TIDMCRS
RNS Number : 6527B
Crystal Amber Fund Limited
15 February 2022
15 February 2022
Crystal Amber Fund Limited
("Crystal Amber Fund" or the "Company")
Posting of Circular and Notice of General Meeting
Further to the Company's announcement of 28 January 2022,
Crystal Amber Fund announces that it is sending today a circular to
shareholders (the "Circular"). The Circular includes a notice of
General Meeting to be held in connection with the proposals for a
change of investment policy and new management and incentive
arrangements, to be held at the offices of Ocorian Administration
(Guernsey) Limited at Trafalgar Court, Les Banques, St Peter Port,
Guernsey at 2 p.m. (UK time) on 7 March 2022.
The Board of Directors is mindful of the impact of the COVID-19
pandemic on the Meeting. Whilst the travel restrictions to Guernsey
have been broadly lifted, shareholders are advised to consult the
States of Guernsey's latest travel guidance at
https://covid19.gov.gg/ before arranging to attend the Meeting in
person.
Extracts from the circular are set below. A copy of the Circular
is available to download from the Company's website at:
www.crystalamber.com/
For further enquiries please contact:
Crystal Amber Fund Limited
Chris Waldron (Chairman)
Tel: 01481 742 742
www.crystalamber.com
Allenby Capital Limited - Nominated Adviser
David Worlidge/Liz Kirchner
Tel: 020 3328 5656
Winterflood Investment Trusts - Broker
Joe Winkley/Neil Langford
Tel: 020 3100 0160
Crystal Amber Advisers (UK) LLP - Investment Adviser
Richard Bernstein
Tel: 020 7478 9080
Extracts from the Circular
(References to pages or paragraphs and appendices below refer to
the relevant pages, paragraphs or appendices of the Circular and
references to 'this document' refer to the Circular).
1. Introduction and background to the Proposals
On 22 December 2021, the Fund provided an update following the
results of its 2021 AGM where the resolution that the Company
continue as constituted received a majority of votes, but did not
achieve the required 75 per cent. majority of votes cast and
accordingly was not passed. By way of background, and as announced
in 2013 on the basis it was never intended that the Fund would be
evergreen, the Fund proposed that the 2021 AGM continuation vote
should be subject to an extraordinary resolution, which would
require a 75 per cent. majority.
As a result of the continuation vote not being passed, the Board
believes that it is in the interests of Shareholders as a whole for
the Fund to adopt a strategy of maximising capital returned to
Shareholders by way of timely disposals, including trade sales of
the Fund's strategic holdings, where appropriate. Such change of
strategy is subject to Shareholder approval at the Extraordinary
General Meeting.
The Fund has accumulated several strategic holdings: since 2013,
the Fund has been a shareholder in Hurricane Energy plc (it
currently has a 28.9 per cent. holding); since 2016, it has been a
shareholder in Equals Group plc (it currently has a 13 per cent.
holding); since 2017, it has been a shareholder in Allied Minds plc
(it currently has an 18.2 per cent. holding); since 2018, it has
been a shareholder in De La Rue plc (it currently has a 10 per
cent. holding) and it has been a shareholder in Sutton Harbour plc
for more than a decade (it currently has a 10.8 per cent. holding).
Given the substantial progress achieved by the Fund with its
activist strategy to date on these holdings, the Fund expects to
have realised these investments by 31 December 2023. Within this
timescale, the Fund also anticipates selling its holding in Board
Intelligence plc, an unquoted company in which it has been a
shareholder since 2018.
The Fund has a track record of returning cash to Shareholders
via share buybacks and dividends: since 2013, when the requirement
for the continuation vote to be proposed at the 2021 AGM was
introduced, GBP60 million has been returned to Shareholders via
such means. The Fund intends to return all net proceeds from its
holdings in Hurricane Energy plc, Allied Minds plc, Equals Group
plc, De La Rue plc, Sutton Harbour plc and Board Intelligence plc,
after providing for ongoing operational costs as necessary. The
Fund previously announced, based on the Investment Manager's
assessment of the status and timing of anticipated corporate
transactions, that it is targeting additional shareholder returns
of at least GBP40 million or 50 pence per Share before 30 June
2022. The payment of the 10p a share dividend to Shareholders on 9
February 2022, representing a gross return of GBP8.3 million, was
the first shareholder return towards achieving that target. Whilst
the Fund is confident that this is achievable, after consulting
with several Shareholders, it is no longer considered to be in the
interests of the Fund to impose a fixed deadline but will be
keeping it as a target.
Subject to Shareholder approval of the change of strategy, the
Fund will not make any new investments and will only make further
opportunistic investments in existing holdings where, in the view
of the Board and Investment Manager, such investment is considered
necessary to protect the interests of Shareholders and/or provide
the Investment Manager with additional influence to maximise value
and facilitate and accelerate an exit. Any such investment will
require the prior approval of the Board and will only be permitted
where it is not expected to compromise the timescale for
realisations.
GI Dynamics
In 2014 the Fund began to accumulate a shareholding in GI
Dynamics. GI Dynamics is the developer of the EndoBarrier, a
minimally invasive therapy for the treatment of Type 2 diabetes and
obesity. EndoBarrier is a temporary bypass sleeve that is
endoscopically delivered to the duodenal intestine. It offers
similar effects to the surgical gastric bypass, without the risks
of a major surgical procedure.
During the year to June 2021, GI Dynamics delisted from the
Australian stock exchange. Its board and CEO were replaced with new
executives and directors with medical device experience. As part of
a US$10 million investment in preferred stock, the Fund's senior
secured loan was converted, and warrants were cancelled. The Fund
currently owns 81.3 per cent. of the fully diluted share capital of
GI Dynamics, together with a $4.9 million convertible loan
note.
After delays due to the COVID-19 surge in India, the I-STEP
application for a randomised clinical trial of the EndoBarrier (to
be conducted in conjunction with Apollo Sugar Clinics) was reviewed
by regulators in India in June 2021. The Fund is pleased to report
that in December 2021, regulators approved the commencement of this
trial.
The global pandemic has reaffirmed the importance of gaining
control of the significant risk factors associated with Type 2
diabetes and obesity. More than ever, medical professionals and
patients alike are seeking minimally invasive and effective
therapies to help control and resolve these chronic conditions. GI
Dynamics is preparing to meet this large unmet clinical need.
The Investment Manager believes that because of its intensive
activism, the investment in GI Dynamics now has considerable
strategic value. This was recently evidenced by two approaches from
US trade parties that have expressed an interest in making a
significant investment in GI Dynamics. The Investment Manager looks
forward to continuing to work with the company to achieve its
operational milestones and to further develop the pathway to
maximise Shareholder value. In due course, the Fund will consult
with investors about the longer-term plans for GI Dynamics in order
to realise value for its Shareholders. Given the anticipated value
accretive milestones, the Investment Manager believes it is
appropriate that it gives GI Dynamics the time it requires to
maximise Shareholder returns. Accordingly, it may not be possible
or desirable to effect a realisation of the Fund's holding in GI
Dynamics by 31 December 2023 as set out above, by contrast to
realisations of the Fund's other strategic holdings.
Investment Manager - reducing remuneration and revised
incentivisation arrangements
The Board also believes that it is in the interests of
Shareholders to incentivise the Investment Manager to maximise the
realisation value of the investment portfolio in a timely manner.
As announced today, the Company has agreed to make amendments to
the Investment Management Agreement by way of entering into a new
Investment Management Agreement (the "New IMA"), conditional on the
passing of the Resolutions. A summary of the amendments to the
Investment Management Agreement is set out in paragraph 3 of this
Part 1.
Proposals
This document therefore sets out details of, and seeks your
approval of, the proposals relating to:
-- the approval of resolutions 1 and 2 as set out in the Notice
of Extraordinary General Meeting, which will be proposed as
ordinary resolutions;
-- the Future Strategy of the Company and associated adoption of
the New Investment Policy; and
-- a new Investment Management Agreement incorporating new
management and performance fee arrangements, together with changes
to the termination provisions to reflect the Future Strategy and
New Investment Policy;
(together the "Proposals"), as further summarised in paragraph 2
below.
The Proposals are subject to Shareholder approval and if
approved, are expected to result in the realisation of
predominantly all of the Company's assets (with the possible
exception of GI Dynamics) by 31 December 2023 and the periodic
return of capital to Shareholders. This document sets out in more
detail the background to the Proposals and the reasons why the
Board recommends that you vote in favour of the Resolutions to
approve the Proposals.
Notice of the Extraordinary General Meeting to be held at the
offices of Ocorian Administration (Guernsey) Limited at Trafalgar
Court, Les Banques, St Peter Port, Guernsey at 2 p.m. on 7 March
2022 is set out at the end of this document.
2. Summary of the Proposals
2.1 Commencement of the Future Strategy and return of capital to Shareholders
Resolution 1 is being proposed to commence the realisation of
predominantly all of the Company's assets (with the possible
exception of GI Dynamics) for the benefit of all its Shareholders,
with such realisations and return of capital to Shareholders
expected to be completed by 31 December 2023.
Resolution 1 also seeks to obtain Shareholder approval to (i)
amend the Current Investment Policy to reflect a realisation
strategy; and (ii) cease making any new investments except in very
limited circumstances as detailed in Part 2 of this document. The
proposed amendments to the Current Investment Policy are considered
a material change, which requires the consent of Shareholders in
accordance with the AIM Rules.
In seeking the realisation of predominantly all the Company's
investments by 31 December 2023 (with the possible exception of GI
Dynamics), the Directors will aim to achieve a balance between
maximising their net value and progressively returning cash to
Shareholders. In so doing, the Board will take account of the
continued costs of operating the Company. The Company's admission
to AIM and the capacity to trade in its Shares will be maintained
for as long as the Directors believe it to be practicable and
cost-effective within the requirements of the AIM Rules.
While it is intended that predominantly all of the Fund's
investments (with the possible exception of GI Dynamics) will have
been realised by 31 December 2023, in the event that this is not
achieved, the Directors will consider consulting Shareholders
and/or make arrangements to seek Shareholder approval on the future
strategy of the Fund, including any steps that might be necessary
to maximise the opportunity to realise value from the remaining
assets of the Company.
Part 2 of this document sets out the New Investment Policy in
full.
2.2 Amendments to the Investment Management Agreement
Resolution 2 is being proposed to put in place a new Investment
Management Agreement incorporating new management and performance
fee arrangements , together with changes to the termination
provisions to reflect the future strategy of the Company . The
Board believes that it is in the interests of Shareholders to
incentivise the Investment Manager to maximise the realisation
value of the investment portfolio in a timely manner. A summary of
the key changes to the Investment Management Agreement is set out
in paragraph 3 of Part 1 and Part 4 of this document. Resolution 2
is conditional on the passing of Resolution 1.
3. Related party transaction - reduced remuneration and revised
incentivisation arrangements for the Investment Manager to align
with cash returned to shareholders
Under the current Investment Management Agreement, the
Investment Manager receives a management fee as set out in Part 3
of this document, which for the quarter ending 31 March 2022
amounts to GBP448,320. In addition, the Investment Manager is
currently entitled to receive a performance fee of 20 per cent. of
the excess of the NAV per Ordinary Share at the end of the relevant
performance period over the higher of:
- the Basic Performance Hurdle;
- the NAV per Ordinary Share at the start of the relevant
performance period (less any dividends or other distributions in
respect of all outstanding Ordinary Shares declared (on a per share
basis) since then; and
- the high-water mark (in each case on a per Ordinary Share
basis) multiplied by the time weighted average of the number of
Ordinary Shares in issue in the Performance Period.
At 30 June 2021, the Basic Performance Hurdle was 249.84 pence
(as adjusted for all dividends paid during the performance period
on their respective payment dates, compounded at the applicable
annual rate) (2020: 230.03 pence), and the high-water mark
(adjusted for dividends) was 241.62 pence.
The NAV per Ordinary Share before any accrual for the
performance fee payable in respect of the year was 153.11 pence,
excluding the issuance of charitable shares on 25 September 2020.
Accordingly, no performance fee was earned during the year ended 30
June 2021 (2020: GBPNil).
As at 31 December 2021, the Basic Performance Hurdle (as
adjusted for the dividend paid on 4 August 2021, compounded at the
applicable annual rate) was 259.15 pence.
During the life of the Fund to date, the day-to-day running of
the investment portfolio including identifying and researching new
investment opportunities, considering the most appropriate activism
strategies and engaging with investee management has been conducted
by the Investment Manager under the Investment Management
Agreement. Under the proposed Future Strategy, the Fund will not be
seeking to make new investments and will instead be seeking to
maximise the value of the existing investment portfolio as it
realises such investments. Accordingly, the Board and the
Investment Manager have agreed to enter into the New IMA, subject
to the adoption of the Future Strategy and Shareholder
approval.
The principal terms of the proposed New IMA are as follows:
- From 1 April 2022, the management fee will be reduced to
GBP106,666 per month until 30 June 2022, falling to GBP90,000 per
month until 31 December 2022, falling to GBP70,000 per month until
30 June 2023, falling to GBP50,000 per month until 30 September
2023 and falling to GBP40,000 per month until 31 December 2023 (or
if earlier, the date on which all the Fund's investments have been
substantially realised) when the management fee will cease. For
these purposes "substantially realised" means the date on which all
of the Fund's investments (other than the Fund's investment in GI
Dynamics) have been realised;
- The performance fee will be calculated by reference to the
aggregate cash returned to Shareholders after 1 January 2022 and
the Investment Manager will receive 20 per cent. of the aggregate
return of cash paid to Shareholders after 1 January 2022 (including
the interim dividend of 10 pence per Ordinary Share declared on 22
December 2021) in excess of a threshold of GBP216,000,000, being
the Basic Performance Hurdle per share as at 31 December 2021
multiplied by the voting share capital. This threshold represents a
premium of approximately 81 per cent. over the unaudited Net Asset
Value at 31 December 2021 of 143.2 pence per share and a premium of
approximately 127 per cent. over the market capitalisation of the
Fund at that date, based on the closing mid-market share price on
31 December 2021 of 114 pence, and 83,365,000 voting rights
attributable to the Ordinary Shares as at that date. Returns of
cash to Shareholders are expected to include share redemptions,
dividends, share buybacks and any other means of cash distributions
to Shareholders effected after 1 January 2022;
- If the New IMA continues beyond 31 December 2023, the Manager
may continue to be entitled to a performance fee on returns of cash
to the extent earned in excess of the threshold of GBP216,000,000,
and on the basis, described above;
- The Fund will have the following additional termination rights
to reflect the adoption of the Future Strategy whereby the Fund
will be able to terminate the New IMA with immediate effect within
the period of six months following (i) the passing of a resolution
of Shareholders for the winding up of the Company; (ii) 31 December
2023; and (iii) the date on which all the Fund's investments (other
than the Fund's investment in GI Dynamics) have been realised.
Set out in Part 3 of this document is a summary of the terms of
the current investment management agreement and incentive
arrangements for the Investment Manager.
Set out in Part 4 of this document is a summary of the terms of
the New IMA.
Pursuant to the AIM Rules, the Manager is deemed to be a related
party of the Company and the amendments to the Investment
Management Agreement are therefore deemed to be a related party
transaction. The Directors consider, having consulted with Allenby
Capital Limited, the Company's Nominated Adviser, that the
amendments to the Investment Management Agreement are fair and
reasonable insofar as Shareholders are concerned.
4. Future returns of cash to Shareholders and Dividend
policy
Following any material realisations of the Fund's investments,
the Directors intend to return cash to Shareholders using
tax-efficient means such as redeemable shares and/or tender offers.
Should Shareholders approve the Proposals, the Directors intend to
seek Shareholder approval to put mechanisms in place to enable such
distributions to take place at the appropriate time.
The Board intends to return cash to Shareholders by way of
capital distributions. Accordingly, the Board intends to suspend
the declaration of dividends until further notice.
5. Details of the Extraordinary General Meeting
Location, Date and Time
The Proposals are subject to Shareholder approval. Set out at
the end of this document is the Notice of the Extraordinary General
Meeting to be held at the offices of Ocorian Administration
(Guernsey) Limited at Trafalgar Court, Les Banques, St Peter Port,
Guernsey at 2 p.m. on 7 March 2022, where the following resolutions
will be proposed:
Resolutions
-- Resolution 1 is proposed as an ordinary resolution which will
authorise the Directors to (i) pursue the Future Strategy, as set
out in Part 1 of this document; (ii) commence the complete
realisation of the Company's assets to maximise the value of its
assets for the benefit of all its Shareholders, with such
realisation and return of capital to Shareholders expected to be
substantially completed (with the possible exception of GI
Dynamics) by 31 December 2023; and (iii) to adopt the New
Investment Policy, as set out at Part 2 of this document, in
substitution for the Current Investment Policy.
-- Resolution 2 is proposed as an ordinary resolution to approve
the New IMA. Resolution 2 is conditional on the passing of
Resolution 1.
Voting
The Resolutions will be conducted on a poll. An ordinary
resolution will require more than 50 per cent. of the votes cast
(whether in person or by proxy) to be in favour in order for it to
be passed.
6. Recommendation
Based on discussions with Shareholders, the Board believes that
the Proposals are in the best interests of the Company and its
Shareholders as a whole.
Accordingly, the Board recommends that Shareholders vote in
favour of the Resolutions to be proposed at the Extraordinary
General Meeting, as they intend to do in respect of their own
shareholdings which total, in aggregate, 51,200 Ordinary Shares,
representing, 0.06% of the voting rights of the Company.
The Investment Manager, which holds 6,949,031 Ordinary Shares,
representing 8.34 per cent. of the voting rights of the Company,
has advised that it will vote in favour of Resolution 1 and 2.
Definitions
"2021 AGM" the annual general meeting of the Company
held on 22 November 2021
"AIM" the AIM Market of the London Stock Exchange
"Articles" the articles of association of the Company
"AIM Rules" the AIM Rules for Companies, as published
by the London Stock Exchange from time
to time
"Basic Performance has the meaning set out in Part 2 of this
Hurdle" document
"Board" or "Directors" the board of directors of the Company,
including any duly constituted committee
thereof
"Business Day" any day (excluding Saturdays, Sundays and
public holidays) on which banks are open
for normal banking business in the City
of London and Guernsey
"Company", "Crystal Crystal Amber Fund Limited
Amber" or the "Fund"
"Company's Website" www.crystalamber.com/
"CREST" the facilities and procedures for the time
being of the relevant system of which Euroclear
has been approved as operator pursuant
to the CREST Regulations
"CREST manual" the manual, as amended from time to time,
produced by Euroclear describing the CREST
system and supplied by Euroclear to users
and participants thereof
"CREST Participant" a person who is, in relation to CREST,
a system participant (as defined in the
CREST Regulations)
"CREST Proxy Instruction" the instruction whereby CREST Members send
a CREST message appointing a proxy for
the Extraordinary General Meeting and instructing
the proxy how to vote and containing the
information set out in the CREST manual
"CREST Regulations" the Uncertificated Securities (Guernsey)
Regulations 2009 (SI 2009 No. 48), as amended
from time to time
"CREST Sponsor" a CREST Participant admitted to CREST as
a CREST sponsor
"CREST Sponsored Member" a CREST Member admitted to CREST as a sponsored
member
"Current Investment the investment policy of the Company as
Policy" at the date of this document, details of
which are set out on the Company's Website
at www.crystalamber.com/about/investmentstrategy
"Extraordinary General the extraordinary general meeting of the
Meeting" or "EGM" Company convened for 2 p.m. on 7 March
2022, or any adjournment thereof, notice
of which is set out at the end of this
document
"FCA" the UK Financial Conduct Authority or its
successor from time to time
"Form of Proxy" the form of proxy which may be requested
from the Registrar for use in connection
with the Extraordinary General Meeting
"FSMA" the Financial Services and Markets Act
2000, as amended, including any regulations
made pursuant thereto
"GI Dynamics" GI Dynamics Inc, a company incorporated
in Delaware, which is an unconsolidated
subsidiary of the Company due to the percentage
of voting share capital in which the Company
is interested
"Future Strategy" the proposed future strategy of the Company
to realise predominantly all of the Company's
assets and return of capital to Shareholders
as described in this document
"Investment Manager" Crystal Amber Asset Management (Guernsey)
Limited, a company whose principal shareholders
are Richard Bernstein and Jonathan Marsh
"Investment Management the agreement between the Company and the
Agreement" Investment Manager dated 16 June 2008 (as
subsequently amended on 21 August 2013,
27 January 2015 and 12 June 2018)
"NAV" or "Net Asset the value of the assets of the Company
Value" less its liabilities determined in accordance
with the accounting principles adopted
by the Company from time to time
"Net Asset Value per the Net Asset Value divided by the number
Share" or "NAV" per of Ordinary Shares then in issue (excluding
Share treasury shares)
"New IMA" the conditional new investment management
agreement dated 14 February 2022 between
the Company and the Investment Manager,
further details of which are set out in
paragraph 3 of Part 1 and Part 4of this
document
"New Investment Policy" the proposed new investment policy of the
Company as set out in Part 2 of this document
"Ordinary Shares" or ordinary shares in the Company of GBP0.01
"Shares" each
"Participant ID" the identification code or membership number
used in CREST to identify a particular
CREST Member or other CREST Participant
"Proposals" has the meaning given to it in paragraph
3 of Part 1 of this document
"Register" the register of Shareholders
"Registrar" Link Market Services (Guernsey) Limited
"Regulatory Information a regulatory information service approved
Service" or "RIS" by the FCA and on the list of regulatory
information services maintained by the
FCA
"Resolutions" the resolutions numbered 1 and 2 to be
proposed at the EGM as detailed in paragraph
5 of Part 1 of this document and in the
Notice of EGM
"RIS Announcement" an announcement to a Regulatory Information
Service
"Shareholders" holders of Shares
"Takeover Code" the City Code on Takeovers and Mergers
"uncertificated form" recorded on the register as being held
in uncertificated form in CREST and title
to which, by virtue of the CREST Regulations,
may be transferred by means of CREST
"United Kingdom" the United Kingdom of Great Britain and
Northern Ireland
"United States" or the United States of America, its territories
"U.S." and possessions, any State of the United
States and the District of Columbia
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END
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