Hornby gets it in the culo!
Hornby Bay accused of not honouring warrant agreement
2005-06-24 13:10 ET - Street Wire
by Stockwatch Business Reporter
A private investor has commenced legal action in Toronto against Hornby Bay Exploration Ltd. seeking delivery of 367,647 shares of the company that he insists he is entitled to. A statement of claim was filed by S. Paul Mantini on March 24 against the TSX Venture Exchange listed company for breach of both contract and good faith.
Warrants and conversions
Going back to September, 2003, the defendant was making arrangements for a non-brokered private placement of up to $5-million through the issuance of five million flow-through special warrants at one dollar a warrant. Each of the warrants was convertible into one unit of Hornby Bay at a conversion price equal to the lesser of 20 cents or the average trading price of the common shares for the 60 days after the date of issuance of the warrants. Each unit comprised one flow-through share and one flow-through purchase warrant (FTPW). Each FTPW entitled the holder to acquire one flow-through share of the junior miner for two years at the conversion price plus five cents for the first year and plus 10 cents for the second year. The legal filing says the purpose of the placement was to finance the arctic mineral explorer's efforts to locate diamond, base metal and uranium targets in Nunavut where it had staked claims.
On Sept. 30, 2003, the plaintiff and his wife, Donnalyn Mantini, claim they each bought 125,000 warrants for $125,000. The penny stock company issued the Mantinis two flow-through Special Warrant Certificates, which the couple subsequently converted into units, and as a result of that conversion they obtained 1,470,588 FTPWs. The price for each FTPW worked out to about 17 cents.
Hornby Bay request
Moving on, in early March, 2004, the Mantinis say the defendant's lawyer wrote to them that the company was restructuring and would they mind transferring 735,294 of their FTPWs to the miner for its new management team at a price of three cents per warrant. The Mantinis promptly replied in writing, and enclosing the requested FTPWS, that they were willing to oblige on a conditional basis until they were in "receipt of evidence" that the other major shareholders, "Marco Muzzo, Wolfgang Kyser, Phil Macdonald and James Brady ... also agreed to sell 50% of their special warrants and/or options at a similarly discounted price." The defendant's lawyer apparently replied by e-mail on March 9, 2003, saying, among other things: "You are correct that each of the warrant holders have been asked to assign one-half of their warrants in favour of the new management group. ... today I have all of the warrant holders except for two." The following day, Hornby Bay's solicitor wrote by e-mail that he had received signed letters from 13 of the 14 larger warrantholders. The legal filing states: "At no time did the defendant provide evidence that each of the major shareholders had also agreed to sell 50% of their special warrants and/or options at a similarly discounted price of 3 cents per warrant."
Terminal addendum
On April 20, 2004, the plaintiff says he received a note from the "Securities Clerk" at the law firm representing the defendant confirming the agreement to transfer half of the Mantinis' FTPWs to Hornby Bay for three cents apiece, but with an allegedly new and not agreed upon detail. The clerk's note said, "Consideration of $0.03 for each Warrant will be paid to you upon exercise of the Warrants by the holder." Shocked and dismayed, the plaintiff replied two days later stating that at no time had he agreed that payment would only be forthcoming upon exercise of the warrants by the holders. He requested that full payment either be immediately made or that the FTPWs be reissued to him. The miner's counsel replied with a short e-mail the following day saying he would look into the matter. Hackles raised, the plaintiff replied by letter the same day demanding full payment or issuance of the FTPWs. Mr. Mantini repeated his request in writing on April 30, 2004.
To the Mantinis' relief, on May 3, 2004, the defendant's counsel "provided the plaintiff with issued FTPWs, bearing Certificate No. FT2006-10 representing 367,647 FTPWs (the "Contract") and Certificate No. FT2006-9 representing 367,647 FTPWs, both in the name of Serafino Paul Mantini."
New request
On July 19, 2004, according to Mr. Mantini, Wolfgang Kyser, a representative of the defendant, wrote to the plaintiff enclosing a cheque for $22,034.82 and asking for the FTPW certificates to be sent to him. Truly a piece of snail mail, the plaintiff alleges the letter was not received until Sept. 29, 2004. A week or so later, Mr. Mantini returned the cheque and advised Mr. Kyser he had not agreed to exchange the FTPWs.
Back on track
Immediately after returning Mr. Kyser's cheque the plaintiff apparently exercised his right to purchase one "Flow Through Share" (FTS) for each of the 367,647 FTPWs represented by "Certificate No. FT2006-9." Mr. Mantini provided a certified cheque payable to Hornby Bay for $80,882.32, "representing the Exercise Price set out in the Certificate." And shortly thereafter, Hornby Bay's counsel provided Mr. Mantini "with Certificate No. 00605, representing 367,647 common shares in the company." So far, so good.
Bobkes
On Feb. 27, 2005, the plaintiff says he exercised his right to purchase one FTS for the remaining 367,647 FTPWs. Again Mr. Mantini provided a certified cheque for $80,882,34 made payable to Hornby Bay. The legal filing states, "The plaintiff was entitled to receive a Certificate evidencing 367,647 Common Shares of the defendant ... within five business days." Eleven days later, and not having heard from the miner's solicitor, Mr. Mantini wrote to inquire about the status of his wayward certificate. What he was about hear he did not like.
The defendant's lawyer informed the anxious investor on March 3, 2005, that Hornby Bay was holding him to an agreement it says he signed dated March 5, 2004, "with respect to the FTPWs, purporting to transfer the FTPWs to management of the defendant." Hornby Bay's solicitor had enclosed a cheque for $11,029.41 representing payment for the FTPWs. "The March 3 letter did not give any explanation why, if that were the case, the defendant would have (a) issued certificates in 2004 and (b) permitted the plaintiff to exercise his right to purchase one-half of the shares as he did in October 2004."
The following day Mr. Mantini returned the defendant's cheque and enclosed a certified cheque in the amount of $80,882.34 payable to Hornby Bay and demanded the "2005 Certificate" be issued to him. To date, subsequent attempts to have the certificate issued have been unsuccessful and the defendant says it continues to hold Mr. Mantini's certified cheque.
In the end
The plaintiff maintains, in the concluding paragraphs of his statement of claim, that Hornby Bay is obligated to issue him the common shares he has purchased. "... the defendant has wrongfully attempted to resile from its obligations by claiming reliance on a sentence in a law clerk's letter dated April 20, 2004, which was immediately and consistently thereafter rejected by the plaintiff. This rejection was accepted by the defendant, as evidenced by its issuance of the FTPWs, and its agreement to provide the plaintiff with one-half of his Common Shares pursuant to his election to purchase in October 2004."
Mr. Mantini seeks to have this action tried in Toronto. His legal representatives are Robert Staley and Derek Bell.
The plaintiff's allegation have not been proven in court. Hornby Bay has filed a notice of its intention to defend itself and Stockwatch will report on events as they unfold.