The Concerned Shareholders Reinforce Business Plan and Address GrowMax's Delayed Reporting and Flawed ISS Report

14.09.2018  |  CNW

VANCOUVER, Sept. 14, 2018 - 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

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)

SOURCE BullRun Capital Inc.

BullRun Capital Inc., #915 - 700 West Pender Street, Vancouver British Columbia V6C 1H2, Attention: Kulwant Malhi,, Tel +1 604 805 4602
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