Second Press Release today posted on Sedar Worthy of a read and review! Regards Greg
Concerned Shareholders Detail Breaches of GSFC Subscription Agreement
Time to Stop the Oppression of Karnalyte Shareholders by
Gujarat State Fertilizers & Chemicals Limited and the Interim CEO
• Concerned Shareholders believe it is time to stop Gujarat State Fertilizers & Chemicals Ltd.’s
(“GSFC”), its nominees on the Karnalyte Board, and the Interim CEO’s oppression of Karnalyte
shareholders by appointing a qualified, experienced and independent board of directors • GSFC is not entitled to control the Karnalyte Board, yet it has for the past 18 months • Concerned Shareholders outline the facts of the abuse by GSFC of their contractual rights to
nominate individuals to Karnalyte’s Board Saskatoon, SK, July 13, 2020 — On July 7, 2020, a group of Karnalyte Resources Inc. (TSX: KRN) (“Karnalyte” or the "Company") shareholders (the “Concerned Shareholders”), owning not less than 5% of the issued and outstanding shares of the Company, requisitioned (the “Requisition”) the board of directors (the “Board”) of Karnalyte to call and hold a special meeting (the "Special Meeting") of shareholders for the purpose of replacing the Board with a new independent board capable of pursuing opportunities in the Saskatchewan agricultural and fertilizer industry available to the Company that have the potential to create value for all shareholders.
The Concerned Shareholders requested that the Board be constituted with six (6) members, four (4) of whom are highly qualified nominees to be proposed by the Concerned Shareholders, and two (2) of whom will be nominees of Gujarat State Fertilizers & Chemicals Limited (“GSFC”), in accordance with GSFC’s contractual rights to appoint nominees to the Board.
The Concerned Shareholders have requested that the Special Meeting be called and held promptly, and that it be called no later than July 28, 2020, as required by the Business Corporations Act (Alberta).
Peter Matson, one of the Concerned Shareholders and amongst the five largest shareholders of Karnalyte, commented that “We believe it is important for shareholders to have the facts regarding the contractual rights of GSFC to nominate candidates to the Board, and how GSFC has abused those rights and oppressed Karnalyte shareholders over the past 18 months. We believe there is no excuse for their actions.” GSFC Subscription Agreement
Focus on the Facts The Concerned Shareholders intend to focus on the facts.
We believe that GSFC, the GSFC Nominees and the Interim CEO are on the wrong side of the facts. The Concerned Shareholders believe their beliefs are supported by Karnalyte’s own continuous disclosure record which can be found on Company’s profile on the System for Electronic Document Analysis and Retrieval (“SEDAR”) at www.sedar.com. The Concerned Shareholders are merely analyzing the facts and drawing the only logical and plausible conclusions from those facts. The Facts – GSFC Subscription Agreement GSFC has a contractual right under section 4.1 of the subscription agreement dated January 10, 2013 (the “Subscription Agreement”) between Karnalyte and GSFC to nominate individuals (the “GSFC Nominees”) to the Board in accordance with their shareholdings in Karnalyte. GSFC currently holds 38% of the share of Karnalyte.
The relevant part of Section 4.1 of the Subscription Agreement reads as follows: “4.1 Investor Nominee to the Board of DirectorsSubject to Section 4.2, from and after the Escrow Release Date, the Investor will be entitled todesignate that number of nominees for election or appointment to the Board of Directors fromtime to time (the "Investor Nominees") that is equal to the Investor Rights Adjusted OwnershipPercentage multiplied by the number of directors of the Company (including the InvestorNominees), rounded down to a whole number, but provided that there is at least one Investor Nominee." The Concerned Shareholders believe that the wording and meaning of Section 4.1 of the Subscription Agreement are clear. Applying the provisions of Section 4.1 of the Subscription Agreement to different
Board sizes means GSFC is entitled to the following number of GSFC Nominees: • Board size of three (3): 38% of 3, rounded down to a whole number, equals one (1) nominee • Board size of four (4): 38% of 4, rounded down to a whole number, equals one (1) nominee • Board size of six (6): 38% of 6, rounded down to a whole number, equals two (2) nominees
A copy of the Subscription Agreement may be obtained on the Company’s profile on SEDAR at www.sedar.com. The Facts – GSFC and the GSFC Nominees’ Six (6) Breaches of the Subscription Agreement The Concerned Shareholders believe that the facts demonstrate that GSFC breached the Subscription
Agreement six (6) different times, had six (6) different opportunities to rectify those breaches, yet did not act on any of those opportunities. The Concerned Shareholders believe that one (1) breach may have been an accident, and depending on the circumstances could possibly have been forgiven, however six (6) separate breaches over a period of 18 months are not an accident, and demonstrate a conscious pattern of behavior on the part of GSFC to entrench themselves on the Board in flagrant violation of the provisions of Section 4.1 of the Subscription Agreement.
The facts of these six (6) breaches are: • On January 16, 2019, the Concerned Shareholders resigned from the Board, leaving three (3)
vacancies. Rather than appointing three (3) independent directors to maintain the Board at six (6)
members with a majority of independent directors, GSFC and the GSFC Nominees appointed no new directors. Therefore, from January 2019 until May 2019, the Board consisted of following three (3) individuals: Sanjeev Varma, Vishvesh Nanavaty and Todd Rowan. GSFC was contractually entitled to only one (1) nominee on a Board consisting of three (3) directors according to the provisions of the Subscription Agreement, however, GSFC had two (2) nominees on the Board. As a result, GSFC was in breach of the Subscription Agreement and, with control of the Board, chose not to rectify the breach. • On May 14, 2019, Karnalyte held its annual general meeting of Shareholders, determined the size ofthe Board at three (3) directors, and the following three (3) individuals were nominated and elected to the Board: Sanjeev Varma, Vishvesh Nanavaty and Todd Rowan. GSFC was contractually entitled to only one (1) nominee on a Board consisting of three (3) according to the provisions of the Subscription Agreement, however, GSFC had two (2) nominees on the Board. GSFC was again in breach of the Subscription Agreement and, with control of the Board, chose not to rectify the breach. • On August 9, 2019, a third GSFC Nominee, DC Anjaria, was appointed to the Board, increasing the size of the Board from three (3) to four (4) members. As a result, from August 2019 until December 2019, the Board consisted of the following four (4) members: Sanjeev Varma, Vishvesh Nanavaty, DC Anjaria and Todd Rowan. GSFC was contractually entitled to only one (1) nominee on a Board consisting of four (4) according to the provisions of the Subscription Agreement, however, GSFC had three (3) nominees on the Board. Once more, GSFC was in breach of the Subscription Agreement and, rather than rectifying the breach, exacerbated the breach due to its control of the Board. • On December 23, 2019, Todd Rowan resigned from the Board and Gerald Scherman was appointedin his place. GSFC was contractually entitled to only one (1) nominee on a Board consisting of four (4) directors according to the provisions of the Subscription Agreement, however, GSFC had three (3) nominees on the Board. As a result, GSFC continued to be in breach of the Subscription Agreement and, with control of the Board, did not rectify the breach. • On May 12, 2020, Sanjeev Varma, a GSFC nominee to the Board, resigned from the Board, reducing the size of the Board from four (4) members to three (3) members. GSFC was contractually entitled to only one (1) nominee on a Board consisting of three (3) directors according to the provisions of the Subscription Agreement, however, GSFC had two (2) nominees on the Board. Once again, GSFC breached the Subscription Agreement and, with control of the Board, did not rectify the breach. • On June 26, 2020, Karnalyte held its annual general meeting of Shareholders, determined the size ofthe Board at three (3) directors, and the following three (3) individuals were nominated and elected to the Board: Vishvesh Nanavaty, DC Anjaria and Gerald Scherman. GSFC was contractually entitled to only one (1) nominee on a Board consisting of three (3) directors according to the provisions of the Subscription Agreement, however, GSFC has two (2) nominees on the Board. For a sixth time, GSFC was in breach of the Subscription Agreement. The Concerned Shareholders believe that the facts speak for themselves and demonstrate that over the past 18 months GSFC and the GSFC Nominees: • breached and/or continued to breach the Subscription Agreement six (6) times; • did not take the opportunity on any of the six (6) occasions to rectify the breaches; • on each of the six (6) occasions, GSFC either nominated, elected, appointed and/or maintained a number of GSFC Nominees on the Board greater than GSFC’s legal entitlement under the Subscription Agreement; • the Board was not comprised of a majority of independent directors, but rather, was comprised of a majority of GSFC Nominees; and • the GSFC Nominees controlled the Board. Independence of GSFC Nominees to the Board
The Facts – Independence for a Canadian publicly listed Company The Concerned Shareholders know that the board of a Canadian public company must have a majority of independent directors. The Concerned Shareholders believe that none of Sanjeev Varma, VishveshNanavaty and DC Anajria are independent: • Sanjeev Varma and Vishvesh Nanavaty are employees of GSFC
• DC Anjaria is a director of GSFC
The Concerned Shareholders believe that the actions of the GSFC Nominees over the past 18 months demonstrate that none of the GSFC nominees to the Board exercised independent judgment and acted in the best interest of all shareholders, including by way of example: • the continued and ongoing breaches of the Subscription Agreement; and • the GSFC Nominees approving and paying GSFC to prepare an in-house pre-feasibility study on the Company’s nitrogen project.
The Concerned Shareholders believe that the facts demonstrate that at no time over the past 18 months, since GSFC Nominees started to comprise a majority of the Board, has the Board had a majority of independent directors.
In the Requisition, the Concerned Shareholders have requested a Board size of six (6) in order that the Board will have a majority of independent directors. A Board size of less than six (6) will not result in a Board having a majority of independent directors. Additional Breaches
Breaches of Securities Laws and TSX Rules and Regulations The Concerned Shareholders believe that the breaches by GSFC and the GSFC Nominees of the
Subscription Agreement detailed above also constitute breaches of Canadian securities laws and TSX rules and regulations, as the Board was not, and is not, constituted with a majority of independent directors. Breaches of Legal and Fiduciary Duties Karnalyte’s Code of Conduct (the “Code of Conduct”) provides, among other things, that:
“Adherence to Laws" The Corporation and its directors, officers, employees and consultants shall comply with the
letter and spirit of all laws and regulations applicable to the Corporation’s activities. A
concern for what is right must underlie all business decisions.
Ignorance of the law is not, in general, a defense should a law be contravened. Moreover, agreements or arrangements need not necessarily be in writing to be contrary to the law since it is possible for a contravention to be inferred from the conduct of the parties. Accordingly, directors, officers, employees and consultants must diligently ensure that their conduct is not and cannot be interpreted as being in contravention of laws governing the affairs of the Corporation in any jurisdiction where it carries on business.” The Code of Conduct further provides in Section 10: “Directors, officers, employees and consultants should also avoid apparent conflicts of interest, which occur where a reasonable observer might assume there is a conflict of interest and, therefore, a loss of objectivity in their dealings on behalf of the Corporation.” The Concerned Shareholders believe that the conduct of GSFC, the GSFC Nominees and the Interim CEO with respect to the apparent breaches of Canadian securities laws and the TSX rules and regulations, together with the conflict of interest inherent in GSFC preparing and being paid for a GSFC in-house prefeasibility study on the nitrogen project, constitute breaches of the provisions of the Code of Conduct, as the facts appear to demonstrate that the GSFC Nominees and the Interim CEO are not complying with “the letter and spirit of all laws” and are not “avoiding apparent conflicts of interest”.
The Concerned Shareholders believe that breaches of the Code of Conduct also constitute breaches of the GSFC Nominees’ and the Interim CEO’s legal and fiduciary duties to act in the best interests of all shareholders of Karnalyte.
A copy of the Code of Conduct may be obtained on the Company’s profile on SEDAR at www.sedar.com. The Concerned Shareholders would like to know why, for the past 18 months GSFC and the GSFC Nominees have: • not honored its legal and contractual arrangements with Karnalyte? • breached the Subscription Agreement six (6) times and chose not to rectify any of those breaches? • controlled the Board when they are not entitled to? • entrenched themselves as Board members? • failed to comply with the most basic corporate governance principles?
GSFC, the GSFC Nominees and the Interim CEO are no doubt aware that they are in breach of: • the provisions of the Subscription Agreement; • Canadian securities laws; • TSX rules and regulations; • the Code of Conduct; and • their legal and fiduciary duties to Karnalyte shareholders.
The Concerned Shareholders believe that GSFC, the GSFC Nominees and the Interim CEO know exactly
what they are doing, and the only logical and plausible conclusion from the facts is that they are following
a conscious pattern of behavior designed to: • control the Board when they are not entitled to; • entrench themselves as Board members; • act in the best interest of GSFC, rather than in the best interest of all shareholders; and • as a result, oppress the Karnalyte shareholders. The Concerned Shareholders believe that the time has come to stop the oppression of Karnalyte
Shareholders by GSFC, the GSFC Nominees and the Interim CEO. Contacts Peter Matson, on behalf of the Concerned Shareholders and the Nominees, welcomes the opportunity to engage with fellow shareholders. Mr. Matson can be reached at peter.matson.bell@gmail.com. Additional Information The information contained in this press release does not and is not meant to constitute a solicitation of aproxy within the meaning of applicable securities laws. Although the Concerned Shareholders have delivered the Requisition, there is currently no record or meeting date set for the Special Meeting and shareholders are not being asked at this time to execute a proxy in favor of the Nominees. In connection with the Special Meeting, the Concerned Shareholders may file a dissident information circular in due course in compliance with applicable securities laws.
The Concerned Shareholders are not soliciting proxies in connection with the Special Meeting at this time. The Concerned Shareholders may engage the services of one or more agents and authorize other persons to assist in soliciting proxies on behalf of the Concerned Shareholders. Any proxies solicited by or on behalf of the Concerned Shareholders, or by any other agent, may be solicited pursuant to a dissident information circular or by way of public broadcast, including through press releases, speeches or publications and by any other manner permitted under Canadian corporate and securities laws. Any such proxies may be revoked by instrument in writing executed by a shareholder or by his or her attorney authorized in writing
or, if the shareholder is a body corporate, by an officer or attorney thereof duly authorized or by any other manner permitted by law.
The registered address of Karnalyte is located at 2100 Livingston Place, 222 3 Ave SW Calgary, AB T2P 0B4.
A copy of this press release may be obtained on the Company’s SEDAR