CALGARY, April 27, 2015 /CNW/ - Robin L. Phinney, a significant shareholder and the designated representative of a group of concerned shareholders (collectively the "Concerned Shareholder Group") of Karnalyte Resources Inc. (TSX: KRN) ("Karnalyte" or the "Company"), announces that he has taken legal action against Karnalyte and certain of its directors in connection with the board's continuing disregard for the interests of the Company's shareholders.
An Entrenched Board
Following the Concerned Shareholder Group's announcement on April 15, 2015 that shareholders representing approximately 59% of the outstanding common shares of Karnalyte are now demanding an immediate reconstitution of the board, the Company's announcement that Martin Hall was resigning from the board for "personal reasons" leaves the board with only two remaining elected directors (one of which is the nominee of the Company's largest shareholder who is supporting the Concerned Shareholder Group and has expressed its dissatisfaction with the existing board).
This largely unelected board, together with the recently departed board members and management, and aided by a litany of expensive advisors (including at least three law firms, a proxy solicitor and a communications advisor) has waged an egregious campaign of entrenchment in the face of overwhelming shareholder support for an immediate reconstitution of the board. Since the emergence of the Concerned Shareholder Group and their demands for immediate change, the board has:
- disregarded the statutory rights of shareholders to requisition a meeting;
- unilaterally rejected a validly submitted shareholder proposal designed to protect the interests of shareholders;
- significantly delayed the Company's shareholder meeting at which the board would finally be held accountable;
- failed to timely file its annual financial statements and related disclosures as required by applicable securities law.
- announced a financing transaction for the development of the Company's Wynyard Carnallite Project and then failed to secure any such financing; and
- written-off the Company's Wynyard Carnallite Project to salvage value without providing detailed reasons behind this extraordinary write-down, and subsequently announced the Company's intention to dispose of the property altogether and pursue alternative businesses.
The board has publicly stated that they are willing to engage with shareholders, however the board's insincerity is obvious from the court materials filed against Mr. Phinney and his family by the board's lawyers. These documents reveal the board's true intention of silencing shareholders by seeking to eliminate the votes of Mr. Phinney and any proxies solicited by him in connection with the upcoming shareholders' meeting. Based on the size of the Concerned Shareholder Group and other shareholders who have provided written support to Mr. Phinney, if the board were successful in this tactic, the voices of an overwhelming majority of shareholders could be silenced at one of the most important shareholder meetings in Karnalyte's history. This is not the conduct of a board interested in dialogue or the best interests of its shareholders.
Of great concern to Mr. Phinney, and a concern which should be shared by all shareholders, is that this irresponsible and largely unelected board has drastically altered the strategic direction of the Company contrary to shareholders' explicit demands. The board's stated intention to "dispose" of the Wynyard Carnallite Project without providing adequate reasons behind their extraordinary write-down of the Company's sole material asset is deeply concerning.
Meanwhile, the Company's cash reserves are almost certainly being diverted for purposes other than the Company's intended strategic focus. According to the Company's annual filings, the Company has burned through over $7.1 million in general and administrative expenses and expenses relating to the failed financing over the past year, including an unbelievable payout of "$899,000 to an officer of the Company in relation to a severance payment." Even more concerning is the board's statements regarding the Company's intention to seek "alternative opportunities", which may attract significant legal claims against the Company if its cash reserves are used for a purpose other than what they were contractually provided for.
The board is floundering, largely unelected and without any semblance of a strategy to move the Company forward and yet appears willing to continue to deplete what remains of the Company's cash reserves by persisting in a futile battle with the Company's own shareholders, who are the true owners of the Company.
Mr. Phinney's legal materials filed with the Alberta Court of Queens Bench address many of these concerns. Given the baseless allegations in the board's lawsuit, Mr. Phinney is confident that favourable outcomes will be achieved in Court, and that the board will finally be properly reconstituted with elected directors at the upcoming shareholders' meeting.
In the spirit of transparency, the pleadings and other court documents relating to Mr. Phinney's counterclaim and defence against the baseless allegations made against him and his family will be uploaded to the Concerned Shareholder Group's website at www.krnshareholders.com.
Following the appointment or election of the Concerned Shareholder Group's nominees, Mr. Phinney intends to undertake a detailed review of the actions of present and former members of the board and management and to cause the Company to take such further appropriate legal action against such individuals as may be warranted in order to recover any damages suffered by the Company during the course of this unnecessary dispute.
Moving Karnalyte Forward
The board's irresponsible and misinformed statements in its April 24, 2015 press release concerning the framework for a possible financing of the Wynyard Carnallite Project that Mr. Phinney reached with Gujarat State Fertilisers & Chemicals Ltd. ("GSFC", being Karnalyte's largest shareholder), needs to be set straight. Mr. Phinney notes that such a framework for a financing only requires that any new directors would negotiate the terms of such financing in good faith, on the basis of certain terms and conditions, and there is no obligation to accept the financing terms being proposed by GSFC. Mr. Phinney wishes to make clear that such a financing would be instrumental to the Wynyard Carnallite Project, but would in any event be subject to further review by the reconstituted board to ensure it is in the best interests of the Company and is fair to all shareholders.
The proposed financing framework is indicative only, however Mr. Phinney and GSFC are intent on working together for the benefit of all shareholders. Given that the current board's mandate and relevance to the ongoing business of the Company has long since been exhausted, Mr. Phinney looks forward to exploring this exciting opportunity further with GSFC and the Company's shareholders in due course following the reconstitution of the board.
The board's conduct over the past year has put shareholders' investment in serious peril. Mr. Phinney strongly urges shareholders to visit www.krnshareholders.com to sign up to receive important information and to support (1) the nominees of the Concerned Shareholder Group, and (2) the proposed resolutions for change. There is no proxy for you to vote yet, but signing up will ensure that shareholders receive important updates and a form of proxy as soon as they are available. In the meantime, shareholders can download and submit a form from the website if they wish to pledge support for the changes sought by the Concerned Shareholder Group.
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 upcoming meeting of shareholders currently scheduled for June 23, 2015 (the "AGM"), including information relating to the nominees of the Concerned Shareholder Group, are contained in the concerned shareholder proxy circular dated March 5, 2015 (the "Concerned Shareholder Circular"). The Concerned Shareholder Circular has been filed and is available for review on the Company's SEDAR profile at www.sedar.com. Additional information in respect of the AGM will be contained in a final information circular prepared by or on behalf of the Concerned Shareholder Group and mailed to Karnalyte shareholders in advance of the AGM or as otherwise required by law.
The registered address of Karnalyte is located at 1600, 333 – 7th 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.
For further information: For further information regarding this news release, please contact Robin L. Phinney at +1 (403) 554-8126