ANS
Investments LLC
▪
50
Battery Place, Suite 7F, New York, NY 10280 ▪
▪
Tel:
(212) 945-2080 ▪ Fax: (508) 629-0074 ▪
▪
Email:
jmeer@verizon.net▪
December
2, 2008
Magellan
Petroleum Corporation
10
Columbus Blvd.
Hartford,
CT 06106
Attn:
Walter McCann, Chairman
Dear
Mr.
McCann:
I
write
in response to Magellan’s Form 10-K/A filed on October 28, 2008 which informed
the MPET shareholders that the Board would not be filing the definitive proxy
materials needed for the 2008 annual shareholders meeting within the applicable
120 day period after the close of the 2008 fiscal year (or October 29, 2008)
and
to your letter of October 23, 2008 addressed to me.
I
tried
to schedule a face-to-face meeting with you in an attempt to resolve our
differences for the benefit of the Company but was rebuffed with vague reasons
as to why a meeting could not take place. I am therefore compelled by your
refusal to meet to instead write.
We
were
shocked to learn from the Company’s October 28, 2008 filing that Board members,
in addition to receiving substantial compensation directly from the Company,
also receive director fees from the Company’s Australian subsidiary. We are not
aware of this ever being disclosed before, though the Company’s filing suggests
that this arrangement has been in place for prior years. If such is the case,
is
there a reason that this was not disclosed in prior years? We would much
prefer
to believe this arrangement is nothing new and that it was not disclosed
in
prior years due to an oversight. If this is not the case, then the Board
granted
itself a huge increase in compensation in 2008 despite the abysmal financial
performance of the Company over which the Board presided.
Simply
put, in the 2007 proxy statement, your stated compensation was $65,000 for
director’s fees plus an additional $6,000 in medical insurance expense
reimbursement. In the October 28, 2008 filing, your director’s compensation grew
from this already high amount to a total of $105,963. Did you have the audacity
to increase your director’s fees by an astounding 35% in 2008 while the Company
lost money, its stock failed miserably to keep pace with its peer group and
MPET
paid a huge amount to resolve the disastrous Australian tax debacle?
The
Company’s October 28 filing says in footnote 5 that in 2008 “each of the
directors was paid, consistent
with past practice,
a
portion of their fees directly by MPAL”. According to the table below this
statement, you were paid an
additional
Aus
$39,000 for acting as a director and audit committee member of MPAL, a
subsidiary of Magellan. If the phrase, “consistent with past practice” in this
filing means that you received similar compensation from MPAL in 2007, we
are
concerned as to why such compensation was not disclosed in the Company’s 2007
proxy in direct violation of SEC Regulation S-K, Item 402.
So
which is it Mr. McCann - did you increase your director’s compensation by 35% in
2008 or did the Company fail to disclose your total compensation in the 2007
proxy? Whatever the answer, we believe that shareholders deserve a full and
complete explanation.
In
short,
we believe that the Company has been paying you and the other Directors
substantial sums from two separate companies within the MPET group. Only
now,
with our proxy contest under way, is the Company disclosing what we believe
to
be extremely generous compensation arrangements that we believe constitute
a
raid on the corporate treasury. One can only shudder to think what other
kind of
new information might be unearthed when the MPET shareholders finally get
a
voice on the Board. Is this why the Board is so vigorously resisting shareholder
representation?
This
existing Board, which we now learn paid itself $451,541 in directors’
compensation last year, has not purchased - not last year and not in the
past
five years - even one share of MPET stock. The stock has declined to
substantially below $1 per share and shareholders have lost substantial amounts.
We and other shareholders have been insisting that the Board have an equity
stake in the Company so that your interests are aligned with those of us
who
have invested their own funds.
Instead
your letter suggests that Board is considering further depletion of Company
coffers by having the Company grant you and other directors Company stock
as
additional compensation for the services you and your fellow board members
have
provided as directors. Indeed, you used corporate funds to hire a compensation
consultant to validate this additional compensation. Let me be very clear
-- we
shareholders do not wish to give
our
directors stock, we want our directors to purchase
stock to
demonstrate their commitment to the Company and confidence in its future.
We are
disappointed by what we perceive as a lack of commitment and confidence by
the
Board in the Company’s future prospects.
Further,
having read the Form 10-Q filed on November 13, 2008, our fears concerning
the
Company’s CEO again being asleep at the switch were confirmed. We previously
informed you of our concern that the Company was at risk because it had no
strategy in place to hedge foreign currency risk. We were unfortunately proven
right. For the 3 month period ended September 30, 2008 the Company had an
$8,615,280
charge to the foreign currency translation adjustments account. This included
a
loss the Company took on its cash balance in the amount of $5,567,466. With
the
value of the Australian dollar continuing to decline in relation to the U.S.
dollar, we believe these losses may continue. We believe that it is one thing
to
have a clearly defined strategy and be proven wrong by the market, it is
quite
another to have no strategy at all and be at the mercy of the marketplace
as is
the case here.
We
continue to believe that the Company mishandled the ATO matter and, to this
day,
we do not believe that the Company has explained in simple English how the
$40
million of disallowed deductions flowed through and were used by the Company.
We
cannot have any faith in this Company’s ability to lead during these difficult
times, when, in our view, the Company failed miserably during the boom years.
The
Company’s stock price peaked in mid-2005 at approximately 4 and that even when
oil hit its high earlier this year the stock price only peaked at 2. The
stock
price has been a disappointment for years. In fact, the Company in its October
28 filing discloses that over the last 5 years the Company underperformed
the
peer group index by nearly 75%.
Your
comment that the Company intends to improve communications through an enhanced
website, supports our belief that the Board and management are out of touch
with
shareholder concerns and the proper operation of a public company. A new
web
site will not improve communications with shareholders when the CEO is
unreachable and fails to return messages I and others left for him. I have
even
experienced what I believe to be the Company’s CEO answering the phone when I
called, but pretending to be a receptionist and saying he is not in. Such
behavior by the CEO speaks volumes.
We
believe that the stewardship of this Company cannot be entrusted to the current
caretakers given their lack of any material stake in the Company. We believe
that the Company has not been only been mismanaged but also that the Company
is
not taking the necessary actions to enhance shareholder value. We are further
concerned that the Company may take additional actions that are not in what
we
believe to be the best interests of the Company.
Let
me
put the Company on notice that should it seek to sell the Company or any
of its
material assets at a price anywhere near its currently depressed price, sell
stock at the current depressed level or consummate an acquisition or material
investment using the Company’s scarce remaining cash in a way that would be
harmful to the Company’s prospects, or take any other corporate action that
would, in our view, not be in the best interests of the Company and its
shareholders, we will vigorously oppose such actions. This may, if we believe
it
appropriate, include initiation of litigation.
Just
as
we have concerns for any actions that the Company may try to take that could
adversely affect shareholders and the significant investment we have made
in the
Company, we also have suggestions on how the Company can be managed and grown,
all in a more efficient manner so that shareholder value can be increased.
This
requires, however, a sincere and meaningful dialogue with us and other major
shareholders - something you and the Board have declined to do to date. Having
been rebuffed in our effort at this constructive dialogue, we will now settle
for nothing less than representation on the Board which would allow us to
meaningfully share in the deliberative process. Your minimal engagement with
us
to date, together with the lack of any meaningful financial stake in the
Company
by any of the Board members,
has
buttressed our belief that the Company is not being managed in a way that
shows
commitment to enhancement of shareholder value.
Adding
to
our consternation, the CEO’s contract was renewed with a lucrative golden
parachute, we were finally informed of the full extent of the Board’s
compensation arrangements and we now learn that the Board is considering
further
enhancing its compensation with growth or equity, while the stock price declines
by approximately 75%. We believe that the Company’s behavior is analogous to
“Rome burning while Nero and his cohorts continue their celebration.”
As
a
former academic, you understand grades. Unfortunately, we believe that we
must
grade your performance to date as the Company’s Chairman an “F”. We believe that
a new business approach is desperately needed at MPET and we look forward
to
being an important part of that process.
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Sincerely,
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ANS
Investments LLC
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By: |
/s/
Jonah
M. Meer
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Jonah
Meer, Chief Executive Officer |
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cc:
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Patrick
B. Salisbury, Esq.
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Keith
E. Gottfried, Esq.
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Edward
B. Whittemore, Esq.
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Raymond
J. DiCamillo, Esq.
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Donald
V. Basso
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Timothy
L. Largay
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Robert
J. Mollah
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Ronald
P. Pettirossi
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