notified to Shareholders by an announcement on a Regulatory Information Service.

2. All events in the above timetable following the holding of the General Meeting are conditional on the passing of Resolution 1 and Admission.

13. Circular to Shareholders

The Circular to Shareholders is expected to be posted to Shareholders today and further copies will be available later today on the Company's website, www.rugbyestates.plc.uk

Enquiries:

David Tye, Chairman	Rugby Estates Plc	020 7016 0050
Andrew Wilson, Chief Executive	Rugby Estates Plc	www.rugbyestates.plc.uk
Stephanie Highett / Dido Laurimore/ Rachel Drysdale	Financial Dynamics	020 7831 3113
Simon Bennett / Jeremy Porter	Fairfax I.S. PLC	020 7598 5368

 

Appendix 1

Definitions

The following definitions apply throughout this announcement unless the context otherwise requires:

'1985 Act'	the Companies Act 1985, as amended
'2006 Act'	the Companies Act 2006, as amended
'Admission'	admission of the New Ordinary Shares to trading on AIM becoming effective in accordance with the AIM Rules
'Admission Date'	9 July 2009 (or such later date as the Directors may determine)
'AIM'	a market operated by the London Stock Exchange
'AIM Rules'	the AIM rules for companies issued by the London Stock Exchange, as amended from time to time
'Alternatives'	the Dividend Alternative and the Capital Alternative, or either of them as the context may require
'Articles' or 'Articles of Association'	the articles of association of the Company from time to time
'B Shares'	the preference shares of 10 pence each in the capital of the Company carrying the rights and restrictions summarised in Part 6 of the Circular
'BACS'	the Bankers Automated Clearing System
'Board' or 'Directors'	the board of directors of the Company or a duly appointed committee of the board
'C Shares'	the non-cumulative preference shares of 10 pence each in the capital of the Company carrying the rights and restrictions summarised in Part 6 of the Circular
'Capital Alternative'	the election for B Shares to be cancelled pursuant to the Reduction of Capital and conferring a right to the Capital Repayment as more fully described in Parts 1 and 5 of the Circular
'Capital Reorganisation'	the reorganisation of the Company's share capital comprising the Share Split and the Share Capital Consolidation
'Capital Repayment'	the proposed repayment of 50 pence per B Share
'Circular'	the circular to Shareholders containing, inter alia, details of the Proposals
'Companies Acts'	the 1985 Act and the 2006 Act
'Company' or 'Rugby Estates Plc'	Rugby Estates Plc, incorporated in England and Wales with company number 2548935
'Court'	the High Court of Justice in England and Wales
'CREST'	the relevant system (as defined in the Uncertificated Securities Regulations 2001) in respect of which Euroclear is the Operator (as defined in such regulations)
'CREST Proxy Instruction'	a properly authenticated CREST message appointing and instructing a proxy to attend and vote in place of a Shareholder at the General Meeting and containing the information required to be contained in the manual published by Euroclear
'Daily Official List'	the daily record setting out the prices of all trades in shares and other securities conducted on the London Stock Exchange
'Directors'	the directors of the Company from time to time
'Dividend Alternative'	the election (or deemed election) for C Shares to be cancelled pursuant to the Reduction of Capital and conferring a right to the Special Dividend as more fully described in Parts 1 and 5 of the Circular
'Election Form'	the election form enclosed with the Circular, where it is sent to Shareholders who hold their Existing Ordinary Shares in certificated form
'Equiniti'	the Company's registrars, Equiniti Financial Services Limited and Equiniti Limited (together or separately 'Equiniti') of Aspect House, Spencer Road, Lancing, West Sussex BN99 6DA
'Euroclear'	Euroclear UK & Ireland Limited, the operator of CREST (formerly known as CRESTCo Limited)
'Existing Ordinary Shares'	the existing ordinary shares of 20 pence each in the capital of the Company or, as the case may be, issued ordinary shares of 10 pence each resulting from the Share Split
'Form of Proxy'	the form of proxy enclosed with the Circular for use by Shareholders in connection with the General Meeting
'FSA'	Financial Services Authority
'General Meeting'	the General Meeting of the Company (or any adjournment thereof) to be held at 4 Farm Street, Mayfair, London W1J 5RD at 10.00 a.m. on 15 June 2009
'Group'	the Company and its subsidiaries from time to time
'Incentive Schemes'	the PRIP and the VCP
'London Stock Exchange'	London Stock Exchange plc
'Long-Stop Date'	the close of business on 9 July 2009, or such later time and/or date as the Directors in their absolute discretion may determine
'New Ordinary Shares'	following the Capital Reorganisation, the new ordinary shares of 12.5 pence each in the capital of the Company
'Non-United Kingdom Shareholder'	a Shareholder who is not resident in the United Kingdom or who is a citizen, resident or national of a country other than the United Kingdom. For the avoidance of doubt, a Shareholder who is not resident in the United Kingdom includes a Shareholder who is resident in the Channel Islands or the Isle of Man
'Performance Period'	the five years ending 31 January 2014
'PRIP'	the Rugby Estates Plc 2009 Property Realisation Incentive Plan
'Proposals'	the Share Split, the Reduction of Capital, the Capital Repayment, the Special Dividend and the Share Capital Consolidation
'Record Time'	5.00 p.m on 7 July 2009 (or such later time and/or date as the Directors in their absolute discretion may determine)
'Reduction of Capital'	the proposed cancellation of the B Shares and reduction of the share premium account of the Company and the proposed cancellation of the C Shares, as described in the Circular
'Regulatory Information Service'	a Regulatory Information Service on the list of Regulatory Information Services maintained by the FSA
'Remuneration Committee'	the remuneration committee of the Company
'Resolutions'	the resolutions set out in the notice of the General Meeting contained in the Circular to (i) implement the Proposals, (ii) in order to take account of the Reduction of Capital and the Share Capital Consolidation comprised in the Proposals, to renew the Company's authority to make market purchases of shares and to renew the Directors' authority to allot shares pursuant to section 80 of the 1985 Act and to disapply section 89 of the 1985 Act and (iii) to approve the Incentive Schemes
'Rugby Estates Share Schemes'	the 1994 Approved Executive Scheme, the All Employee Share Ownership Plan and the Long Term Incentive Plan, in each case of the Company
'Share Capital Consolidation'	the consolidation and division of the Existing Ordinary Shares in the manner set out in Resolution 1
'Share Entitlement'	the entitlement of each Shareholder to be allotted one B Share or one C Share for each Existing Ordinary Share held at the Record Time
'Shareholders'	holders of Existing Ordinary Shares, New Ordinary Shares, B Shares or C Shares, as the context may require
'Share Split'	the proposed sub-division and redesignation of each Existing Ordinary Share in issue at the Share Split Record Date into one ordinary share of 10 pence and either one C Share or (at the discretion of Shareholders) one B Share
'Share Split Record Date'	5.00 p.m. on 7 July 2009 (or such other time and/or date as the Directors in their absolute discretion may determine)
'Special Dividend'	a special dividend of 50 pence per C Share to be declared and paid in accordance with the Dividend Alternative
'TTE Instruction'	transfer to escrow instruction
'United Kingdom' or 'UK'	the United Kingdom of Great Britain and Northern Ireland
'VCP'	the Rugby Estates Plc 2009 Value Creation Plan

Appendix 2

Incentive Arrangements

Summary of the Property Realisation Incentive Plan ('PRIP')

Participating employees

It is currently intended that only executive Directors will participate. Non-executive Directors are not eligible to participate in the PRIP.

Delivery mechanism

An award under the PRIP gives a participant the right to receive a pre-determined cash payout from a bonus pool dependent upon continuity of employment and the achievement of performance conditions. The payment of the cash bonus is dependent on the disposal of the Group's property portfolio by 31 January 2014 and generating cash returns to Shareholders over the same period.

Maximum payments/Size of bonus pool

The bonus pool is uncapped but will not exceed 5 per cent of the proceeds of sale of the Group's property portfolio and capital returns from co-investments over the Performance Period.

Maximum individual participation limits

The award levels for participants will be determined by the Remuneration Committee. The indicative allocation levels from any bonus pool for the executive Directors are set out below:

Executive Chairman	40 per cent
Chief Executive	40 per cent
Finance Director	20 per cent

Payment structure and performance conditions

Participants will receive, in aggregate, an amount in cash equivalent to 5 per cent of any distributions made to Shareholders over the Performance Period. The proposed return of capital of 50 pence per share proposed to be made in July 2009 pursuant to the Proposals set out in this announcement and the Circular will be excluded from the calculation of the bonus pool.

50 per cent of the bonus pool created will be paid out in respect of distributions made in each relevant financial year. The remaining 50 per cent will be deferred and paid out after the end of the Performance Period subject to:

• the disposal of the Group's entire directly-owned property portfolio (subject to a de minimis value of direct property holdings of £2 million or less remaining at 31 January 2014); and

• the aggregate gross sale proceeds from the disposal of the properties being at least £41.36 million (being 90 per cent of the valuation of properties owned at 31 January 2009).

The total bonus pool will not exceed 5 per cent of the aggregate gross sale proceeds from the disposal of the properties owned at 31 January 2009 and capital realisations of co-investments.

The Remuneration Committee retains the discretion to accelerate the release of the deferred sums in exceptional circumstances.

Cessation of employment

On normal cessation of employment entitlements to any payout under the PRIP will lapse.

Change of control

On a change of control event the Performance Period will end. Any sums due in the relevant financial year and the total deferred pool will be payable immediately.

Summary of the Value Creation Plan ('VCP')

Type of incentive

Participants in the VCP will be granted awards of units from a total pot which has no value on the date of grant. Subject to continuous employment and the achievement of corporate performance targets units may convert into nil cost options ('Share Awards') after the end of the Performance Period. 

The value of a Share Award to an individual will be based on the growth in the value of the asset management business and the number of units allocated in proportion to the total number of units in the pot.

Participating employees

It is currently intended that the executive Directors and other senior executives (included future employees) will participate. Non-executive Directors are not eligible to participate in the VCP.

Performance Period

The Performance Period will end on 31 January 2014. There will be no opportunity to re-test.

Performance conditions

Units will only convert to Share Awards if:

• the Group's entire directly-owned property portfolio has been disposed of by the end of the Performance Period (directly owned property assets of £2 million or less remaining at 31 January 2014 will be ignored); and

• the annual fee income from the asset management business is greater than £5 million for the financial year ending 31 January 2014. The Remuneration Committee may exclude exceptional or one-off items from fee income for this purpose if it considers that the level of fee income reasonably expected for the year ending 31 January 2015 will be less than £5 million. 

Units not converted after the end of the Performance Period will lapse.

Future value of units/Number of shares

The value of units on conversion is dependent on the growth in value of the Group based on an agreed valuation of the asset management business at the start of the Performance Period and the market value of the Group at the end of the Performance Period. There will be no payout if the value of the Group at the end of the Performance Period is below the threshold value of £10 million market capitalisation.

The value sharing percentage used to calculate the value of the total pot of units is based on the value of the Group at the end of the Performance Period, as set out in the table below:

Value of Company at end of Performance Period	Value sharing percentage
Threshold (£10m market capitalisation)	*10 per cent of growth in value
Exceptional performance (£20m market capitalisation)	*20 per cent of growth in value

*The value sharing percentage will increase on a straight line basis between the threshold and exceptional performance levels.

The value of the Company at the end of the Performance Period will be determined by the Remuneration Committee using the market capitalisation of the Company over a maximum period of 12 months ending on 31 January 2014 less the fair value of co-investments and any residual properties as at 31 January 2014.

It is intended that units will convert into Share Awards within 14 days of the auditors signing the audited accounts for the year ending 31 January 2014.

 

Subject to the achievement of the performance conditions, the total value in respect of the total pot of units is to be calculated based on the value created in excess of the initial value of the asset management business (which has been determined for this purpose at £5 million) multiplied by the relevant value sharing percentage as set out in the table above.

The total value will be divided by the total number of units awarded to calculate the value of a unit.

The aggregate value of a participant's units is to be calculated by multiplying the value of a unit by the number of units subject to their award. This value is then divided by the average mid-market share price for up to but not exceeding 5 business days immediately prior to the date of conversion after the end of the Performance Period to determine the number of shares subject to the participant's Share Award.

Individual participation limits

The award levels for the executive Directors and for the Managing Director of Rugby Asset Management ('RAM') will be determined by the Remuneration Committee. In addition, the Remuneration Committee will approve participation and award levels for other employees in the VCP taking into consideration the recommendations from the executive Directors as follows:

Position	Participation (% of total number of units currently available)
Chairman	20 per cent
Chief Executive	20 per cent
Finance Director	10 per cent
Managing Director of RAM	10 per cent
Other key executives	10 per cent
Unallocated	30 per cent
Total	100 per cent

The unallocated proportion may be awarded in the future to present or new executives. Any unallocated units at the end of the Performance Period will be allocated to the existing participants in proportion to their existing allocation.

Change of control

The Performance Period will end at the date of a change of control. Units will be converted immediately to Share Awards based on the satisfaction of performance conditions up to that date and the valuation of the Group adjusted for the fair value of the property portfolio and co-investments at the point of change of control.

Corporate dilution limits

Units will typically convert to Share Awards in the form of nil cost options over ordinary shares. At the sole discretion of the Remuneration Committee, on exercise, Share Awards may be satisfied by newly issued shares, market purchase shares or in cash or a combination of all elements.

Dilution will be determined based on the issued share capital at the point of conversion from units to Share Awards. The actual level of dilution at the end of the Performance Period will be dependent upon the level of value created for Shareholders at the point of conversion subject to a maximum overall limit of 25 per cent of the issued share capital.

Cessation of employment

On cessation of employment a participant's award will lapse unless the Remuneration Committee determines otherwise. In exercising its discretion the Remuneration Committee will determine whether units will continue in existence until the end of the original Performance Period and whether to reduce the number of shares subject to a Share Award that may be awarded on conversion based on the time elapsed between the date of grant and the date of cessation.

ENDNOEIFFLFEIIDFIA