VANCOUVER, Sept. 14, 2018 /CNW/ - Concerned shareholders,
Kulwant Malhi and BullRun Capital
Inc. (the "Concerned Shareholders") of GrowMax Resources
Corp. (the "Corporation" or "GrowMax") (GRO:TSX-V)
today reiterate its business plan to stop the depletion of cash and
start generating value. The Concerned Shareholders also address the
late regulatory filings and delayed Expert's Report (as described
below) filed by the Corporation, and GrowMax's references to the
report (the "ISS Report") issued September 12, 2018 by Institutional Shareholder
Services Inc. ("ISS") regarding the matters to be voted upon
at the upcoming annual and special meeting of GrowMax shareholders
(the "Shareholders") currently scheduled for September 25, 2018 (the "Meeting").
"For years, management and the incumbent Board have spent
shareholder's money on excessive salaries while performance
continues to be dismal. Now they are proposing a transaction which
will give up control of your remaining cash to a company that is
highly indebted and has never seen profit," cautioned Mr.
Malhi.
Mr. Malhi reinforces that, "the Concerned Shareholders' nominees
reiterate their position that its business plan and objectives for
Growmax can preserve, recover, and increase shareholder value.
Specifically the Concerned Shareholder nominees will reduce
excessive salaries of directors and executives, recover shareholder
value by divesting mining assets that have incurred millions of
dollars in expenditures over the last few years, but are now worth
nothing (proposed PrimaSea Acquisition values GrowMax only by its
cash value), and pursuing smart acquisitions in high growth areas
with significant investor interest and liquidity."
"We appreciate the tremendous support of fellow Shareholders who
have reached out to us to express their support. However, we still
encourage everyone to vote using the YELLOW proxy no matter
how many shares you own, to voice your dissatisfaction. If the
PrimaSea Acquisition is approved, Shareholders will no longer have
a say."
"We need to act now. The current board has already
advanced $1.8 million to their
questionable acquisition target PrimaSea. We need to stop the
expenditures as soon as possible, before there is nothing left for
GrowMax and its Shareholders."
GrowMax Delays Filings, Rushes Vote
The Concerned Shareholders question the true intentions of
management and the current GrowMax board of directors (the
"Board") in rushing Shareholder approval of the PrimaSea
Acquisition (described below) without providing Shareholders with
full and timely disclosure of information. GrowMax
deliberately withheld information from Shareholders, and rushed the
preparation and filing of the management information circular on a
transaction that had already been underway for eight months, in
order to avoid a one-month delay.
The Concerned Shareholders bring to light the following
information from GrowMax's delayed expert's report on the Fertimar
Lithothamnion Project (the "Expert's Report") and
supplemental to their information circular (the
"Supplement").
- Management and the Board had a draft of the Expert's Report
completed in July but only released it 10 days before the voting
deadline, against the Ontario Securities Commission's
("OSC") wishes:
"In light of OSC Staff's view of
the need for the Expert's Report and other disclosure to support
informed voting decisions and to comply with applicable securities
law requirements, OSC Staff requested that GrowMax delay the filing
and mailing of the Information Circular until the Expert's Report
was settled and filed. GrowMax elected to proceed with filing and
mailing of the Information Circular..."
- In withholding information from Shareholders, management blames
the TSX-V, IROC, the OSC, and the Concerned Shareholders – everyone
but the parties who failed to provide the relevant disclosure –
themselves.
- As further evidence of the haphazard Board approval of the
PrimaSea Acquisition, the Board approved the PrimaSea Acquisition
on August 9, 2018 over a month before
the Expert's Report was actually finalized on September 11, 2018. This points to questionable
due diligence on the part of GrowMax.
- In an attempt to explain what information the Board relied upon
in approving the transaction, the Supplement references a mystery
"final report". The Supplement states:
"prior to entering into the share
purchase agreement with Fertimar, GrowMax and its financial advisor
were provided a final report, which was still titled as a
technical report, which included an estimate of the extractable
lithothamnion at Fertimar's project. That estimate was the same as
the estimate of extractable lithothamnion in the Expert's
Report".
The Supplement does not provide
any information on who provided this "final report" nor does it
provide any information on how the unnamed author of this "final
report" reached their conclusion on the estimate of extractable
lithothamnion.
- The Expert's Report is based on a review and analysis of
exploration data obtained by Fertimar (as described below) in
2004/2005, "Hains Engineering was unable to obtain independent
samples of raw material from the sea floor as the vessel was in
port." The authors of the Expert's Report did not actually base
their conclusions on their own exploration data, they relied on
data obtained by Fertimar over thirteen years ago.
- The estimates of extractable lithothamnion and expectations
with respect to production levels and scalability provided in the
Supplement are based on certain assumptions such as "future access
to a revised license allowing higher levels of extraction".
The projections lack the robustness of any form of feasibility
study and can only be viewed with a high degree of skepticism.
- Not only was the Expert's Report not provided to Shareholders
within an appropriate time frame, but Growmax also failed to file
material securities filings in a timely manner after signing the
PrimaSea Share Purchase Agreement (the "SPA"), attempting to
deprive Shareholders of the opportunity to review the SPA and
related support agreements in their entirety. Indeed, the
filed SPA provides Shareholders with new and contradictory
information regarding the acquisition, including:
-
- The SPA provides that PrimaSea Holdings Ltd.("PrimaSea")
and its subsidiary Fertimar Mineração e Navegação Ltda.
("Fertimar") do not own any land, but the Expert's Report
states that Fertimar owns 9200
m2 for its plant with sufficient space for
expansion. No evidence is provided that such land is
owned.
- The SPA provides for the purchase of 20,000,000 shares of
PrimaSea. The management information circular discloses that
Fertimar will need to settle R$4.57
million in indebtedness, through the issue of equity.
No provision in the SPA is made for the issuance of additional
shares, or what the cost to acquire those shares will be.
Flawed ISS Report
The Concerned Shareholders disagree with ISS' support for
GrowMax's proposed acquisition (the "PrimaSea Acquisition")
of PrimaSea and its subsidiary Fertimar. The Concerned Shareholders
also disagree with ISS' support for GrowMax's director
nominees.
Shareholder's should note that in Growmax's latest news release
announcing ISS' support, management and the Board neglected to
disclose certain points made by ISS:
- ISS warns that "Shareholders…should note the negative market
reaction and the high dilution associated with the proposed
transaction."
- ISS observes that the share issuance associated with the
transaction will result in "high dilution" and the current GrowMax
board of directors did not form a special committee of independent
directors to review the proposed transaction.
- ISS also concurs with the Concerned Shareholders regarding the
validity of their concerns about the amount of management
compensation in light of the corporation's share price declining
95% since January 2014.
Also, the Concerned Shareholders believe the overall approach
used by ISS to analyze the PrimaSea Acquisition is flawed in
several respects and does not adequately assess the merits of the
transaction. In its analysis, ISS failed to address clear
governance issues arising from the PrimaSea Acquisition. Indeed,
management's delayed delivery of the Supplement and Expert's Report
deprived ISS, along with shareholders, of the opportunity to
consider important governance issues raised by the OSC.
Specifically ISS failed to consider the following, or in the view
of the Concerned Shareholders, apply sufficient weight to the
following:
Control Voting Block
- Upon closing of the PrimaSea Acquisition, 59.5% of GrowMax
shares would be held by directors and officers.
- GrowMax has entered into lock-up agreements with several
directors to vote in favour of the PrimaSea Acquisition (a
transaction which clearly benefits the incumbent Board and
management).
- The facts suggest a clear intent of the incumbent Board to
entrench themselves and management.
Conflicted Fairness Opinion
- ISS placed undue reliance on the fairness opinion provided by
Bordeaux Capital (the "Bordeaux Opinion") which
characterizes the PrimaSea Acquisition as fair to GrowMax.
- The Bordeaux Opinion is clearly non-independent, as a current
principal of Bordeaux Capital has previously helped raise funds for
the Corporation while employed at another investment house.
Bordeaux Capital will also be paid a success fee of $424,000 by GrowMax upon successful closing of
the transaction.
- The Concerned Shareholders believe that ISS' characterization
of the Bordeaux Opinion as "independent" is a significant
mischaracterization in light of the existing and pre-existing
relationships between Bordeaux Capital and GrowMax. This, together
with the lack of independent committee review, suggests management
has negotiated a deal favorable to its interests with disregard for
the resulting destruction of shareholder value – the consequence of
flawed oversight by the Board.
Given the deficiencies identified in the ISS report, the
Concerned Shareholders believe that Shareholders should ignore the
ISS recommendations relating to the PrimaSea Acquisition and the
election of director nominees and vote AGAINST the PrimaSea
Acquisition and FOR the Concerned Shareholders' director
nominees.
Vote for the Concerned Shareholder Nominees
Kulwant Malhi, Alfred Wong, Michael
Sadhra and Pratap Reddy (the
"Concerned Shareholder Nominees") will provide Shareholders
with a transparent process that aligns the directors to provide
shareholder value without ulterior motives. The Concerned
Shareholder Nominees have a proven track record and Shareholders
are encouraged to read the biographies of each nominee in the
Concerned Shareholders' Circular or visit
www.laurelhill.ca/abetter-growmax.
Voting Instructions
The Concerned Shareholders urge Shareholders to vote only the
YELLOW proxy:
- AGAINST the PrimaSea Acquisition; and
- FOR the election of the Concerned Shareholders' director
nominees
Shareholders should discard any blue proxy they may
receive and should vote only their YELLOW proxy well in
advance of the proxy voting deadline of September 21, 2018 at 8:00
a.m. Calgary time.
Due to the essence of time, Shareholders are asked to vote
online or by telephone by following the instructions found on the
YELLOW proxy to ensure votes are received in a timely manner. IF
YOU HAVE ALREADY VOTED USING MANAGEMENT'S PROXY, YOU CAN STILL
SUPPORT THE CONCERNED SHAREHOLDERS BY USING THE YELLOW PROXY. THE
LATER DATED PROXY WILL SUPERSEDE.
Questions and requests for assistance may be directed to the
Concerned Shareholders' Proxy Solicitor:
Laurel Hill Advisory Group
North America Toll Free:
1-877-452-7184
Outside North America:
1-416-304-0211 (collect)
Email: assistance@laurelhill.com
SOURCE BullRun Capital Inc.
