Concerned Shareholders of Karnalyte Resources Inc. submit shareholder proposal and urge incumbent board to heed the call for change

CALGARY, Jan. 20, 2015 /CNW/ - Robin L. Phinney, a significant shareholder and the designated representative of a group of concerned shareholders (collectively, together with Mr. Phinney, the "Concerned Shareholder Group") of Karnalyte Resources Inc. (TSX: KRN) ("Karnalyte" or the "Company"), urge the incumbent board of directors to heed the call for change to the Company's board in order to restore shareholder confidence in the Company's leadership and avoid the unnecessary delays, distractions and costs of a proxy contest.

Shareholders Support the Proposed Board Changes

Since announcing the Concerned Shareholder Group's proposed director nominees and the reasons for requisitioning a special meeting of shareholders on December 23, 2014, Mr. Phinney has received letters of support from many Karnalyte shareholders who, together with the Concerned Shareholder Group, represent an aggregate of approximately 30% of the issued and outstanding shares of Karnalyte in support of the board changes proposed by the Concerned Shareholder Group.

Robin Phinney commented: "As a co-founder and the second largest shareholder of the Company, it is my sincere hope that the incumbent board will listen to the building wave of shareholder support and implement the board changes to avoid an unnecessary and disruptive proxy contest, and to enable the reconstituted board to refocus the Company's resources on building long-term shareholder value for all shareholders.  I am disappointed and saddened by the fact that, to date, the incumbent board has not addressed the concerns of a significant number of shareholders.  The incumbent board appears to be primarily interested in taking steps to entrench itself."

Disappointment with Delayed Requisitioned Meeting Date

Mr. Phinney also expressed his disappointment with the incumbent board's failure to call the requisitioned meeting in a timely manner, and instead chose to delay the requisitioned meeting until May 12, 2015, three months later than the requested date of February 13, 2015.

Mr. Phinney commented: "The stated reason for the delayed meeting – to give the incumbent board more time to explore a potential US$700 million financing – is particularly disconcerting because the requisitioned meeting is essentially a confidence vote on the incumbent board and shareholders should have full confidence in the individuals responsible for negotiating such a significant financing for the Company. In my view, this is not a valid reason to delay the requisitioned meeting.  Moreover, as stated in the Company's January 2, 2015 press release, the proposed financing may not even be presented to shareholders at the requisitioned meeting.  This means that, while delaying its own confidence vote, the incumbent board is continuing to pursue and may commit the Company to a significant financing without seeking shareholder approval."

Shareholder Proposal for the Protection of Karnalyte Shareholders

In order to address the foregoing concerns and to ensure Karnalyte shareholders have meaningful input in the future of their Company, Mr. Phinney has submitted a shareholder proposal to the Company and has requested that the proposal and related supporting statement be included in the requisitioned meeting materials.  The shareholder proposal contains proposed amendments to the Company's general by-laws which, if adopted, would allow shareholders to have a say on certain material transactions of the Company such as the proposed US$700 million financing.

Mr. Phinney commented: "The proposed amendments are designed to protect the interests of shareholders by requiring the board to seek input and approval from shareholders on transactions involving changes to the strategic direction of the Company, a significant capital investment or financial commitment by the Company or dilutive share issuances."

The shareholder proposal and supporting statement submitted to the Company are as follows:

Resolution #1 – Shareholder Approval Required for Incurring Significant Indebtedness

"Be it resolved that By-Law Number 1 be amended by adding the underlined sentence at the end of section 3.01 (under "Borrowing and Securities"):

3.01  BORROWING POWER.  Without limiting the borrowing powers of the Corporation as set forth in the Act, but subject to the articles or any unanimous shareholders agreement, the board may from time to time on behalf of the Corporation, without authorization of the shareholders:

(a)		borrow money upon the credit of the Corporation in such amounts and on such terms as may be deemed expedient by obtaining loans or advances or by way of overdraft or otherwise;
(b)		issue, reissue, sell or pledge bonds, debentures, notes or other evidences of indebtedness or guarantee of the Corporation, whether secured or unsecured for such sums and at such prices as may be deemed expedient;
(c)		to the extent permitted by the Act, give a guarantee on behalf of the Corporation to secure performance of any present or future indebtedness, liability or obligation of any person;
(d)		charge, mortgage, hypothecate, pledge or otherwise create a security interest in all or any present and future property, real and personal, immoveable and moveable, of the Corporation, including its undertakings and rights, to secure any bonds, debentures, notes or other evidences of indebtedness or guarantee or any other indebtedness, liability or obligation of the Corporation, present or future; and
(e)		delegate to a committee of the board, a director or an officer of the Corporation all or any of the powers conferred aforesaid or by the Act to such extent and in such manner as the directors may determine.

Nothing in this section limits or restricts the borrowing of money by the Corporation on bills of exchange or promissory notes made, drawn, accepted or endorsed by or on behalf of the Corporation. Notwithstanding anything contrary in the foregoing, whether or not strictly required under applicable laws or applicable rules of any stock exchange, the board shall obtain shareholder approval before permitting the Corporation to enter into any agreement or commitment with respect to the types of transactions described in this Clause 3.01 if such agreement or commitment involves the incurring of indebtedness or the assumption of liability by the Corporation or its affiliates (including without limitation the giving of guarantees) outside the ordinary course of business (other than intercompany indebtedness among the Corporation and its affiliates) and: (i) would be in an aggregate amount (whether committed or conditional) exceeding 100% of the Corporation's market capitalization at the relevant time; or (ii) containing terms and conditions that are not customary, including without limitation prices and interest rates, to the detriment of the Corporation or its affiliates."

Resolution #2 – Shareholder Approval Required for Significant Transactions

"Be it resolved that By-Law Number 1 be amended by adding the following provision as section 11.04 (under "Divisions and Departments"):

11.04  SHAREHOLDER APPROVAL FOR MATERIAL TRANSACTIONS. The board shall obtain shareholder approval before entering into any transaction (or a series of related transactions) which:

(a)		could impact or change the Corporation's stated business strategy of exploring and developing high quality agricultural and industrial potash and magnesium products; or
(b)		involve a significant capital investment or financial commitment (whether absolute, contingent or otherwise) by the Corporation or its affiliates in an amount exceeding 100% of the Corporation's market capitalization at the relevant time.

Resolution #3 – Shareholder Approval Required for Significant Equity Issuances

"Be it resolved that By-Law Number 1 be amended by adding the following provision as section 8.12 (under "Shares"):

8.12  SHAREHOLDER APPROVAL FOR CERTAIN SHARE ISSUANCES. The board shall obtain shareholder approval before issuing shares or securities exercisable, exchangeable or convertible into shares, in excess of 10% of the Corporation's then outstanding voting securities (except for such issuances where all shareholders have a right to participate on a pro rata basis).

Supporting Statement:

"Karnalyte shareholders are encouraged to vote FOR the foregoing resolutions which are intended to preserve and enhance shareholder value at Karnalyte by ensuring that that shareholders have a say on any proposed changes to Karnalyte's stated business strategy and by requiring shareholder approval in connection with proposed transactions involving the incurrence by Karnalyte of significant debt, the making of significant financial commitments by Karnalyte or the significant dilution of current Karnalyte shareholders."

Additional Information

Except where otherwise stated herein, the statements contained in this press release are not made by or on behalf of the management of Karnalyte but are made by or on behalf of Mr. Phinney.  Information concerning the business of the Concerned Shareholder Group to be considered at the requisitioned meeting, including information relating to the nominees of the Concerned Shareholder Group, are contained in the press release of Mr. Phinney dated December 23, 2014 under the sections entitled "Concerned Shareholder Nominees" and "Additional Information Relating to Public Broadcast Solicitations" (collectively, the "Additional Information").  The press release containing the Additional Information has been filed on the Company's SEDAR profile at www.sedar.com.  Additional information in respect of the requisitioned meeting will be contained in an information circular prepared by or on behalf of the Concerned Shareholder Group and mailed to Karnalyte shareholders in advance of the requisitioned meeting or as otherwise required by law. 

The registered address of Karnalyte is located at 1600, 333 – 7^th Avenue S.W., Calgary, Alberta, T2P 2Z1.  A copy of this press release may be obtained on the Company's SEDAR profile at www.sedar.com.

SOURCE Concerned Shareholder Group of Karnalyte Resources Inc.

please contact Robin L. Phinney at [phone].