eSense-Lab chair survives lawsuit but rebel investors are out for blood
Health & Biotech
The new chairman of eSense-Lab is safe for now after an Israeli court dismissed a suit from his predecessor, but the rebel shareholder group is still determined to spill the board.
The Israel-based cannabis play sacked Australian director Brendan de Kauwe as chairman last week, and moved the AGM and a meeting requisitioned by angry Israeli shareholders to March 29.
Mr de Kauwe and his local colleague Quentin Megson started proceedings in Israel against the company and the remaining directors. They wanted Mr de Kauwe back in his old job and the AGM returned to this Thursday.
The Israeli court rejected all of the motions.
An ASX spokesman told Stockhead that by law Australian companies must have a minimum of two Australian resident directors.
For listed companies from emerging markets or with businesses predominantly based in an emerging market, the ASX will often impose a requirement that the chairman be an Australian resident and that the board contain at least one other Australian director with a good understanding of Australian corporate governance.
In all cases, if a listed company, local or foreign, finds itself dropping below the Australian director requirements, ASX will generally place a halt or suspension on the trading of the company’s shares until the issue is rectified.
Angry shareholders want the board gone
Romfal Sifat, Buzz Capital and Attollo Investment claim there is a split between management and the board.
In January, they demanded a meeting to boot now-chairman Ilan Said, CEO Haim Cohen and Eran Gilboa.
In their place the trio wanted Faldi Ismail, Mr de Kauwe and MMJ Phytotech boss Andreas Gedeon.
Mr Ismail founded Otsana Capital, which employs Mr de Kauwe and Mr Gilboa.
Otsana Capital was the lead manager of eSense-Lab’s IPO last year and is its corporate advisor in Australia.
The shares (ASX:ESE) more than doubled to touch 40c in the December quarter, but have since drifted back to 18c at Tuesday’s close.
What they’re claiming
The rival investor group based their demands on four issues: the terms and merits of a recent distribution agreement, the vesting of associated performance rights, the exit of key personnel, the make-up of the board and the AGM delay.
They were the first to question a binding distribution agreement with UAE entity IC Access to buy $1.1 million in terpene oil strains over three years.
Terpenes are a naturally occurring chemicals responsible for the flavour and fragrance of plants. Cannabis tarpenes can be used for medicinal purposes and to make cannabis-flavoured food and drinks.
The ASX has now also questioned this deal.
“The announcement provided little detail of the key terms of the agreement, and little is known about IC Access,” the group said in its letter requisitioning a meeting.
It also noted that a $US470,000 order in late 2016 from Allor Vaporizers had only been partially paid for by September 2017, to the tune of $US85,000, and did not have a deadline for when the contract needed to be filled by.
“The board should be particularly vigilant in entering into new contracts and provide better disclosure to the market in this regard, particularly as the board has determined that the Distribution Agreement has satisfied the vesting hurdle of the Company’s 15 million Class C performance rights on issue.”
Mr Cohen, Mr Gilboa and Mr Haim have converted their performance rights into CHESS Depository Interests, a kind of security, based on that deal.
The vesting of the Class C rights also triggers the issue of up to 15 million new Class E performance rights, the hurdle for which is signing $2 million of contracts within 18 months of listing.
The group is concerned about dilution if these rights are issued, particularly if the board signs contracts that they believe don’t generate value for shareholders.
They say CTO Dr Yaron Penn quit “as a result of frustration with the current management”, and questioned why Steven Wood was replaced as company secretary.
The March 29 date is the fourth date the AGM has been moved to since November 24.
The investors believe the board should have more people experienced in the medicinal cannabis field and more from Australia, since the company is listed on the ASX.
eSense-Lab closed flat at 18c on Tuesday. In the last year it has reached as high as 57c.