Nostra Terra Oil & Gas Company PLC Posting of Circular and Notice of General Meeting (8388C)

TIDMNTOG

RNS Number : 8388C

Nostra Terra Oil & Gas Company PLC

13 February 2020

13 February 2020

Nostra Terra Oil and Gas Company plc

("Nostra Terra" or the "Company")

Posting of Circular and Notice of General Meeting

Nostra Terra (AIM:NTOG), the oil and gas exploration and production company with a portfolio of assets in Texas, USA, announces that it will today be posting to Shareholders a circular (the "Circular"), along with accompanying notice of general meeting and form of proxy (together, with the Circular, the "Documents"), in relation to the Requisitions.

The General Meeting will be held at 11:00 a.m. on 3 March 2020 at the offices of Druces LLP, Salisbury House, London Wall, London EC2M 5PS. The Documents will shortly be available on the Company's website.

The Letter from the Chairman of the Company has been extracted and included in this announcement below.

Unless the context requires otherwise, definitions used in this announcement will have the same meaning as ascribed to them in the Circular.

This announcement contains inside information for the purposes of Article 7 of EU Regulation 596/2014.

For further information, visit www.ntog.co.uk or contact:

 
 Nostra Terra Oil and Gas Company plc 
  Matt Lofgran, CEO                                                   [phone] 
 Strand Hanson Limited 
  (Nominated & Financial Adviser & Joint Broker)                     [phone] 
 Rory Murphy / Ritchie Balmer / Jack Botros 
 
 Shard Capital Stockbrokers (Joint Broker)                           [phone] 
 Damon Heath / Erik Woolgar 
 Lionsgate Communications (Public Relations)                         [phone] 
 Jonathan Charles 
 
 

LETTER FROM THE CHAIRMAN

Dear Shareholder,

NOTICE OF GENERAL MEETING

As Chairman of Nostra Terra, I invite you to a General Meeting of the Company to be held at 11:00 a.m. on 3 March 2020 at the offices of Druces LLP, Salisbury House, London Wall, London EC2M 5PS.

Background

On 17 January 2020, the Company announced that it had received a letter from Eridge Capital Limited ("Eridge") (formerly New World Oil and Gas plc), dated 15 January 2020, requisitioning a general meeting of the Company's shareholders (the "First Requisition").

The First Requisition proposed that, inter alia, Shareholders be asked to consider resolutions to remove Matt Lofgran from the Board of Directors of Nostra Terra (the "Board"); to appoint Andrew Morrison to the Board; and to remove any Directors that may be appointed in the period between the date of the First Requisition and the proposed general meeting.

On 24 January 2020, having reviewed the First Requisition with its advisers, the Company announced that the First Requisition had been deemed as valid.

On 3 February 2020, the Company announced that, on 31 January 2020, it had received a further letter from Eridge validly requisitioning a second general meeting of the Company's shareholders (the "Second Requisition" and, together with the First Requisition, the "Requisitions"). The Second Requisition proposed that Shareholders be asked to consider resolutions to remove myself (Ewen Ainsworth) from the Board; and to remove any Directors that may be appointed in the period between the date of the Second Requisition and the proposed general meeting.

On 5 February 2020, the Company announced that the Board believed that it was in the best interests of the Company and its Shareholders as whole to consider the Requisitions at a single general meeting rather than to incur the additional costs and expenses associated with publishing two separate Shareholder circulars. In addition, the Second Requisition was received along with a statement from Eridge to Shareholders concerning the Requisitions (the "Eridge Statement") for inclusion in the circular. The Eridge Statement, which has not been verified, is set out as an appendix to the Circular. The Directors do not accept responsibility for anything contained within the Eridge Statement.

Accordingly, the purpose of this circular is to convene a General Meeting of the Company at which the Resolutions will be put to a vote of the Shareholders. For each of the Resolutions to be passed, more than half of the votes cast must be cast in favour of such Resolution. In this letter, I set out the reasons why the Board considers that the Resolutions are not in the best interests of Shareholders and explain why Shareholders should vote AGAINST the Resolutions.

The Board has provided Eridge multiple opportunities to present its business case for changes (or not) to the Company's business model, but no concrete plan has been forthcoming. The Board does not believe that Eridge has a credible business proposition with regard to the future of Nostra Terra; the Directors have certainly not seen any evidence of one to date.

Furthermore, if Eridge succeeds and the Resolutions are passed by Shareholders, the Company will be left with two Directors and no Chairman. The Chairman is elected by the Board and, in this event, the two Directors may not agree on which such Director should be appointed Chairman and, therefore, the Board could be deadlocked. If this scenario arises, it is likely, in the opinion of the Board, that additional shareholder meetings will be necessary, at further expense to the Shareholders, and further distracting the then reduced Board from overseeing the Company's operations.

Additionally, there is the possibility that Mr Stafford may end up as the only Director. Nostra Terra is required to have two or more Directors under the Companies Act 2006 and pursuant to its articles of association ("Articles"). In addition, in this event, it is likely that the Company will be unable to discharge its management and operating duties sufficiently pursuant to the AIM Rules to the Companies ("AIM Rules"), which may result in trading in the Ordinary Shares on AIM being suspended until such time as a suitable Board has been established. The Board believes that Eridge has not thought through the implications of its strategy at all, which, when the history of Eridge itself, formerly an AIM-listed company under the name New World Oil and Gas plc, which was de-listed and re-domiciled from Jersey to the British Virgin Islands is also considered, should, in the Board's view, be of major concern to Shareholders.

Accordingly, the Board unanimously recommends Shareholders to vote AGAINST the proposed Resolutions, as they intend so to do in respect of their own beneficial holdings, which amount, in aggregate, to 10,309,632 Ordinary Shares, representing approximately 5 per cent. of the issued share capital of the Company.

THE RESOLUTIONS

Set out below is a rebuttal of the Resolutions to be considered at the General Meeting, all of which will be proposed as ordinary resolutions. This means that for each of the Resolutions to be passed, more than half of the votes cast must be cast in favour of such Resolution.

The Board's response to the Requisitions is provided below.

I write in my capacity as Chairman of the Board. The Board has considered the Requisitions and has the following observations and recommendations by way of response.

Firstly, I shall address the Requisitions in a general sense and then respond in more detail to each specific point, highlighting where necessary information and observations, which may be of use to Shareholders in forming a considered opinion.

General Opinion

It is the Board's firm belief that the proposals outlined in the Requisitions are not to the benefit of Shareholders. The Requisitions are an opportunistic way of trying to gain board control of a public listed company, whilst not providing any succession planning, new strategic direction or even a basic business plan to accompany the proposed changes.

The Board is acutely aware of the disappointing share price performance over the last twelve months, which has been a difficult period for the small cap oil and gas sector, but it strongly believes that the fundamentals of the underlying business are sound and are improving.

The Company's near-term work plan is designed to grow production by approximately 50%, whilst minimising costs, over the next twelve months and as set out in more detail below. The Board recognises the need to augment the Board through suitable Board appointments to bring in new thinking and challenge ideas and opinions. Prior to receipt of the First Requisition, we had talked to several high calibre candidates about joining the Board but the Requisition process and the build-up to it has not allowed the Board to execute this strategy. In short, we have a plan to grow the Company, increase production, minimise costs and generate shareholder value; the Board believes the proposals underpinning the Requisitions would prevent us from delivering this and therefore we strongly recommend that Shareholders should vote AGAINST the Resolutions.

I shall now review the specific demands/proposals of Requisitions, taking each Resolution in turn.

Resolution 1: to remove Matthew Lofgran from the Board

Mr Lofgran has been a Board member and CEO of Nostra Terra for 10 years; it is he who has personally negotiated most of the transactions completed by the Company over this time. Since the adoption of the Company's new strategy in 2016, as detailed in each of the 2016, 2017 and 2018 Annual Report and Accounts (please refer to the Chairman's Report in each), this has included, inter alia:

-- Acquisition of the Chisholm Trail asset, which was sold for US$2.73 million in 2016 and yielded a profit

-- Acquisition of both the Pine Mills and the Permian Basin (where the Twin Well and G6 well were both successfully drilled) producing assets, with combined production, during December 2019, of 127 barrels of oil per day ("bopd") bopd gross, 93 bopd net to Nostra Terra

o Total revenue in 2018 before the benefit of hedging was US$2.3 million

   --           Acquisition and Field Development Plan of the Mesquite Asset, West Texas 

-- Negotiation of the Washington Federal Bank ("WAFD") loan facility (the "Loan Facility"), which has a current outstanding balance of approximately US$1.74 million

   --           Negotiation of hedging contracts with BP 

Through discussion with Eridge, it is apparent that they wish Matt Lofgran to remain an employee, at least initially and, strangely, in the Board's opinion, that he should continue to lead the Company as the only full time executive, even if removed from the Board. However, there is, of course, no guarantee that, if Mr Lofgran were to be removed from the Board, he would remain with the Company. Therefore, the removal of Mr Lofgran from the Board could well mean his exit from the Company.

The Board firmly believes that removal of Mr Lofgran from the Board and from the Company would not benefit the Company in any way. He is the only executive of the Company and he has the primary knowledge of all the Company's current assets and contracts, including financing, in the US and he has a clear vision and executable strategy for growth. The relationships Mr Lofgran has developed with our lenders in the USA, our contractors in the industry and with our operational staff in the field are far too valuable to be discarded based on a perceived past twelve-month difficult spell. It is short sighted to suggest Mr Lofgran's removal, especially in view of Eridge's proposed replacement, which is considered under Resolution 3.

In relation to the Loan Facility, the loan documentation contains a number of customary negative covenants required by WAFD, one of which relates to the ongoing appointment of Matt Lofgran as President of the Company's subsidiary, New Horizons Energy 1 LLC ("New Horizons") (the "key man clause"). The key man clause stipulates that New Horizons must obtain written consent from WAFD prior to Matt Lofgran ceasing to be President of New Horizons. Otherwise New Horizons will have 30 days to remedy the situation or it will be in default of the Loan Facility and the outstanding principal and interest will immediately become due.

In the event Matt Lofgran is voted off the Board at the Company's forthcoming General Meeting, there is no guarantee that Mr Lofgran would remain as an employee of the Nostra Terra group, and therefore as President of New Horizons. Indeed, if Matt Lofgran does stay as an employee, he may choose to resign as President of New Horizons. Accordingly, the Company's Board at such time would seek the written consent of WAFD to waive the key man clause. However there is clearly a risk that this would not be given, a risk the Board believes is increased by this unwelcome General Meeting. Shareholders should note that the outstanding balance under the Loan Facility is approximately US$1.74 million.

The Board believes that the confidence that Matt Lofgran has brought to WAFD, not only in negotiating the Loan Facility initially, but also in managing it since, through the drawdown and repayment of funds, and the structured hedging of the oil price for the Company's production, should not be underestimated by Eridge or other Shareholders. Matt Lofgran has also worked actively with WAFD on potential acquisition opportunities and WAFD has been very supportive, providing letters of support regarding the potential for a significant increase in the facility size and borrowing base.

Given this material and important relationship that the Company has with WAFD, not only with regard to the existing Loan Facility, but also potential access to further funds if the right growth opportunity presents itself, the Board believes that the removal of Matt Lofgran from the Board is counter-productive to shareholders' interests.

The Board recommends that Shareholders vote against this Resolution.

Resolution 2: to remove Ewen Ainsworth from the Board

Ewen Ainsworth joined Nostra Terra as Non-Executive Chairman in 2015. Ewen has over 30 years upstream oil and gas finance experience with a vast array of commercial, legal and most importantly financial contacts within the City and beyond. In the opinion of the Board, he has, over this time, along with Matt Lofgran, been instrumental in structuring the Company's financial position in terms of the type and composition of the borrowing undertaken. Furthermore, he has provided advice and expertise on a consultancy basis to assess commercial risk, corporate structures and lending vehicles suitable to the Company and of benefit to its shareholders. He chairs the Board's Audit and Remuneration Committees and is in the process of restructuring the finance function within the business.

Ewen has demonstrated his commitment to the Company and his belief in the Board by accepting a significant part of his remuneration in shares instead of cash. Crucially, he also has loaned the Company GBP382,000 (of which GBP268,000 plus unpaid interest is outstanding) in two tranches over the last four years to help avoid dilution to Shareholders. Thus, he is personally invested in seeing the Company grow and its share price performance improve; removing Ewen would be an extremely high risk strategy as a replacement may not be so personally motivated and would have to absorb five years' experience and relationships almost instantly.

The Board recommends that Shareholders vote against this Resolution.

Resolution 3: to appoint Andrew Morrison to the Board

The Board has met Mr Morrison and finds him personable. However, other candidates reviewed by the Board as part of its already ongoing process prior to the receipt of the First Requisition, would, the Board believes, be a better fit for the Company. The most relevant corporate history in relation to Mr Morrison for Nostra Terra Shareholders to note is the failure of Silvermere Energy plc ("Silvermere"), which had oil and gas assets in Texas (where Nostra Terra is an operator and all of its asset are currently located), which, under Mr Morrison's leadership as founder and CEO, was suspended from trading on AIM and entered into a company voluntary arrangement ("CVA") within two years of listing (at which point Mr Morrison resigned) after which the company changed its name and strategy. Over this two-year period (where oil prices were largely in the US$90 per barrel range) Mr Morrison failed to build a portfolio for Silvermere and ultimately the company entered into a CVA, failing on a single well.

Further information relating to Mr Morrison is set out below in compliance with the AIM Rules for Companies:

Andrew John Gowdy Morrison (aged 59)

 
 Current directorships/partnerships   Past directorships/partnerships 
                                       (last five years) 
 Spinnaker Opportunities plc          None 
 Spinnaker Management Resources 
  Ltd 
 

Between 31 August 2011 and 16 August 2013, Mr Morrison was a director of Silvermere, which entered into a CVA with its creditors on 16 August 2013, with a deficiency to creditors of GBP1.2 million. The CVA completed on 20 December 2013, pursuant to which creditors were issued shares in Silvermere, which was then renamed Tern plc.

The Board recommends that Shareholders vote against this Resolution as existing higher calibre candidates have already been identified to strengthen the Board.

Resolution 4: to remove any Directors appointed subsequent to receipt of the Requisitions and the General Meeting

The Board does not anticipate any appointments in this period.

The Company has been considering appointing additional Directors to the Board and, prior to the receipt of the Requisitions, had held discussions with a number of experienced potential appointees, with strong track records in the sector, to strengthen the Board and to assist in implementing its plans for the Company. The Requisitions and other interference from Eridge, including inappropriately contacting two candidates directly (which the candidates relayed to the Board), has made this process more difficult and delayed any potential appointments. In the event the Resolutions do not pass, the Board will continue to expedite this process once again.

The Board recommends that Shareholders vote against this Resolution.

RESPONSE TO ERIDGE STATEMENT

The Board disagrees with the overall sentiment of the Eridge Statement, which is set out as an appendix to the Circular, and wishes to draw Shareholders' attention to the following:

   1.         Loans by Directors 

Two of the Company's Directors, being myself and John Stafford, provided loans to enable Nostra Terra to crystallise certain significant opportunities, being the original acquisition of Pine Mills and the drilling of the G5 well in the Permian Basin, without diluting shareholders through the issue of further equity.

I advanced GBP230,000 funds for the initial acquisition of Pine Mills with an initial interest rate of 10% and reduced to 7.5%. This loan, including any unpaid interest, is immediately repayable by the Company on demand by myself. At the end of January 2020, the outstanding balance was GBP230,000 plus unpaid interest.

John Stafford and I advanced a loan of, in aggregate, GBP287,000 to drill the G5 well, with an interest rate of 7.5%. This loan, including any unpaid interest, is immediately repayable on demand by either Mr Stafford or myself. At the end of January 2020, the outstanding balance was GBP71,750 plus unpaid interest.

The loans were announced as related party transactions under the AIM Rules at the time they were provided and have been disclosed as related party transactions in the Company's annual report and accounts.

Your Non-Executive Directors have been financially supportive of the development of the Company, accepting risk and demonstrating faith in Matt Lofgran. These loans were provided in order to assist the Company whilst minimising dilution to shareholders.

Shareholders should note that the loans provided by the Directors are repayable on demand.

   2.         Directors Fees and Remuneration 

Matt Lofgran's annual remuneration is US$250,000 and his service agreement contains a six-month notice period. Matt Lofgran's role as CEO, director and/or employee can be terminated, subject to his notice period running, at any time. There have been no further payments or benefits accruing to Mr Lofgran such as a pension, bonus or healthcare, as would be normal for a CEO of his calibre. The Board believes that the level of remuneration for Matt Lofgran as CEO, and the sole executive director of the Company, is appropriate given the wide range of responsibilities and demonstrated ability to grow the Company. 2018 reported revenue of US$2.3 million with field operations achieving a gross profit, and we are expecting 2019 to be similar. The plan for 2020 is designed to increase revenues significantly and to cover the overheads of the business. In 2020, led by Matt Lofgran, it is intended that the costs of the business will be covered by the increased annual revenue. This should provide a solid foundation, de-risked over a portfolio of wells, for continued further growth.

My director fees, which are paid to me directly, and consultancy fees, which are paid to Discovery Energy Limited ("Discovery"), a company that I control, are, in aggregate, GBP50,000 per annum of which GBP30,000 is paid in cash and GBP20,000 in shares. In addition, a further GBP21,500 annually on average is incurred by the Company for additional services provided by Discovery.

During 2018, my total fees, including consultancy fees, were:

 
 Director fee             GBP16,667 
 Consultancy fee          GBP33,333 
 Sub-total                GBP50,000 
 Additional Consultancy   GBP38,650 
 Prior year adjustment    GBP2,500 
 Total                    GBP91,150 at GBP1 = US$1.33458 = US$121,647 
 

As set out above, the Directors have been financially supportive of the Company, deferring payment in order to progress the business. Currently around GBP91,000 of fees are outstanding to me personally and Discovery relating to 2018 and 2019. Hence, whilst director and consultancy fees may have been accrued in the Company's accounts as being due, there is usually a considerable time lag before payment is made in order to preserve cash in the business, which relies on the forbearance of the relevant Directors. The director fee for John Stafford is GBP30,000 per annum and currently GBP12,500 is outstanding. Given the limited human resource at the Company's disposal, it is entirely reasonable that the Company accesses suitable additional skills, at competitive consultancy rates, when needed.

Amounts owed to Directors should also be viewed in the context of the substantial funds provided via these Director loans and the current outstanding balances.

   3.         Directors interests in the Company 

The interests of the Directors are aligned with other Shareholders in Nostra Terra through either Ordinary Shares that they hold or various warrants and options. These interests provide compelling incentive to the Directors in order to grow the business and drive future value for all Shareholders. The potential value to be realised from a successful strategy is many times that realised from the remuneration the Directors may receive as a result of that success.

The warrants and options granted to the Directors have been designed, being priced out of the money at the time of grant, to reward significantly other Shareholders with value accretion before they can be exercised by Directors.

   4.         Communications with Eridge 

Nostra Terra has, during 2019 and early 2020, sought to engage positively with Ben Turney, a director of Eridge, via email, telephone calls and meetings. In this process, the Board has listened to his concerns and proposals, spending a significant amount of time doing so.

Mr Turney's communications with the Company have focused on an overhaul of the Board, including the appointment of a new Executive Chairman, as well as verbally demanding rights for Eridge to appoint two further directors to the Board, with Mr Lofgran accepting a reduced role on the Board, moving from CEO to COO, while remaining on the Board.

Whilst the Board strongly felt that the proposals contained in these communications to it were not in the best interest of Shareholders, it still endeavoured to communicate positively and constructively with Mr Turney, including commencing due diligence and background checks on Mr Morrison.

Within a week of the demands outlined above, a second plan was put forward by Mr Turney, involving the appointment of Mr Morrison as Executive Chairman, but not requiring the removal of the other Directors. However, shortly after this, Mr Turney changed his mind again, this time demanding Mr Lofgran step down from the Board completely, which was followed in due course by the same demand regarding me.

The ideas put forward by Mr Turney were always closely scrutinised by the Board and the Board sought to enter into dialogue with Mr Turney. It is the Company's belief that should Eridge have entered into a constructive and open dialogue, Eridge's stated concerns could have been addressed and a way forward for the Company agreed. The Board's attempts to engage constructively with Eridge have been rejected and we believe that Eridge's intent all along has been effectively to take control of the Company by taking control of the Board. In the Board's view, Mr Turney has never seriously positively engaged with us in order to find a compromise. A compromise, in the Board's belief, would be an outcome in the best interests of ALL Shareholders.

In addition, Eridge has never presented a plan for the future direction of the Company. Given this, the Board expects it would be a period of tremendous uncertainty for Nostra Terra should Mr Lofgran and/or myself be removed from the Board. In the Board's view, Eridge and Mr Turney are seeking to place their own interests before those of all other Shareholders.

   5.         Corporate Governance 

Eridge has stated that there was a failure to report a critical banking covenant, being the key man clause relating to Matt Lofgran. This is not accurate, being normal terms of business with lending agreements, where banks often require such a clause, and to suggest otherwise is in the view of the Board highly misleading. The key man clause has only become relevant in the context of Resolution 1 to be proposed at the General Meeting regarding the removal of Matt Lofgran.

It is certainly true that Nostra Terra is a small company with low overheads and a small management team and, therefore, by definition, the risk associated with the loss of a senior employee is much different to that within larger organisations. Matt Lofgran, as CEO, leads the entrepreneurial and operational activity of the Company which is overseen and scrutinised by the Non-Executive Directors.

Given Eridge's focus on corporate governance, the Board finds it ironic that, when Mr Turney became a director of, and took control at, New World Oil and Gas plc ("New World"), in relation to the company's migration to the British Virgin Islands ("BVI"), "a number of shareholders...raised concerns about the proposed move to the BVI". In an attempt to assuage the concerns of New World shareholders, New World said: "New World is required to have an annual audit and to present the accounts to shareholders each year" and "New World is required to host its Annual General Meetings in the United Kingdom." The Board notes that Eridge's website, as at 12 February 2020, shows that in the last two years since New World migrated to the BVI, it has neither published any accounts nor held any annual general meetings in the UK. The Board believes that this failure to adhere to standards of corporate governance should concern all our Shareholders.

   6.         2020 Workplan 

The Board now wishes to provide Shareholders with some insight into the workplan it wants the Company to execute in 2020 (the "2020 Workplan") with a target for year end to grow production by approximately 50% from current levels. We share this to demonstrate that a firm growth strategy is in place and to show that adoption of the Eridge proposals would, in the Board's view, significantly damage our ability to deliver the shareholder growth envisaged.

The 2020 Workplan is designed to be the 'low cost, high impact production growth plan'. This focuses on minimising capital expenditure, whilst growing production and revenues. There are several key steps identified in delivering this:

Pine Mills

-- Identified 3 well workover candidates which each could add 6-10 bopd production for a total cost of approximately US$75k

-- Repair casing at an existing shut-in well adding approximately 10 bopd for a capital expenditure of approximately US$100k

-- Expand electricity infrastructure to allow more pumps and tank batteries to be placed into production (largely complete)

-- Increase water handling capacity to boost reliability and field run-time for a cost of approximately US$100k

-- Potential farm-in for a portion of Pine Mills, wherein a well would be drilled and Nostra Terra would a carried working interest

Permian Basin

-- Plug uneconomic well to eliminate expense of water handling for a cost of approximately US$20k

   --    Potential purchase of target lease nearby at a cost to be determined 

-- Perform completion on existing well and recompletion of other wells at the potential acquisition site, which has the potential for 20+ bopd for a cost of approximately US$150k

As can be seen from the above, the 2020 Workplan does not envisage significant capital expenditure. Whilst the Company has been looking to finance the capital expenditure and working capital of the Company via operational cashflow, the Board recognises that in order to accelerate the plan to increase production by 50%, further funds will need to be raised. To this end the Company is in advanced discussions with a funding provider to raise finance, although there is no guarantee that this can be finalised satisfactorily.

There are also transactions and opportunities about which the Board is talking to interested parties and hopes to execute in due course.

In summary, the Board believes that Shareholders will be best served by rejecting the Eridge proposals, voting AGAINST the Requisitions and allowing the current Board to continue to strengthen, grow and execute its growth strategy for this year and beyond.

Action to be taken

You will find enclosed with this document a Form of Proxy for use in connection with the General Meeting. Whether or not you intend to be present at the General Meeting, you are requested to complete the Form of Proxy in accordance with the instructions printed on it so as to be received by Share Registrars Limited as soon as possible, but in any event no later than 11.00 a.m. on 28 February 2020. Alternatively, if you hold shares in CREST, you can appoint a proxy electronically by using the CREST electronic proxy appointment service.

EVERY SHAREHOLDER'S VOTE IS IMPORTANT - PLEASE COMPELTE AND RETURN YOUR FORM OF PROXY AS SOON AS POSSIBLE.

Completion of the Form of Proxy will not preclude you from attending and voting at the General Meeting should you so wish.

Recommendation

For the reasons set out in this letter, your Board believes that Resolutions 1-4 (inclusive) will not promote the success of, and are not in the best interests of, the Company and its Shareholders as a whole.

Your Board therefore unanimously recommends that you vote AGAINST Resolutions 1-4 (inclusive), as the Directors intend so to do in respect of their own beneficial holding of, in aggregate, 10,309,632 Ordinary Shares, representing approximately 5 per cent. of the issued share capital of the Company.

Shareholders should note that in the event that Resolutions 1 and 2 are passed but Resolution 3 is voted down, the Company will have only one Director, which is in breach of the Companies Act 2006 and the Company's Articles. In addition, in this event, it is likely that the Company will be unable to discharge its management and operating duties sufficiently pursuant to the AIM Rules, which may result in trading in the Ordinary Shares on AIM being suspended until such time as a suitable Board has been established.

Yours faithfully

Ewen Ainsworth

Chairman

ENDS

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February 13, 2020 02:01 ET (07:01 GMT)