Karnalyte’s Evidence-Free Alternate Facts
Karnalyte has created a universe of alternate facts in its proxy circular for the upcoming special meeting of Shareholders that raises the fundamental question as to whether Karnalyte, and its board and management, is able to differentiate between truth and fiction. Saskatoon, SK,
November 26, 2020 — On July 7, 2020, a group of Karnalyte Resources Inc. (TSX: KRN) (“
Karnalyte”, “
KRN”, 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 “
KRN Board”) of Karnalyte to call and hold a special meeting (the "
Special Meeting") of shareholders for the purpose of constituting the KRN Board with six (6) members, four (4) of whom are highly qualified nominees (the “
Shareholder 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 KRN Board.
Alternate Facts
Peter Matson noted that: “
As long-standing shareholders, we continue to be dismayed by the Board and the Interim CEO’s attempts to blame shareholders for the dismal performance of Karnalyte.” Mr. Matson continued: “
We believe their efforts to cling to power have reached a new low by creating a universe of alternate facts in a desperate attempt to mislead shareholders and distract them from the actual facts. It bears a striking resemblance to the recent turmoil south of the Canadian border.” Focus on the Facts The Concerned Shareholders intend to focus on the facts.
Not Evidence-Free Alternate Facts.
Management Information Circular for Special Meeting Karnalyte issued its management information circular (the “
Circular”) for the Special Meeting. We note that the KRN Board approved the Circular, and as a result, the members of the KRN Board not only approved, but adopted and endorsed, all of the statements in the Circular, including all of the
evidence-free alternate facts (the “
Alternate Facts”).
In short, the KRN Board and management are entrenched and are urging all shareholders to maintain the status quo, rather than elect an independent board that can actually move Karnalyte forward to create shareholder value.
Alternate Fact No. 1 - Inflated Cost of Special Meeting The Interim CEO boldly states that the Special Meeting “
will cost shareholders a minimum of $350,000” with no evidence to support this statement. This is an Alternate Fact, and a very transparent attempt to imply that calling and holding a special meeting is an extraordinarily expensive exercise caused by the Concerned Shareholders merely exercising their rights as shareholders.
This is simply false and misleading. Ask any top tier law firm in Toronto what the costs of a shareholder meeting for a Canadian public company is, and they will respond along the lines of $40,000 to $50,000. Add in a proxy solicitation firm, and the costs could rise to $90,000 to $100,000. To suggest it costs more, is simply false and misleading. Any experienced CEO and Board of Directors of a Canadian public company would know this.
The Concerned Shareholders would like to know: - why are the Interim CEO and the KRN Board providing false and misleading statements in the Proxy Circular?
- why is cost of the Special Meeting suggested to be almost seven (7) time the cost of a typical shareholders meeting?
- who is getting paid the “minimum” of $350,000?
- how much more could it possibly cost and why?
Alternate Fact No. 2 – False Resume The Interim CEO also states in the Circular that she “
has significant experience in the mining and agricultural sectors, including the potash industry” and that she has “
extensive experience with Canadian publicly listed companies”.
This is also
false and misleading. The Interim CEO fails to provide any details or evidence to support her claims. Details such as the names of the public companies she has worked with, the senior and/or executive positions she has held with those public companies, the mining projects she has been involved in, which project have become mines, the various equity and project debt financings she has been responsible for arranging in order to build those mines. Surely there would be multiple filings on SEDI if she were a senior officer of many public companies, yet there is only one filing for Karnalyte.
According to the public filings we were able to review, her only experience with public companies and in the mining industry, appears to be as a controller for a junior mining company that ultimately went bankrupt.
The Concerned Shareholders would like to know: - why is the Interim CEO providing false and misleading statements in the Proxy Circular regarding her resume and her experience?
- where is the list of senior and/or executive positions the Interim CEO has held with other Canadian publicly listed companies that gave her this experience?
- why is there only one filing on SEDI, for Karnalyte? Was she not an insider of any other Canadian publicly listed company, or did she fail to make SEDI filings as an insider of the other Canadian publicly listed companies she was purportedly involved with?
- how many feasibility studies on mining or other projects has she been responsible for as a senior executive, and where are the links to those studies on SEDAR?
- where is the list of mining projects she, as a senior executive, has been instrumental in developing, financing, constructing and operating?
- where is the list of public offerings of equity securities, and project debt financings, that she was instrumental in arranging as a senior executive?
Where is the Evidence? We believe that statements unsupported by independently verifiable facts are no more that Alternate Facts that are false and designed to mislead. Where is the evidence? In the absence of independently verifiable facts, we question how the person making such statements can be considered to be acting honestly and with integrity. Honesty and integrity are cornerstones of a director’s/officers’ legal and fiduciary duties. Alternate Fact No. 3 – Cost of a Feasibility Study
The Interim CEO and the KRN Board state that the cost of a feasibility study on Karnalyte’s nitrogen project (the “
Nitrogen Project”) would be more than $5,000,000.
What the Interim CEO and the KRN Board fail to disclose to shareholders is that she, together with Sanjeev Varma, instructed Wood, an independent, international engineering firm with vast experience in nitrogen chemicals, not to send the formal proposal (the “
Wood Proposal”) to Karnalyte regarding the preparation of a full feasibility study on the Nitrogen Project requested by the former CEO.
What the Interim CEO and the KRN Board also conveniently fail to disclose to shareholders is that her request was made hours after the former CEO was terminated, and that the Wood Proposal provided for the preparation of a fully independent feasibility study on the Nitrogen Project to be completed within six (6) months at a cost of approximately $2,500,000.
The Interim CEO was fully aware of the content of the Wood Proposal, yet boldly states that a feasibility study will cost $5,000,000 or more, without any evidence or support for such a statement. And without any demonstrable evidence regarding her purported experience in undertaking any feasibility studies.
This is an Alternate Fact designed to mislead shareholders and cast doubt on the need to undertake an independent feasibility study on the Nitrogen Project. Unfortunately, we believe this is further evidence of an abject lack of experience and competence in these matters.
As all shareholders know, the purpose of a feasibility study is to ascertain whether a project is feasible, or not. Particularly for a project that will cost many hundreds of millions of dollars to develop. For the Interim CEO to suggest that it is not appropriate to undertake a study that costs money because the results are unknown is, in our view, yet further evidence of the significant lack of understanding of the very purpose of a feasibility study.
The Concerned Shareholders would like to know: - why are the Interim CEO and the KRN Board providing false and misleading statements in the Proxy Circular regarding the cost of a feasibility study?
- why did the Interim CEO and Sanjeev Varma shut down the Wood proposal?
- why did the Interim CEO and the KRN Board shut down the Wood Proposal and then pay GSFC to prepare the non-independent, in-house pre-feasibility study on the Nitrogen Project?
- what experience does the Interim CEO have in the preparation of bankable feasibility studies for mining projects? Where is the list of the studies she was responsible for and the links to such studies on SEDAR to evidence such experience?
- where is the evidence and/or support for the statement that a feasibility study will cost $5,000,000 or more?
- did Karnalyte solicit proposals for a feasibility study on the Nitrogen Project that indicated a cost of more than $5,000,000? If so, where are they?
As we noted above, statements without independently verifiable facts are merely Alternate Facts. If one has genuine experience, and actual third-party evidence, typically that experience and evidence are put forward to underpin and justify a statement, rather than creating and relying on Alternate Facts.
Alternate Fact No. 4 – Use of Proceeds of Rights Offering The Interim CEO and the KRN Board are misrepresenting to shareholders what was stated in the rights offering circular (the “
Rights Offering Circular”) regarding the use of proceeds of the Rights Offering and has created a set of Alternate Facts.
The facts are: - Karnalyte had $9 million in working capital in December 2018;
- Karnalyte had annual expenditure requirements of a minimum of $700,000 on the potash project, for mineral lease payments and minimum expenditures to maintain its TSX listing;
- Karnalyte had a line item in its annual budget of up to $1,00,000 for annual costs associated with the potash project;
- the Rights Offering was fully subscribed and Karnalyte raised $2.3 million for purposes of pursuing the Nitrogen Project, so as not deplete existing working capital;
- Karnalyte’s working capital after completion of the Rights Offering increased to $11.3 million;
- the $1,000,000 allocated to the potash project “in priority” was to be funded from the $9 million in working capital that comprised part of the post-Rights Offering working capital of $11.3 million, rather than taking the first $1 million from the proceeds of the Rights Offering to fund the annual costs of the potash project; and
- the Concerned Shareholders were members of the Karnalyte Board that approved the Rights Offering, and personally invested in the Rights Offering, and know exactly what the intended use of proceeds were.
The Concerned Shareholders would like to know: - why are the Interim CEO and the KRN Board providing a false and misleading interpretation of the Rights Offering Circular?
- why are the Interim CEO and the KRN Board using such a false and misleading interpretation to justify not spending the proceeds of the Rights Offering for its intended purposes?
- why are Interim CEO and the KRN Board suggesting that the cost of the feasibility study would be double the amount raised in the Rights Offering, when the actual cost would have almost been totally covered by the proceeds raised under the Rights Offering?
We feel the Interim CEO and the KRN Board are clearly engaging in a tortured interpretation of the Rights Offering Circular to justify a very transparent attempt to support their Alternate Facts. We find it incredibly insulting to all shareholders who participated and invested in the Rights Offering to purposely misrepresent clear statements in the Rights Offering Circular and to not use the proceeds as intended. Alternate Fact No. 5 – Depleted Cash Resources The Interim CEO and the KRN Board are misrepresenting to the shareholders the financial resources of the Company. We struggle to understand why they would do this, when Karnalyte’s own public documents, including audited financial statements, demonstrate the exact opposite of what the Interim CEO and KRN Board are suggesting.
This is simply another false and misleading statement.
The facts are: - Karnalyte had working capital of $9 million in December 2018
- the Rights Offering added $2.3 million in cash to Karnalyte’s working capital
- after completion of the Rights Offering, Karnalyte had $11.3 million in working capital
It stretches the bounds of credibility for the Interim CEO and the KRN Board to suggest that, after adding $2.3 million to Karnalyte’s cash reserves from the Rights Offering, which increased Karnalyte’s working capital to $11.3 million, that the Concerned Shareholders were somehow responsible for leaving Karnalyte with depleted cash reserves.
It was as a direct result of the Concerned Shareholders actions as directors of Karnalyte, that Karnalyte’s working capital increased, rather than being depleted, as the Interim CEO and the KRN Board incorrectly suggest. The Concerned Shareholders would like to know: - why are the Interim CEO and the KRN Board falsely accusing the Concerned Shareholders of depleting cash resources, when cash resources were actually increased, as clearly evidenced by Karnalyte’s audited financial statements?
- why the Interim CEO and the KRN Board, when working capital had just increased to $11.3 million, suggest that Karnalyte was suffering from depleted resources?
- why are the Interim CEO and the KRN Board providing false and misleading statements in the Circular regarding the cash resources of the Company in December 2018?
Alternate Fact No. 6 – Size of Karnalyte Board of Directors The Interim CEO and the KRN Board are suggesting that the Concerned Shareholders are attempting to double the size of the KRN Board.
What the Interim CEO and the KRN Board fail to disclose to shareholders are the facts.
The facts are: - from 2013 to 2019, the KRN Board was comprised of six (6) directors;
- from 2013 to 2019, the KRN Board had a majority of independent directors;
- from 2019 to present, after the Concerned Shareholders resigned from the KRN Board:
- the KRN Board was comprised of three (3), or four (4) directors;
- the KRN Board did not have a majority of independent directors;
- the KRN Board had a majority of GSFC nominees, and as a result, GSFC controlled the KRN Board;
- GSFC, and in particular, Sanjeev Varma, a GSFC Nominee, thwarted, rejected and ensured that any and all attempts to bring the KRN Board back into compliance with Canadian laws requiring a majority of independent directors were unsuccessful, in order for GSFC to maintain absolute control of the KRN Board
The Concerned Shareholders feel that the arrogance of the KRN Board in continuing to insist that the GSFC Nominees are independent, is not only insulting to all shareholders of Karnalyte, but is a convenient Alternate Fact that they shamelessly continue to use to justify their entrenchment on the KRN Board. Honesty and Integrity
Based on the multitude of Alternate Facts put forward by the Interim CEO and the KRN Board in the Circular, all of which we believe can be easily be proven as demonstrably false, we question how the Interim CEO and the KRN Board can assert that they are acting with honesty and integrity.
The Concerned Shareholders sincerely hope that the Interim CEO and the KRN Board are not:
-
taking a page from Trump’s playbook and suggesting that “what you're seeing and what you're reading is not what's happening”; and
-
rejecting the late Senator Daniel Patrick Moynihan's world of reality, where "everyone is entitled to his own opinion, but not to his own facts."
Peter Matson further noted: “The sheer number of Alternate Facts in the proxy circular is concerning, and provides further evidence that, in our view, the current board and management are singularly unqualified to run a Canadian public company”. He continued: “Our sole objective is, and always has been, to ensure Karnalyte has a board comprised of a majority of fully and demonstrably independent directors as required by Canadian law. To do otherwise, is to disenfranchise and oppress shareholders.”
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