Octavian Advisors, LP, the largest shareholder of EnerCare Inc. (TSX: ECI), which exercises control or direction over approximately 13% of EnerCare's outstanding common shares, today sent a letter to EnerCare's Board of Directors addressing a variety of inaccuracies contained in statements made by Mr. James Pantelidis, EnerCare's Chairman, in the Company's January 18, 2012 press release.

"EnerCare's Chairman continues to demonstrate a blatant disregard for the Company's shareholders and place the Board's interests ahead of those of the Company and its shareholders," said Richard Hurowitz, Chairman and Chief Executive Officer of Octavian. "Octavian has maintained a significant investment in EnerCare for approximately two years and is currently the Company's largest shareholder. In fact, Octavian has been an extremely supportive shareholder of EnerCare, including at a time when its prospects were very uncertain. Mr. Pantelidis' misleading assertion that Octavian has no interest in the long-term future of EnerCare and that we are not aligned with our fellow shareholders is not only patently false, but is also indicative of his overall hostility towards shareholders.

"Octavian has consistently stated its firm belief that EnerCare's shares are significantly undervalued and has expressed its support for measures to unlock value for all shareholders. Octavian has never indicated to the Board the price at which we would agree to sell our shares and in fact rejected a proposal by Mr. Pantelidis on May 16, 2011 that we sell our shares at approximately $7.20 per share."

Mr. Hurowitz continued, "We are puzzled as to why Mr. Pantelidis is so reluctant to engage with EnerCare's shareholders and so desperate to prevent the addition of credible new voices and additional energy to the Board. We are alarmed by his apparent intention to waste large amounts of shareholders' money in attempting to obstruct this highly constructive proposal, for no rational purpose. There is an urgent need for change at EnerCare in order to set the Company on the right path, which we believe can be achieved by adding four highly qualified and independent directors to the Board. This will give the true owners of EnerCare - our fellow shareholders - a voice in determining the Company's future."

The full text of the letter Octavian sent today to the Board of EnerCare follows:

January 19, 2012

 

 
Mr. James Pantelidis
Chairman of the Board of Directors
EnerCare Inc.
4000 Victoria Park Avenue
Toronto, Ontario M2H 3P4
Canada
 
Dear James:

We are writing to respond to the press release that EnerCare Inc. issued on January 18, 2012 in which you made several inaccurate statements about Octavian Advisors, LP and mischaracterized our constructive and good faith proposal to elect four highly qualified and independent directors to the Board of Directors of the Company.

We strongly object to your statements as they not only mislead the Company's shareholders as to the facts but also seek to deny them the opportunity to benefit from positive change at the Company. We wish to set the record straight and caution you to refrain from misleading shareholders in the future.

As you are aware, we have been long-term and significant investors in Canada since our firm's inception and have been shareholders of the Company for approximately two years. As the Company's largest shareholder, Octavian's objective for EnerCare - to enhance the value of its shares - is fully aligned with the best interests of all of our fellow shareholders. We have serious concerns about the Company's governance record under your leadership and believe there is an urgent need for change in order to set EnerCare on the best path.

The record is clear from our correspondence with the Company over the last two years. During the May 2010 meeting that you referred to in your press release, we had a general discussion about the Company, the extreme undervaluation of its shares, and its strategic direction in a post-income trust world. We all agreed that the stock was trading at a price that was well below the Company's intrinsic value.

You will also recall the bizarre circumstances of that meeting, which was scheduled weeks in advance, when it was interrupted with the news that - despite the view you had expressed only moments before that the shares were undervalued - the Company had issued shares below market in a dilutive public offering at $4.80 per share with no justifiable corporate purpose.

Octavian would not sell our EnerCare shares at any price below full value, and in fact, the only seller of EnerCare shares in May 2010 was the Company when it issued shares in that dilutive offering. In a meeting on May 16, 2011, you proposed to facilitate a placement of our shares in the market at approximately $7.20 per share, a discount to the then prevailing market price of $7.50 and a telling proposal for the Chairman of a Company to make to its largest shareholder. As you are well aware, we rejected this proposal and informed you that we were not sellers of our stock at anything close to such an absurdly low price.

Despite the fact that we have continued to increase our investment in EnerCare, you have attempted to mislead our fellow shareholders by suggesting that we are short-term investors. Your transparent motive in referring to Octavian as a "New York-based hedge fund" would appear to unfairly cast doubt on our motives and caricature us in some manner. We take strong exception to this. In fact, Octavian has been an extremely supportive shareholder of EnerCare, including at a time when its prospects were very uncertain. Octavian is a highly respected investment firm that holds its core investments for multi-year periods and without regard to time horizon.

We remain deeply concerned about your lack of commitment to undertaking value-creating initiatives. Given your well-known opposition to a sale of the Company, it is highly unlikely, as you readily acknowledged in our May 16, 2011 meeting, that potential buyers would approach EnerCare. Your statement in that same meeting that a "sale of the Company would be value-destructive" was stunning but very telling of your position. Most alarming is your defense of your failure to explore a sale of the Company in 2007 when its closest comparable, UE Waterheater, was taken private at a multiple that would have implied approximately $24 per share for EnerCare based on the Company's share count at the time. Instead, shareholders were subjected to an approximately 80% collapse in value and a dramatic dividend cut.

Our proposal to add four independent and highly qualified directors to the Board of the Company is reasonable and in the best interests of EnerCare and its shareholders. Surely EnerCare's Board can only benefit from addition of extensive experience and expertise, as well as fresh ideas.

You have stated to us that shareholders should not have representation on the Board and that the "Board knows better" than the shareholders. We question why you are so desperate to prevent the addition of credible new voices and additional energy to the Board. We are alarmed by your apparent intention to waste large amounts of shareholders' money in attempting to obstruct this highly constructive proposal, for no rational purpose.

We look forward to the support of our fellow shareholders in adding the four highly qualified and independent directors that we have proposed to EnerCare's Board. These nominees are committed to ensuring that the true owners of EnerCare - the Company's shareholders - are appropriately represented and that all potential value-creation opportunities for the Company are properly explored.

We trust that you will refrain from further misleading remarks in the future.

Sincerely,

 
Richard Hurowitz
Chief Executive Officer
 
cc: Board of Directors
 

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.

Investors:
Mackenzie Partners, Inc.
Larry Dennedy, 212-929-5239
ldennedy@mackenziepartners.com
or
Charlie Koons, 212-929-5708
ckoons@mackenziepartners.com
or
Media:
Sard Verbinnen & Co
Jonathan Doorley, 212-687-8080
jdoorley@sardverb.com