LEGAL PROCEEDINGS AND REGULATORY ACTIONSLEGAL PROCEEDINGS AND REGULATORY ACTIONS In the fourth quarter of 2015, Karnalyte was made aware of an action filed against Karnalyte, its directors and certain of its officers by Ishan Holdings and Development Corporation and Betty Hayer-Dusange in the Supreme Court of British Columbia, New Westminster Registry claiming damages in an unspecified amount (the "British Columbia Proceeding"). Subsequent thereto Karnalyte was made aware of an action based on similar allegations filed by the same persons against Karnalyte, its directors and certain its officers in the United States District Court for the District of South Carolina claiming damages in the amount of $9.5 million (the “South Carolina Proceeding”, collectively with the British Columbia Proceeding, the "Proceedings"). The Proceedings allege, among other things, breaches of contracts, fraud and deceit, civil conspiracy, racketeering and unfair business practices. Karnalyte denies the allegations raised in the Proceedings and considers the Proceedings to be without merit. Karnalyte has filed responses in connection with the British Columbia Proceeding, as have the directors and officers named in the British Columbia Proceeding. Karnalyte has filed a Motion to Dismiss in connection with the South Carolina Proceeding. In the second quarter of 2015, Mr. Robin Phinney took legal action against the Corporation and certain of its directors. Further, the Corporation took legal action against Robin Phinney, Jean Phinney, and 51 associated entities. All such litigation and complaints to regulators, whether initiated by Mr. Robin Phinney against the Corporation or by the Corporation against Mr. Robin Phinney, Jean Phinney, or associated entities, were withdrawn or discontinued in accordance with the terms of the Settlement Agreement. Karnalyte is not aware of any other legal proceedings to which the Corporation is or was a party to, or of which any of its property is or was the subject of, during the financial year ended December 31, 2015, nor are any other such proceedings known to the Corporation to be contemplated. During the financial year ended December 31, 2015, management is not aware of any penalties or sanctions imposed against the Corporation by a court relating to provincial and territorial securities legislation or by a securities regulatory authority, nor any other penalties or sanctions imposed by a court or regulatory body against the Corporation. During the financial year ended December 31, 2015 the Corporation did not enter into any settlement agreements before a court relating to provincial and territorial securities legislation or with a securities regulatory authority
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