6 March 2014
Crystal Amber Fund Limited
("the Company" or "Crystal Amber")
Crystal Amber, a 10% shareholder in Leaf Clean Energy Company (`Leaf'), to
requisition an Extraordinary General Meeting of Leaf to change Board and
investment strategy
Reason for calling the EGM
Since Crystal Amber acquired its shareholding in Leaf in October 2013, it has
attempted to engage constructively with the Board of Leaf to explore ways to
enhance shareholder value. It is Crystal Amber's view that the Board has not
adequately addressed three key issues: visibility of the underlying values of
Leaf's investments, the current scale of annual running costs of Leaf, and its
share price, which as at close of business on 5 March 2014 (49p) traded at a 47
per cent discount to the last reported net asset value of 93.80p on 30 June
2013.
Leaf's track record
In July 2007, Leaf raised $386 million (after expenses of approximately $13
million) at IPO. Between 2009 and 2012, Leaf purchased 71.3 million of its own
shares at a cost of $79.3 million. Adjusting for these market purchases would
reduce the net amount originally invested at IPO to $306.7 million. At 30 June
2013, net assets were $183.7 million.
At 30 June 2013, accumulated retained losses were $123 million, which
represents a 40.1 per cent fall in net assets from IPO, after adjusting for the
share buybacks. Leaf reports in US dollars. Accordingly, in sterling terms the
decline in net asset value has been less pronounced as a result of the
appreciation in the US Dollar relative to sterling. However, as most of Leaf's
portfolio is concentrated in the US, it is the performance in US dollars on
which the Board of Leaf should be judged.
In the year to 30 June 2013, Leaf's administrative expenses were $5.17 million
(2012 - $5.49 million). These expenses include payments to the directors, which
comprise one executive and three non-executive directors, of $1.17 million in
the year to 30 June 2013 (2012 - $1.25 million). In the year to 30 June 2013,
Bran Keogh, Leaf's Chief Executive, earned $750,000, which included a cash
bonus of $350,000, and Peter Tom, Leaf's Chairman, earned $200,000, in both
cases the same as in the year to 30 June 2012. Crystal Amber notes that the
only two directors on the Remuneration Committee are Peter Tom and Bran Keogh.
Leaf's issued share capital comprises approximately 128.7 million shares. The
board of Leaf owns, in aggregate, 817,500 shares, which is less than one per
cent of Leaf's equity.
Crystal Amber's dialogue with the Board of Leaf
In October 2013, Crystal Amber acquired 8.7 per cent of Leaf's issued share
capital from two independent institutions. In the following week, Crystal Amber
made market purchases to increase its shareholding to 10 per cent. On 14
November, 2013, Crystal Amber met with the Chairman and the Chief Executive of
Leaf. On 2 December 2013, Crystal Amber wrote to the Chairman of Leaf setting
out its concerns relating to the scale of the share price discount to net asset
value and identified two issues, which in its view, needed to be solved.
Firstly, using discounted future cash flow forecasts to value businesses which
are currently not cash generative is a wholly assumptions based approach
reliant upon estimates of future cash flows. No information on revenues or
earnings is provided which would enable market participants to have greater
visibility as to the current financial position of each underlying investment.
The second issue is that of mthe scale of Leaf's annual running costs. Crystal
Amber also stated that it was baffled by the scale of running costs, given all
but three of Leaf's investments are passive.
Crystal Amber subsequently met with the Chief Executive of Leaf on 12 December
2013. In January 2014, the Chairman wrote to Crystal Amber stating that the
Board of Leaf is `not happy about the current discount to NAV' and `it is an
issue which we have in the front of our minds'. Regarding the scale of running
costs, the Chairman stated `you should be reassured that the Board continues to
be focussed on cost reduction'.
On 31 January 2014, Crystal Amber responded stating that in its assessment Leaf
should be placed into an orderly run off mode and that Bran Keogh, the Chief
Executive should stand down following a three month handover period. Crystal
Amber suggested a replacement for the Board's earliest consideration: Mark
Lerdal, who has an enviable track record in the renewable energy and
sustainable technology space.
For the last five years, Mark Lerdal has been a partner in MP2 Capital, LLC,
which develops, finances operates distributed generation and small-scale
utility solar projects throughout North America. He is also a non-executive
director of Trading Emissions plc and Onsite Energy Corp. He has been involved
in the energy industry for thirty years as an operating executive, investor and
attorney.
On 13 February 2014, the Chairman's response was that `we continue as a Board
to keep both strategy and execution under close review and remain focussed on
the delivery of both' and that he would be happy to meet with Crystal Amber at
the end of March 2014.
Crystal Amber believes that the current board is not acting in the best
interests of the shareholders of Leaf as a whole and following the above
responses feels that it has no alternative but to requisition an Extraordinary
General Meeting of Leaf in order to seek to address the issues that Crystal
Amber has identified. A requisition notice will be lodged at the registered
office of Leaf in the Cayman Islands later today.
Resolutions to be proposed at the Extraordinary General Meeting
Crystal Amber is proposing that Leaf be placed into orderly run off and that
Mark Lerdal be given the responsibility of realising Leaf's investment
portfolio in a timely manner and returning the net assets to shareholders. It
is proposed that Mark Lerdal is paid a base salary of $250,000 per annum
together with an increasing incentive fee based on the amount of cash returned
to shareholders per share. Crystal Amber is also proposing that Stephen Coe is
appointed as a non-executive director of the Company, at an annual fee of
$70,000.
Stephen Coe is a chartered accountant. After leaving Price Waterhouse in 1997,
he worked in the fiduciary services industry with Bachmann Group and Investec
Trust (Guernsey) Limited. He became self-employed in August 2006 providing
services to financial services clients and is a director of a number of listed
and unlisted investment funds and offshore companies including Raven Russia
Limited, European Real Estate Investment Trust Limited, South African Property
Opportunities PLC, Weiss Korean Opportunities Fund Limited and Trinity Capital
PLC (and serves as Chairman of the Audit Committee for these companies).
The resolutions are as follows:
A. To Replace Directors of the Company
Pursuant to Article 142 of the Articles:
1. to consider, and if thought fit, pass an ordinary resolution to remove Bran
Keogh as a director with immediate effect;
2. to consider, and if thought fit, pass an ordinary resolution to remove
Peter Tom as a director with immediate effect;
3. to consider, and if thought fit, pass an ordinary resolution to appoint
Mark Lerdal as a director with immediate effect; and
4. to consider and if thought fit, pass an ordinary resolution to appoint
Stephen Coe as a director with immediate effect.
B. Amendment of the Investment Policy of the Company
To consider, and if thought fit, pass an ordinary resolution to amend the
investment policy of the Company to the following: "to carry out an orderly
realisation of the Company's investments in a timely manner and to distribute
the net proceeds to the Members (subject always to the Company's working
capital requirements and the Company's ability to make further investments if
such investments are required in order to protect or enhance the value of any
of the Company's existing investments)".
C. Amend the Articles and Approve Director Remuneration
1. Pursuant to Article 85.2 of the Articles, to consider, and if
thought fit, pass a special resolution to replace Article 184 of the Articles
with the following new Article 184:
"The remuneration to be paid to the Directors, if any, shall be such
remuneration as the Directors shall determine, save that the Members by
Ordinary Resolution may determine the remuneration of Mark Lerdal and Stephen
Coe provided that in the absence of any such Ordinary Resolution the Directors
shall determine the remuneration of Mark Lerdal and Stephen Coe. The Directors
shall also be entitled to be paid all travelling, hotel and other expenses
properly incurred by them in connection with their attendance at meetings of
Directors or committees of Directors, or general meetings of the Company, or
separate meetings of the holders of any class of Shares or debentures of the
Company, or otherwise in connection with the business of the Company, or to
receive a fixed allowance in respect thereof as may be determined by the
Directors, or a combination partly of one such method and partly the other.".
2. If the resolution at C). 1 above is passed, to consider, and if
thought fit, pass an ordinary resolution to approve the remuneration packages
of Mark Lerdal and Stephen Coe, which will be set out in the appendix to the
notice.
For further enquiries please contact:
Crystal Amber Advisers (UK) LLP - Investment Adviser
Richard Bernstein
Tel: 020 7478 9080
Crystal Amber Fund Limited
William Collins (Chairman)
Tel: 01481 716 000
Sanlam Securities UK Limited - Nominated Adviser
David Worlidge/Simon Clements
Tel: 020 7628 2200
Numis Securities Limited - Broker
Nathan Brown/Hugh Jonathan
Tel: 020 7260 1426