News! 6th press release posted on Sedar by CSG - response Karnalyte Releases Few Details on a Non-Independent Pre-Feasibility Study
Time to Stop the Oppression of Karnalyte Shareholders by
Gujarat State Fertilizers & Chemicals Limited and the Interim CEO
• Karnalyte releases few details on a non-independent, Gujarat State Fertilizers & Chemicals Limited’s (“GSFC”) in-house prepared pre-feasibility study on its nitrogen project that raises more questions than provides answers
• Concerned Shareholders question the credibility and value of a $65,000 non-independent, GSFC inhouse pre-feasibility study that took more than 9 months to complete
• Concerned Shareholders believe it is time to stop GSFC’s, its nominees on the Board, and the Interim CEO’s oppression of Karnalyte shareholders by appointing a qualified, experienced and independent board of directors Saskatoon, SK, July 29, 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 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 agriculturaland 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 (the “GSFC 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). On July 27, 2020, Karnalyte called the Special Meeting to be held on December 15, 2020, almost five months from today’s date. Non-Independent In-House Pre-Feasibility Study on the Nitrogen Project
After 9 months of preparation, Karnalyte released few details of the $65,000 non-independent, GSFC inhouse prepared pre-feasibility study (the “Study”) on the Company’s nitrogen project (the “NitrogenProject”).
Peter Matson, one of the Concerned Shareholders and amongst the five largest shareholders of Karnalyte, noted that “After each of the Concerned Shareholders invested money specifically for development of the Nitrogen Project, the Interim CEO has the audacity to tell us that taking 9 months to spend $65,000 on a non-independent, GSFC in-house prepared pre-feasibility study is the best way to create shareholder value.” Mr. Matson also noted: “We strongly believe the slow-walking of the nitrogen project and the failure to spend the monies we specifically invested to pursue the Nitrogen Project is designed to preserve the Interim CEO’s job rather than creating value for all shareholders.” The Facts – Pre-Feasibility Study on the Nitrogen Project The Concerned Shareholders intend to focus on the facts.
In December 2018, each of the Concerned Shareholders personally invested in Karnalyte’s rights offering (the “Rights Offering”) that raised a total of $2.3 million specifically allocated to investigate the Nitrogen Project. The Interim CEO has taken 9 months to spend $65,000 of the $2.3 million to prepare the Study.
Karnalyte has released few details of the Study, and refuses to release the full Study and file it on SEDAR for all shareholders to review. The Concerned Shareholders are unable to explain why Karnalyte refuses to release the full Study, and why it refuses to provide full, true and plain disclosure of the Study. The Concerned Shareholders are also unable to explain why the Interim CEO and the GSFC Nominees do not want the capital markets or the shareholders to see the full Study. a) Non-Independent Study The Study is not independent. Since it was prepared by GSFC, it is non-independent, and is therefore subject to all the biases and conflicts of interest inherent in such an in-house, non-independent study. The reasons Canadian public mining companies always prepare independent technical studies with independent qualified persons are self-evident and do not need to be reiterated. No credibility or value will be given to a non-independent technical study by the Canadian or international capital markets, investors, banks, lenders, private equity, or potential strategic partners. The Concerned Shareholders are unable to explain why the Interim CEO and the Board have wasted 9 months, and 9 months of general and administrative expenses, to prepare an essentially useless Study, and one that creates no value for shareholders. b) Use of Proceeds of Rights Offering Rather than spending the money specifically invested by shareholders in the Rights Offering for the purposes stated in the Rights Offering (which were to acquire a project site and undertake a proper and fulsome independent technical review of the Nitrogen Project), the Interim CEO and the GSFC Nominees decided not to use the proceeds of the Rights Offering for the purposes set out in the Rights Offering.
Rather, the Interim CEO and GSFC Nominees decided not to acquire a project site and not to undertake an independent and rigorous technical and economic assessment of the Nitrogen Project.
The Concerned Shareholders are unable to explain the business reasons used by the Interim CEO and the Board to justify not spending the proceeds of the Rights Offering as designated. Accordingly, since it has been more than 18 months since the Rights Offering closed, and the Interim CEO appears to have spent only $65,000 of the $2.3 million raised from the Rights Offering, the Concerned Shareholders will ask the Ontario Securities Commission to investigate Karnalyte’s compliance with the use of proceeds.
The Concerned Shareholders believe the only logical explanation for the Interim CEO’s and the Board’s actions is entrenchment. As the Interim CEO has clearly stated to the Canadian Broadcasting Corporation that she doesn’t really know what she is doing, but she will give it a try, the Concerned Shareholders believe her actions evidence a strategy to keep her job rather than create value for shareholders. c) Review of Study by Strategic Consultant After spending 9 months to prepare the Study, the Interim CEO and the Board are now handing it to a strategic consultant for review. Rather than retain a reputable, independent, international engineering firm or investment banker, the Interim CEO and the Board have engaged an accounting and tax firm. The Concerned Shareholders are unable to explain what qualifications an accounting and tax firm has to review a technical report on a chemical manufacturing plant, and why the Interim CEO and Board are unable to provide a budget and schedule for the review.
The Concerned Shareholders continue to believe that for a company the size of Karnalyte, it is the job of the Interim CEO to develop a strategy for Board approval, rather than outsourcing her job to an accounting and tax firm. 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 a proxy within the meaning of applicable securities laws. Although a record and meeting date for the Special Meeting was established by Karnalyte on July 27, 2020, 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 profile at www.sedar.com