Proposed B share scheme and notice of GM

9 October 2024

CRYSTAL AMBER FUND LIMITED

("Crystal Amber Fund" the "Company" or the "Fund")

Proposal for adoption of B share scheme to permit returns of capital

and notice of General Meeting

Crystal Amber Fund announces that it has posted a circular to shareholders  (the Circular) in relation to the Board's proposal that a B Share Scheme be adopted and implemented such that the Board can pursue returns of capital over time to Shareholders by way of redemption of the B Shares following the full or partial realisation of the Company's assets.

On 15 February 2022, the Company published a circular (the 2022 Circular) containing proposals for a change of investment policy to allow for the realisation of predominantly all of the Company's assets and the managed wind-down of the portfolio (the 2022 Proposals). The 2022 Proposals were approved by Shareholders in March 2022. The publication of the 2022 Circular followed an announcement in December 2021 that the Company intended to adopt a strategy of maximising capital returned to Shareholders through timely disposals.

Since December 2021, the Company has returned £45.8 million through dividend distributions and a further £9.6 million through a share repurchase programme that commenced in December 2023. The Board considers that there is the potential for further returns of capital to Shareholders as the Fund continues to pursue the realisation of assets.  In particular, De La Rue plc (DLAR) has announced that it is pursuing strategic options in relation to its operating divisions and that discussions with parties for the disposal of either of such divisions have progressed significantly with an expectation of a further update announcement in the next few weeks.  In light of this and the potential for corporate actions by this investee company, the Board has considered that now would be an appropriate time to put in place an authority and mechanism to be able to return capital to Shareholders in the context of any potential transactions implemented by DLAR that afford a return on or realisation of all or part of the investment in DLAR, as well as for potential realisations of the Company's other holdings if and when the same shall occur. Accordingly, the Company is now putting forward a proposal for adoption of the B Share Scheme whereby the Company will be able to make successive bonus issues of redeemable B Shares to Shareholders on a pro rata basis and to redeem such B Shares for cash shortly thereafter without further action being required by Shareholders (the Proposal). 

The quantum and timing of any Return(s) of Capital to Shareholders under the B Share Scheme will be at the discretion of the Board and will be dependent on the realisation of the Company's assets, its liabilities and general working capital requirements. The Company will announce details of each Return of Capital, including the relevant Record Date, Redemption Price and Redemption Date via a Regulatory Information Service.

The adoption of the B Share Scheme requires Shareholder approval, pursuant to the Companies Law, and will be proposed as a special resolution. Therefore, the Company is publishing the Circular to convene the Extraordinary General Meeting at which it will seek approval from Shareholders to adopt the B Share Scheme and related actions to permit returns of capital over time to Shareholders in an efficient manner.

The Circular sets out details of, and seeks approval for, the Proposal and explains why the Board is recommending that Shareholders vote in favour of the Resolutions to be proposed at the Extraordinary General Meeting to be held at 2.00 p.m. on 28 October 2024.

It is emphasised that the Board is not proposing a Return of Capital at this time, but only seeking to put in place a mechanism to do so should it be appropriate in the future.

Background to, and reasons for, the Proposal

As noted above, the Company is pursuing an orderly realisation of its assets over a period of time following the approval of the 2022 Proposals. The Board is mindful of the fact that it has a range of institutional, corporate and individual Shareholders and, as such, proposes a flexible mechanism by which any realisation proceeds can be returned to Shareholders.

Following careful consideration of the available options, taking into account, among other things, tax impact, effectiveness for a large capital return and cost effectiveness, the Board believes that one of the fairest and most efficient ways of returning substantial amounts of cash to Shareholders is by means of a bonus issue of redeemable B Shares to Shareholders pro rata to their holding of Ordinary Shares, which would then be immediately redeemed by the Company in consideration for a cash payment equal to the amount treated as paid up on the issue of the B Shares. This method of return allows Shareholders to be treated equally on a pro rata basis.

B Share Scheme

Return of Capital via the B Share Scheme

Subject to the Resolutions being passed at the Extraordinary General Meeting, the B Share Scheme will provide the Company with a mechanism to return cash to Shareholders at such time or times as the Board may, at its absolute discretion, determine. B Shares would be issued to Shareholders (at no cost to Shareholders) pro rata to their holdings of Ordinary Shares at the time of issue of the B Shares and, shortly thereafter, redeemed and cancelled in accordance with their terms for a cash amount not exceeding the amount treated as paid up on the issue of the B Shares. The Company will not allot any fractions of B Shares and entitlements will be rounded down to the nearest whole B Share.

Following the redemption and cancellation of the B Shares, the redemption proceeds would be sent to Shareholders, either through CREST to uncertificated Shareholders or via cheque to certificated Shareholders.

By implementing the B Share Scheme, the Company will be able to issue B Shares from time to time and then redeem them for a cash consideration to enable one or more capital returns to Shareholders as deemed appropriate by the Board. Each issue and redemption of B Shares would be announced via a Regulatory Information Service.

Further details of the B Share Scheme are set out in Part 2 of the Circular. 

Taxation of the B Share Scheme

A summary of certain tax consequences of the Proposal for certain categories of UK tax resident Shareholders is set out in Part 5 of the Circular.

Shareholders who are in any doubt as to their tax position should consult an appropriate independent and authorised professional adviser.

Further information on the B Shares

No share certificates will be issued in relation to the B Shares and no CREST accounts will be credited with any such shares. The B Shares will not be listed or traded on any exchange, including AIM.

The B Shares will be non-transferable and will have limited rights. Given the very short period of time for which any B Share would be in issue, it is unlikely that any dividends would become payable on the B Shares. The rights and restrictions attached to the B Shares are set out more fully in Part 3 of the Circular.

Status of the portfolio of investments of the Company

De La Rue plc (DLAR)

Following a prolonged period of intense and successful activism at DLAR, the Company purchased 15.3 million shares in DLAR during the summer of 2023 at a cost of £6.3 million, equivalent to 41.2 pence per share.

On 25 September 2024, DLAR released a strategic update and stated that it is pursuing various strategic options in relation to its operating divisions and that discussions with parties in relation to the disposal of either of the group's divisions have progressed significantly. Such announcement also stated that DLAR expected to provide a further update within the next few weeks.

DLAR stated that it remained confident of achieving group adjusted operating profit for FY25 significantly ahead of FY24, in the mid- to high- £20 million.

The Company is DLAR's largest shareholder, with a holding close to 17 per cent. of its issued share capital. The Investment Manager remains of the view that the strategic value of DLAR is substantially more than its operational value and that it is also potentially a takeover target in an industry requiring consolidation. The Company notes both the cross-selling revenue benefits and the elimination of substantial plc and head office overheads that should accrue to a trade acquiror.

Morphic Medical Inc (MMI) (formerly GI Dynamics Inc (GI Dynamics))

The Company holds 95.3 per cent. of the issued share capital of MMI, in addition to interest bearing loan notes. Last summer, GI Dynamics changed its name to Morphic Medical Inc. MMI is a privately held company, headquartered in Boston, MA, that develops an endoscopically delivered medical device for patients with Type 2 Diabetes and Obesity. The device is called RESET, formerly known as the Endobarrier. RESET is a thin, flexible implant that lines the proximal intestine and mimics gastric bypass bariatric surgery as food bypasses the duodenum and the upper intestines. The Investment Manager believes that MMI's RESET device can deliver superior and durable results without change to the anatomy.

In June 2024, the Investment Manager reported that MMI had received approval from the U.S. Food and Drug Administration (FDA) to MMI's application for amendments to certain requirements for its pivotal study, which is approved as a staged study. These protocol changes are expected to significantly accelerate access to the key US markets for the treatments of diabetes and obesity, subject to, inter alia, successful completion of the study and trials.

MMI is currently in very advanced stages of securing CE Mark certification, which is expected in the coming weeks.

Prax Exploration Deferred Consideration Units (DCUs)

In May 2024, the Fund disposed of its remaining holding in the DCUs, following the acquisition of Hurricane Energy plc by Prax Exploration. This brought total proceeds from the DCUs to £12.5 million, realising a profit of £2.3 million. In June 2021, in the High Court, the Fund successfully prevented a debt for equity swap, which would have resulted in 95% dilution. Ahead of the court case, shares in Hurricane Energy plc were trading at 1 penny per share. Following the disposal in May, total proceeds received by the Fund were 8.65 pence per share on its holding of 575.6 million shares.

Other

The Fund's other holdings represent approximately 10 per cent. of the Company's Net Asset Value. The Fund is in discussions in respect of all these holdings with a view to securing transactions that will either result in a cash exit or provide improved liquidity.

Benefits of the Proposal

The Board believes, having taken into account the views of certain Shareholders and the Investment Manager, that the Proposal is in the best interests of the Company and its Shareholders as a whole, and should deliver the following principal benefits:

·    the Company will be able to return capital to Shareholders in a cost-effective and timely manner through the proposed B Share Scheme (or by way of such other mechanisms which the Directors consider in their discretion, and are in the best interests of Shareholders from time to time); and

·    it is intended that the admission to trading on AIM of the Ordinary Shares will be maintained for as long as practicable during the realisation process subject to regulatory considerations, enabling Shareholders to continue to trade their Ordinary Shares and thereby exit their investment through the market from time to time.

Risk factors

The Directors have given consideration to the potential risks and uncertainties relating to the Proposal.

For a discussion of certain risk factors which Shareholders should take into account when considering whether to vote in favour of the Resolutions, please refer to Part 4 of the Circular.

Extraordinary General Meeting

To implement the Proposal, an Extraordinary General Meeting of the Company is to be held at Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey GY1 4LY at 2.00 p.m. on 28 October 2024.

Resolution 1 will be proposed as a special resolution and the passing of such Resolution will require a not less than 75 per cent. majority of the votes cast in person or by proxy. Resolutions 2 and 3 will be proposed as ordinary resolutions and the passing of such Resolutions will require a not less than 50 per cent. majority of the votes cast in person or by proxy. Together the Resolutions seek approval for the adoption and implementation of the proposed B Share Scheme.

Resolution 1 relates to the adoption of the New Articles that set out the rights and restrictions attached to the B Shares and enable the Directors to capitalise reserves from time to time for the purposes of the B Share Scheme with the authority of a one-off ordinary resolution of the Company which will be sought pursuant to Resolution 2.

Resolution 2 (which is conditional on Resolution 1 being passed) authorises the Directors to capitalise from time to time any sums standing to the credit of any reserve of the Company and to apply such sums for the purposes of paying up in full up to 20,000,000,000 B Shares to be allotted and issued to Shareholders pro rata to their holdings of Ordinary Shares at the Record Date in respect of the relevant issue of B Shares.

Resolution 3 (which is conditional on Resolutions 1 and 2 being passed) authorises the Directors to allot and issue B Shares from time to time up to an aggregate nominal amount of £200 million on a pro rata basis to the holders of Ordinary Shares by way of one or more bonus issues. If approved, this authority to allot and issue B Shares will expire at 11.59 p.m. on 27 October 2029 (being the fifth anniversary of the date when Resolution 3 is expected to be passed).

The full text of the Resolutions to be proposed at the Extraordinary General Meeting is set out in the Notice of EGM at the end of the Circular. A draft of the proposed New Articles (showing the full terms of the changes proposed to be made) may be inspected at the registered office of the Company, Floor 2, Trafalgar Court, Les Banques, St Peter Port, Guernsey  GY1 4LY, during usual business hours on any weekday (Saturdays, Sundays and public holidays excepted) from the date of the Circular up to and including the date of the Extraordinary General Meeting and at the place of the Extraordinary General Meeting for at least 15 minutes before and during the Extraordinary General Meeting.

The implementation of the Proposal will require the approval of the Resolutions.  If any of the Resolutions are not passed, then the provisions in the Existing Articles will continue to apply and the Proposal will not proceed.     

Action to be taken by Shareholders

All Shareholders are encouraged to vote in favour of the Resolutions to be proposed at the Extraordinary General Meeting and if the Ordinary Shares are not held directly, to arrange for their nominee to vote on their behalf. In line with the Company's ongoing paperless strategy Shareholders will not receive a Form of Proxy with this document. Instead Shareholders are asked to vote in one of the following ways:

a)    in the case of members holding share certificates, by utilising the shareholder portal as set out in note 4 to the Notice of EGM; or

b)    in the case of CREST members, by utilising the CREST electronic proxy appointment service in accordance with the procedures set out in note 5 to the Notice of EGM; or

c)    by requesting a hard copy of the Form of Proxy from the Company's registrar, Link Group, by emailing [email protected], or by calling 0371 664 0300 (calls are charged at the standard geographic rate and will vary by provider. Calls outside the UK will be charged at the applicable international rate. Lines are open 9:00 a.m. - 5:30 p.m. Monday - Friday) and returning it to Link Group at the address shown on the Form of Proxy. Please note that delivery using this service can take up to five Business Days; or

d)    if you are an institutional investor you may also be able to appoint a proxy electronically via the Proxymity platform, a process which has been agreed by the Company and approved by the Registrar. For further information regarding Proxymity, please go to www.proxymity.io or refer to note 6 to the Notice of EGM.

In each case the appointment of proxy must be received by the Company's registrar, Link Group, by no later than 2.00 p.m. on 26 October 2024 or in the case of any adjournment by no later than 48 hours before the time of the adjourned meeting.

The appointment of a proxy will not preclude a Shareholder from attending the Extraordinary General Meeting and voting in person if they wish to do so.

Circular and further information

A copy of the circular is available  on the Company's website at www.crystalamber.com

Shareholders' attention is drawn to the further information set out in Parts 2 to 5 of the Circular. Shareholders should read the whole of the Circular and, in particular, the risk factors set out in Part 4, before deciding on the course of action to take in respect of the Resolutions and the Proposal.

Recommendation

The Board considers the Proposal to be in the best interests of the Company and Shareholders as a whole. 

Accordingly, the Board recommends 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 beneficial holdings which, as at 7 October 2024, being the latest practicable date prior to the publication of the Circular, amount in aggregate to 41,000 Ordinary Shares, representing approximately 0.07 per cent. of the Company's existing issued share capital.

Definitions used in this announcement are set out in the Appendix.

For further enquiries please contact:

Crystal Amber Fund Limited

Chris Waldron (Chairman)

Tel: 01481 742 742

www.crystalamber.com

Allenby Capital Limited - Nominated Adviser

Jeremy Porter/ Dan Dearden-Williams

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

Appendix

DEFINITIONS

The following definitions apply throughout this announcement, unless the context requires otherwise: