GlobeNewswire Inc | Nov 9, 2020 08:15AM EST

November 09, 2020

SANTA MONICA, Calif., Nov. 09, 2020 (GLOBE NEWSWIRE) -- Leaf Group Ltd. (NYSE: LEAF), a diversified consumer internet company, today issued the following letter to its shareholders in response to a recent public letter from a group of Leaf Group shareholders (the Investor Group):

Dear Valued Shareholders,

The Investor Group recently made a new proposal to the Leaf Group Board of Directors, which was disclosed in letters they sent to the Board on October 22, 2020 and November 2, 2020 (copies of which are attached to this letter).The proposal includes the following terms

-- Leaf Groupscommitment to starting a new strategic review process no later than March 31, 2021 unlessthe Company maintains anaverage stock price of $9.00 per share or more throughout the first quarter of 2021; -- The appointment to the Leaf Group Board of two new Directors affiliated with the Investor GroupRobert Majtelesand Michael McConnell; -- The capping of the size of the Board at a total of seven Directors; -- The establishment of a new strategic review committee composed of the Investor Groups two Director nominees and one current outside Leaf Group Director of the Boards choosing, which wouldselect new financial and legal advisors for the strategic review and oversee the process; -- Sean Moriarty remainingCEO of the Company;and -- Mr. Moriarty receiving a stock award packagein connection with a sale of the Company which would result in him receiving at least $6 million if the Company is sold for at least $9.00 per share.

It is clear that theproposalsprovisions have one purpose: to force the near-term sale of the Company. The Investor Group has been pursuing a sale since it began its campaign in June 2020,and as we have said before, we believe that the Investor Groupscontinued effortsto force a sale are driven by a narrow and self-serving agenda that is directly at odds with the best interests of our broader investor base.

We believe that it is in all shareholders best interest for the Company to continue to drive results to increase shareholder value.

NOW IS NOT THE TIME FOR A SECOND STRATEGIC REVIEW

This view is grounded in the fact that,in line with our fiduciary obligations, we have thoroughly assessed the merits of a potential second strategic review, including consulting with a number of leading investment bankers. This evaluation process has left us highly confident that initiating another strategic review so soon after the completion of our last review would be ill-advised, particularly in light of our recent financial performance. We firmly believe that our current strategic plan is the best way to enhanceshareholder value, and that another review has the potential to damage the business.

The recent performance of our business and stock price bear this out.Since completing our strategic review in May 2020, Leaf Grouphasposted stellar results. As previously announced,for Q3 2020the Company delivered$63.3million in revenue, a 58% year-over-year growth in revenue and our strongest revenue growth in over a decade. We also reported $2.6 million in Adjusted EBITDA, a $2.3million improvement over the prior year period. We continue to demonstrate strong momentum toward our 2022 targets of over $250 million in revenue and $20 million in Adjusted EBITDA.

Our recent stock market performance supports the Boards strategic direction, with Leaf Groups stock up over 300% since the conclusion of our last strategic review in May 2020.

With the Company performing well and its current direction supported by the market, now is not the time to risk disrupting momentum that is benefiting shareholders. To that end, the following stock charts are illuminating. The first shows Leaf Groups stock performance from when we launched our strategic review after similar pressure fromcertain members of the Investor Group on April 15, 2019, through the conclusion of the review on May 19, 2020:

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/ce9f8555-236d-410c-9007-0db292750b07

Compare that to the followingchart, which shows the Companys stock price growth since announcing the conclusion of the strategic review in May 2020:

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/9ca997ca-4103-451b-925c-5384d9b03884

The activist campaign in the spring of 2019 and the resulting strategic review process destroyed shareholder value. And while we are pleased with how our stock performance has improved sinceMay 2020, we have no doubt that the Investor Groups current aggressive PR campaign continues to be an overhang on the stock. Investors should be asking themselves how much additional value a second review process would destroy, in addition to how much the Investor Groups self-serving efforts have already cost them.

THE INVESTOR GROUP IS SEEKING TO FURTHER ITS OWN INTERESTS AT THE EXPENSE OF OTHER SHAREHOLDERS

The Investor Group isclearly pushing the Company to do something that Leaf Groups Board, management team and third-party advisors agree would harm the Company and shareholder value.ItsDirectors will control the new strategic review committee with its handpicked financial and legal advisors to ensure they drive the result that they seek. The next logical question is, What are the Investor Groups motivations and are they aligned with the interests of all other shareholders?

After the Leaf Group Board was pressured to launch a strategic review in April 2019, Investor Group member OakManagement Group sold 769,388 shares of Leaf Group common stock from November 2019 throughMay 2020 at prices as low as $1.10 per share. OakManaging Partner Fred Harman disclosed that these sales were driven by a need to raisecapital for his firms other investments.

Additionally,Spectrum sold 500,000Leaf Group shares at $5.13 per shareon October 5, 2020a day when Leaf Groups stock price on the open market fluctuated between $5.74 and $6.19. We urge our shareholders to question what motivationSpectrum could possibly have for selling such a large amount of stock below market value other than a need to liquidate its Leaf Group position.

Even the Investor Groups new willingness not to conduct the strategic alternative process if certain targets are met is illusory. For a strategic process not to be run, the Companys 45-day moving average stock price must remain at or over $9.00 per share during the first quarter of 2021. The initial $9.00 price target would mark a56% increase from the closing price of Leaf Groups stock on the day our Board received theInvestor Groups proposal, and a more than400% increase from the Companys stock price at the conclusion of our strategic review in May 2020. This already tremendous hurdle would growover time, with the minimum average stock price allowed under the terms of the proposal increasing ineach successive quarter in 2021.

We believe based on our regular interactions with our shareholders that most are seeking sustainable, long-term value generation.The actions of select members of the Investor Group suggest a narrow, short-term and self-serving agenda that does not prioritize the interests of our broader shareholder base.

THE INVESTOR GROUPS PROPOSED DIRECTORS ARE LIKELY TO ADVANCE ITS INTERESTS AT THE EXPENSE OF OTHER SHAREHOLDERS

Given that the Investor Groups goals do not appear to align with those of the broader investor base, shareholders should also ask whether its two Director candidates are likely to act in thebest interests of all shareholders. The following charts illustrate just how closely its Director candidates are affiliated with certain members of the Investor Group:

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/0fb9dee3-909f-4ca3-a106-1d3d5c650371

As we announced earlier today, we have just named two new DirectorsRob Krolik and Suzanne Hopgood to our Board of Directors. You can find more information about these Directors, who were selected with the support of a leading outside search firm, in our press release here. This announcement is just the latest step in our efforts tooverhaul our Board. The Board now includes five independent Directors, all of whom have been on the Board for four years or less, andwe are confident that this refreshed Board has the relevant experience and fresh perspectives needed to help guide the Company into its next chapter. Importantly, the current Board also reflects a goal that we and many of our investors value highly in having a diverse group of individualsour six Directors include four women and one person of color.

A photo accompanying this announcement is available at https://www.globenewswire.com/NewsRoom/AttachmentNg/571f84c9-eeee-4991-b094-767c18910f2d

Our Board continues to evaluate a wide range of strategic alternatives and remains committed to acting in the best interest of its shareholders. We thank you for your support.

Sincerely,The Independent Committee

Deborah A. Benton Beverly K. CarmichaelChair of the Board Director

About Leaf Group

Leaf Group Ltd. (NYSE: LEAF) is a diversified consumer internet company that builds enduring, creative-driven brands that reach passionate audiences in large and growing lifestyle categories, including fitness and wellness (Well+Good,Livestrong.comandMyPlate App), and home, art and design (Saatchi Art,Society6andHunker). For more information about Leaf Group, visitwww.leafgroup.com.

Cautionary Information Regarding Forward-Looking Statements

This communication contains forward-looking statements within the meaning of the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. The forward-looking statements set forth in this communication include, among other things, statements regarding potential synergies achieved from acquisitions, the impact of strategic operational changes and the Companys future financial performance. In addition, statements containing words such as guidance, may, believe, anticipate, expect, intend, plan, project, projections, business outlook, and estimate or similar expressions constitute forward-looking statements. Actual results may differ materially from the results predicted and reported results should not be considered an indication of future performance. These forward-looking statements involve risks and uncertainties regarding the Companys future financial performance; could cause actual results or developments to differ materially from those indicated due to a number of factors affecting Leaf Groups operations, markets, products and services; and are based on current expectations, estimates and projections about the Companys industry, financial condition, operating performance and results of operations, including certain assumptions related thereto. Potential risks and uncertainties that could affect the Companys operating and financial results are described in Leaf Groups annual report on Form 10-K for the fiscal year ending December 31, 2019 filed with the Securities and Exchange Commission ( http://www.sec.gov) on March 16, 2020, as such risks and uncertainties may be updated from time to time in Leaf Groups quarterly reports on Form 10-Q filed with the Securities and Exchange Commission, including, without limitation, information under the captions Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations. These risks and uncertainties include, among others: risks associated with political and economic instability domestically and internationally including those resulting from the COVID-19 pandemic, which have and could lead to fluctuations in the availability of credit, decreased business and consumer confidence and increased unemployment; the Companys ability to execute its business plan to return to compliance with the continued listing criteria of the New York Stock Exchange (NYSE); the Companys ability to continue to comply with applicable listing standards within the available cure period; changes by the Small Business Administration or other governmental authorities regarding the Coronavirus Aid, Relief and Economic Security Act of 2020 (the CARES Act), the Paycheck Protection Program (PPP) or related administrative matters; the Companys ability to comply with the terms of the PPP loan and the CARES Act, including to use the proceeds of the PPP loan; the Companys ability to successfully drive and increase traffic to its marketplaces and media properties; changes in the methodologies of internet search engines, including ongoing algorithmic changes made by Google, Bing and Yahoo!; the Companys ability to attract new and repeat customers and artists to its marketplaces and successfully grow its marketplace businesses; the potential impact on advertising-based revenue from lower ad unit rates, a reduction in online advertising spending, a loss of advertisers, lower advertising yields, increased availability of ad blocking software, particularly on mobile devices and/or ongoing changes in ad unit formats; the Companys dependence on various agreements with a specific business partner for a significant portion of its advertising revenue; the effects of shifting consumption of media content and online shopping from desktop to mobile devices and/or social media platforms; the Companys history of incurring net operating losses; the Companys ability to obtain capital when desired on favorable terms; potential write downs, reserves against or impairment of assets including receivables, goodwill, intangibles (including media content) or other assets; the Companys ability to effectively integrate, manage, operate and grow acquired businesses; the Companys ability to retain key personnel; the Companys ability to prevent any actual or perceived security breaches; the Companys ability to expand its business internationally; the Companys ability to generate long-term value for its stockholders; and any ongoing actions taken and future actions that may be taken by activist stockholders. From time to time, the Company may consider acquisitions or divestitures that, if consummated, could be material. Any forward-looking statements regarding financial metrics are based upon the assumption that no such acquisition or divestiture is consummated during the relevant periods. If an acquisition or divestiture were consummated, actual results could differ materially from any forward-looking statements. Any forward-looking statement made by the Company in this press release is based only on information currently available to the Company and speaks only as of the date on which it is made. The Company undertakes no obligation to revise or update any forward-looking information, whether written or oral, that may be made from time to time, whether as a result of new information, future developments or otherwise, except as required by law, and may not provide this type of information in the future.

Investor Contacts

Shawn MilneInvestor Relations415-264-3419shawn.milne@leafgroup.com

Media Contacts

John Christiansen/Matt ReidSard Verbinnen & Co415-618-8750/310-201-2040LeafGroup-SVC@sardverb.com

Sharna DadukVP, CommunicationsSharna.daduk@leafgroup.com

PDFs are available at: http://ml.globenewswire.com/Resource/Download/245fde91-dd1a-4a34-87d2-3b3b4bf4a931

http://ml.globenewswire.com/Resource/Download/ae581ca2-b3ab-44bf-bb5f-a978d31b55c1