Octavian Advisors, LP, the largest shareholder of EnerCare Inc. (TSX: ECI), which owns approximately 13% of EnerCare's outstanding common shares and has been a shareholder for more than two years, today filed its Proxy Circular on SEDAR and urged its fellow EnerCare shareholders to support its proposals to expand the board to 10 members and elect four independent directors to EnerCare's Board at the April 30 special meeting of shareholders. Octavian's highly qualified nominees - Beth Horowitz, Graham Senst, T. Richard Turner, and Richard Hurowitz - will work for EnerCare shareholders to address the Company's long-term underperformance and the entrenchment of the current Board, which owns less than 0.3% of EnerCare shares.

Since EnerCare's IPO in 2002 until December 9, 2011, the last trading day prior to Octavian's announcement that it had requisitioned a special meeting of EnerCare shareholders, EnerCare shares were down 11% vs. an increase of 78% for the S&P/TSX Composite Index.

Richard Hurowitz, Chairman and Chief Executive Officer of Octavian, said, "The Board's repeated strategic blunders and lack of concern for shareholders have destroyed value for many years and alienated EnerCare's owners. The Board's outrageous recent conduct - its refusal to appoint an independent chair for the special meeting and its last-minute expansion of the Board with two hand-picked directors just before the shareholder vote - has made it abundantly clear that the current directors will stop at nothing to further entrench themselves and disenfranchise shareholders. Shareholders should be alarmed and upset by the Board's desperate and costly campaign to deny shareholders representation and should question why the Board is wasting the company's resources on an effort to prevent minority voices in the Boardroom."

Mr. Hurowitz continued, "The Board has unsuccessfully tried to caricature Octavian as a short-term investor with misleading claims that miss the point that shareholders have a right to be heard. Most recently, they falsely alleged that Octavian's nominees would take away shareholders' monthly dividend. In fact, it was Octavian that urged EnerCare to increase the dividend a year ago, long before the current board authorized the recent increases. The same board that previously cut the dividend is now trying to take credit for the recent increase that Octavian had previously recommended. EnerCare shareholders deserve to be represented by a responsible Board that is focused on creating shareholder value and not on furthering its own self interests."

Mr. Hurowitz continued, "Octavian has received an enthusiastic response from its fellow EnerCare shareholders and their feedback confirms that the time has come for change at the company. Octavian's four independent and highly qualified nominees are committed to exploring all potential value-creation opportunities and acting in the best interests of EnerCare shareholders. Octavian is not necessarily pushing for a sale - just an objective evaluation of all available options to increase shareholder value. We are seeking minority representation on the Board -- not control - for the benefit of all shareholders. The Octavian Nominees believe that, if elected, they can effect positive change at EnerCare by utilizing their experience and working constructively with other members of EnerCare's board of directors. Immediate action must be taken to get EnerCare back on the right path. We urge EnerCare shareholders to make their voices heard by voting for Octavian's proposals on their yellow proxy today."

The Octavian letter to EnerCare shareholders follows:

April 2, 2012
 
 
Dear Fellow Shareholder:

We act as investment manager of various funds that hold common shares of EnerCare Inc. ("EnerCare" or "the company"). These funds own approximately 13% of the common shares of EnerCare that are entitled to be voted at the annual and special meeting of shareholders to be held on April 30, 2012 (the "Meeting"), making us EnerCare's largest shareholder.

Octavian, which manages investments for pension funds, foundations, families and institutions, has been a shareholder of EnerCare for more than two years and believes your shares are significantly undervalued due largely to the actions and inactions of the current board of directors, led by its chairman, James Pantelidis, and their repeated attempts to disenfranchise shareholders.

We believe EnerCare shareholders deserve better, and while we have tried to engage constructively with EnerCare's chairman over the past two years to address these issues, our efforts have been rebuffed or ignored. As a result, Octavian is acting to give our fellow shareholders a direct voice in determining EnerCare's future by proposing to expand the board of directors of EnerCare (the "Board") to 10 members, including the four highly qualified and independent directors we have nominated (the "Octavian Nominees").

THE PROPOSED SLATES

Octavian requisitioned a meeting of shareholders proposing to expand the Board to 10 to give shareholders minority representation without displacing any current directors of the company. At that time, the Board had six members. Well after Octavian requisitioned the Meeting, EnerCare unilaterally expanded the Board from six to eight members, thus increasing the number of management nominees to be considered at the Meeting. EnerCare has circulated a deliberately confusing form of proxy that could potentially result in an absurd outcome of twelve directors being elected at the Meeting without providing shareholders with any explanation as to how this outcome might be addressed at the Meeting. This transparent attempt to manipulate shareholders and undermine a shareholder's requisition provides yet another example of the current Board's attempt to disenfranchise its shareholders.

In light of this inappropriate action, we have been forced to propose the removal of two of the current directors to eliminate the uncertainty for shareholders deliberately created by the EnerCare form of proxy. Accordingly, Octavian's proposed slate excludes Mr. Pantelidis, whom we believe bears primary responsibility for EnerCare's poor governance and long-term destruction of shareholder value, and Mr. Jerry Patava.

Octavian is seeking minority representation on the Board, not control. If elected, the Octavian Nominees will be a minority of the directors and will not alone be able to adopt resolutions. However, the Octavian Nominees expect to be able to actively engage other Board members in full discussion of the issues facing EnerCare and resolve them together. By utilizing their experience and working constructively with other members of the Board, the Octavian Nominees believe they can effect positive change at EnerCare. The Octavian Nominees will provide EnerCare with fresh insight while the management nominees we recommend for election to the Board will provide for continuity.

THERE IS AN URGENT NEED FOR CHANGE

Under Mr. Pantelidis' leadership, the current Board has not only missed key strategic opportunities, but has engaged in dilutive transactions, failed to prepare for competitive threats, and ignored regulatory risks. This is substantially the same board - with the same strategic plan - that oversaw an 80% decline in EnerCare's share price between 2007 and 2009. Failure to change this leadership will result in more of the same and could seriously harm your investment.

Given the Board's failure to address EnerCare's long-term underperformance and track record of value destruction and missed opportunities under its current leadership, as described below, we believe it is necessary to augment the Board by seeking the support of our fellow shareholders at the Meeting to elect four independent directors. These highly qualified nominees - Beth S. Horowitz, Graham Senst, T. Richard Turner and Richard A. Hurowitz - have the best interests of all of EnerCare's shareholders as their first priority and will support the thorough, objective exploration of all value-creation opportunities, including a further increase in dividends, a sale of the company, a recapitalization, a share buyback or a spinoff of certain assets. Contrary to EnerCare's false and misleading arguments, Octavian is not necessarily pushing for a sale of the company - we simply want the Board to objectively evaluate all options to increase shareholder value.

Over the past two years, Octavian has engaged in conversations and met with Mr. Pantelidis and the Board. However, these discussions have only served to heighten Octavian's concerns about the current Board's oversight of the company and its ability to maximize shareholder value or interest in doing so. While Octavian's preference has been to work constructively with EnerCare, its actions have unfortunately demonstrated that the company's current leadership has no interest in working with or on behalf of the company's shareholders.

Specifically, Mr. Pantelidis has exhibited an extreme hostility towards shareholders, going to great lengths to further entrench the current Board and deny shareholders any Board representation. Some recent examples of Mr. Pantelidis' behaviour include:

  • insisting on serving as chair of the Meeting despite his clear conflicts of interest in doing so, and failing to agree to our reasonable request that a mutually agreed-upon independent chair be appointed to conduct the Meeting;
  • leading a director nomination process that was never intended to include representatives nominated by shareholders, and in particular the Octavian Nominees;
  • cynically breaching the company's individual voting policy by taking the position that it will not apply at the Meeting although it was adopted for the stated purpose of ensuring that each director of the Board "should carry the confidence and support of EnerCare's shareholders"; and
  • circulating a deliberately confusing form of proxy that could potentially result in an absurd outcome of twelve directors being elected at the Meeting, without providing shareholders with any explanation as to how this outcome might be addressed at the Meeting.

ENERCARE'S CURRENT LEADERSHIP HAS REPEATEDLY FAILED TO MAXIMIZE SHAREHOLDER VALUE

Until Octavian announced the requisition of the Meeting, EnerCare shareholders had suffered a significant decline in value while the market (represented by the S&P/TSX Composite Index) had increased dramatically. Since EnerCare's IPO in 2002 until December 9, 2011, the last trading day prior to Octavian's announcement, the stock was down 11% compared to an increase of 78% for the S&P/TSX Composite Index. We believe this substantial long-term underperformance is due to a series of strategic missteps, including missing an opportunity to sell the company in 2007 at a large premium to today's price that was then available, assuming significant regulatory risk in 2009 by making an acquisition in an industry that regulators then shut down, and conducting an unnecessary and highly dilutive stock offering at a price of $4.95 per share in 2010.

Octavian believes that a lack of focus and inadequate direction, oversight and leadership on the part of the current Board under Mr. Pantelidis' direction have contributed materially to the issues now facing EnerCare. The shortcomings of this leadership are highlighted by the following strategic missteps and failure to capitalize on attractive opportunities:

  • Despite the fact that during the past year EnerCare management has reduced customer churn in the water heater rental business and restarted its sub-metering business, EnerCare's stock remains significantly undervalued. Five years ago, EnerCare stock traded at $16 per share, approximately 180% above the closing share price on December 9, 2011, the last trading day prior to Octavian's announcement that it had requisitioned the Meeting. Since EnerCare's IPO in 2002 until December 9, 2011, the stock was down 11% compared to an increase of 78% for the S&P/TSX Composite Index.
  • We are troubled by Mr. Pantelidis' extreme assertion to us that under no circumstances should shareholders be represented on the Board. The current directors, according to EnerCare's management information circular for the Meeting, collectively own less than 0.3% of EnerCare shares. This concern is heightened by Mr. Pantelidis' statements to Octavian that some directors "live off of director fees" and that shareholders should not have Board representation because the "Board knows better than the shareholders."
  • Many income trusts opted to go private at high valuations following the change in tax policy announced on October 31, 2006. This group of income trusts included the company's closest comparable, UE Waterheater Income Fund, which was sold for a valuation in excess of 11 times EBITDA. At that multiple, EnerCare would have been valued at approximately $24 per share at that time. The current Board - who did not even consider a strategic alternatives process at that time - has indicated, however, that it is not interested in pursuing a sale of the company at any price.
  • As the Board readily acknowledged in a May 16, 2011 meeting with Octavian, it was highly unlikely that potential buyers would approach EnerCare, given the Board's well-known opposition to a sale of the company. Mr. Pantelidis' statement in that meeting that, a "sale of the company would be value-destructive," apparently irrespective of price, is irresponsible corporate governance.
  • EnerCare has exhibited poor judgment on corporate finance. Despite our shared view that the company's shares were significantly undervalued, EnerCare inexplicably issued shares in 2010 with no apparent corporate purpose at a price of $4.95 per share, a highly dilutive transaction that damaged all shareholders without any benefit. This sale not only diluted existing shareholders but was structured in such a manner that non-Canadian shareholders were unable to participate. This was a particularly unusual corporate finance decision in light of the company's investment grade balance sheet and the low price at which this transaction occurred.
  • The company's acquisition of Stratacon, a sub-metering business it purchased for approximately $30 million, was mishandled. Shortly after this acquisition closed in March 2009, the Compliance Office of the Ontario Energy Board voided all existing sub-metering contracts and blocked companies from signing up any new customers. As a result, the business was completely shut down until recently when the Government of Ontario allowed sub-metering customers to be signed up again. It is clear that the Board failed to take into account regulatory risks, which is surprising given the company's experience in this regulatory environment. Despite the recent improvement in this business because of its restart, the company was forced to write down its investment.

THE RIGHT PLAN FOR ENERCARE

Notwithstanding the lack of focus, leadership and strategic direction from EnerCare's current Board, we believe that, with a renewed focus on proper leadership, oversight and vision, EnerCare offers substantial upside for shareholders. As a long-term EnerCare shareholder -- and with over 40 times more shares than all of the current Board members combined -- Octavian has a strong interest in the future success of the company, and we believe that the addition of independent directors will be of significant benefit to the company and all its shareholders.

EnerCare has tried to portray Octavian's independent nominees as your enemy, falsely alleging that, if elected, these minority directors will push for a sale of the company and take away your monthly dividend. In fact, Octavian first urged EnerCare to increase its monthly dividend on April 11, 2011, well before the current Board finally authorized the recent dividend increases. The same Board that previously reduced your dividend is now trying to take credit for the recent increase that Octavian had recommended a year ago. It is clear that shareholders need responsible representatives on the Board who will protect their investment.

In order to get EnerCare on the right path and enhance value for all shareholders, Octavian is proposing the election of four highly qualified and independent director nominees. The Octavian Nominees bring with them considerable experience and demonstrated track records of creating value for shareholders at other leading companies. The Octavian Nominees also have the dedication and expertise required to ensure EnerCare achieves its full potential.

Key actions that must be taken include a thorough exploration of all strategic alternatives available to the company, with the goal of increasing value for all shareholders. These alternatives include not only a potential sale of the company, but also a recapitalization, a further increase in dividends, a share buyback or a spinoff of certain assets. It is vital that the Board be augmented with independent directors who have the appropriate experience, expertise and independence to bring a fresh focus on increasing shareholder value, and who will ensure that all strategic alternatives available to the company are properly and objectively explored.

As the largest shareholder of EnerCare, Octavian funds have a strong interest in the success of EnerCare. We believe that continuing along the current path will further jeopardize shareholder value - and now is the time for a change in the leadership at EnerCare.

VOTE TO ADD DIRECTORS WHO HAVE YOUR INTERESTS AS THEIR PRIORITY

While Octavian's preference has been to work constructively with the Board, the actions of EnerCare's current leadership have unfortunately demonstrated that it has no interest in working with or on behalf of the company's shareholders. We believe it is important to elect our proposed four nominees, who will enhance and energize the Board.

YOUR VOTE IS IMPORTANT - VOTE YOUR YELLOW FORM OF PROXY TODAY

In connection with our desire to expand and strengthen the Board, we are providing to you our proxy circular (the "Circular") and a YELLOW form of proxy to be used in connection with the Meeting.

At the Meeting, we propose to fix the size of the Board at 10 directors and to elect the four highly qualified and independent Octavian Nominees and six of the current directors. None of these six current directors have consented to serve with our four nominees, and there is no assurance they will do so.

We are confident that our four director nominees will provide EnerCare with the leadership and direction necessary to begin realizing its full potential. The Octavian Nominees have the experience, skills and expertise required for EnerCare to be successful. Importantly, they also all share the vision and commitment to enhance long-term value for the benefit of all shareholders of EnerCare.

We ask you to review the information in this Circular and are confident that you will conclude that voting "FOR" our four independent director nominees is in the best interests of EnerCare and its shareholders. We urge you to seize this opportunity by returning the enclosed YELLOW form of proxy today in accordance with the instructions in this Circular and on the form of proxy. You may do this even if you have previously signed a form of proxy in support of management - the more recent proxy automatically revokes the earlier one.

If you have questions about this Circular, please call me directly at (212) 224-9501. If you have questions about how to complete your YELLOW form of proxy, please call MacKenzie Partners, Inc. at 1-800-322-2885 (toll-free) or 212-929-5500 or e-mail enercare@mackenziepartners.com and they will assist you. Collect calls will be accepted.

We look forward to receiving your completed YELLOW form of proxy and working together with you to achieve positive change at EnerCare.

Yours sincerely,

OCTAVIAN ADVISORS, LP

 
 

"Richard A. Hurowitz"

Chairman and Chief Executive Officer

* * *

Octavian's proxy circular and additional information regarding Octavian's recommended nominees is available at www.ShareholdersForEnerCare.com.

About Octavian Advisors, LP

Octavian Advisors, LP is a global investment firm with offices in New York and London. The firm focuses on special situations and distressed investments in international markets, and has successfully invested in over 40 countries on six continents. Octavian currently manages approximately $1 billion for leading endowments, foundations, pension funds, family offices and institutions.

Investor Contacts:
Mackenzie Partners, Inc.
Larry Dennedy, 212-929-5239
ldennedy@mackenziepartners.com
or
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Charlie Koons, 212-929-5708
ckoons@mackenziepartners.com
or
Media Contact:
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