St. Elias shareholders take AGM dispute to court

2012-12-17 14:06 ET - Street Wire

by Mike Caswell

The dispute between St. Elias Mines Ltd. and a group of Alberta-based dissidents has landed in the Supreme Court of British Columbia, with the dissidents complaining that the company has unfairly disallowed two of their nominees. The dissidents say that St. Elias refused to allow James Rainbird and Richard Defreitas to seek election at the company's Dec. 27, 2012, annual general meeting. They contend that St. Elias had no good reasons to disallow the nominees, and are asking for a court order that would effectively allow the dissidents to seek election.

The dissidents, led by shareholder Gilby Hastman, have been seeking to replace St. Elias's entire five-member board. They say management has taken significant stock-based compensation and incurred large expenses as the stock has dropped to 11 cents from $2. The dissidents initially proposed three new directors, but then learned that all five director positions were coming open, so they added the two nominees that are now in dispute.

THE GRINDSTONE

Lori McClenahan

The dissidents' complaint is detailed in a petition they filed on Friday, Dec. 14, at the Vancouver courthouse. They say St. Elias told them on Nov. 26, 2012, that Mr. Rainbird and Mr. Defreitas would not be able to run as directors because the pair had submitted their paperwork too late. The company requires that each dissident file a consent form no later than 35 days before the AGM. The papers for Mr. Rainbird and Mr. Defreitas arrived just days late.

The dissidents, however, say the delay was one of St. Elias's making. As far as the dissidents knew, the company only had three director positions coming open at the AGM. They say they had examined the company's disclosure but were unable to determine exactly when the terms of some recently appointed directors were to end. As a result, the group only nominated three directors at first, with the initial nominees being Mr. Hastman, his brother Darcy and a third man named Ted Rutherglen.

The group says that prior to the nominations, it sent a letter to the TSX Venture Exchange and the B.C. Securities Commission in an attempt to sort out the problem. The letter complained that St. Elias had been violating exchange rules with the way it maintains its board. The company had a policy of having staggered director terms that have three-year durations. The company had also adopted a policy that required nominees to file consent forms 35 days before a meeting, with the policy only applying to dissidents.

According to the petition, the TSX-V subsequently required three St. Elias directors to resign, but the company did not disclose this. The dissidents say they only learned that the entire board would be up for re-election through a discussion with the TSX-V on Nov. 23. By that time it was too late to meet the company's 35-day deadline for dissident consent forms.

Within three days of learning that they could nominate two more directors, the dissidents added Mr. Rainbird and Mr. Defreitas to their slate, but the company treated the new additions as arriving too late. In a Dec. 3 news release, St. Elias said the two nominees were prohibited from being elected because they did not provide their consent forms on time. The release, however, was the first time that St. Elias publicly disclosed that the TSX-V had required three directors to resign before the AGM, the petition states.

The petition further complains about a private placement the company recently arranged that can only be designed to entrench management. On Oct. 22, 2012, the company announced that it would issue between 50 million and 100 million units at 10 cents. The dissidents say this would dilute the holdings of existing shareholders by 85 per cent. (The company has 117,118,335 shares issued.) The private placement, combined with the disqualifications of Mr. Rainbird and Mr. Defreitas, amounts to a "concerted attempt" to entrench management, the petition states.

The dissidents ask that the court declare the 35-day notice period inoperative or alternatively that the court reschedule the meeting to a date between seven and 14 days later than Dec. 27, 2012.

Vancouver lawyer Jim Schmidt filed the petition on behalf of Mr. Hastman and his brother.

The respondents are St. Elias and its entire board: Murry Braucht, Donald Bastien, Lori McClenahan, Paul McDonald and Tina Whyte. The company and its board have not yet filed a response.

St. Elias closed at 13 cents Friday.

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