LMX Resources Ltd - Street Wire
CDNX gives Farrell a thumbs up over LMX voting rights
LMX Resources Ltd LMX
Shares issued 25,464,792 2001-03-07 close $0.11
Thursday Mar 8 2001 Street Wire
Also Canadian Venture Exchange (CDNX)
by Brent Mudry
Controversial stock promoter Don Farrell has a big, and perhaps surprising, supporter in his back pocket as he heads to court in a bid to gain control of LMX Resources. The Canadian Venture Exchange apparently blessed the troubled promoter with a de facto endorsement, giving its thumbs-up to dissolving a voting trust agreement for a control block of 9.5 million shares, just six days before LMX's contentious annual meeting held on Feb. 27.
The intriguing revelations come in a petition filed by Mr. Farrell and Farrell Financial Ltd. on Tuesday in the Supreme Court of British Columbia. The respondents include LMX and rival directors Colin Campbell, John Brydle and Gerald Locke.
Although Mr. Farrell is LMX's largest shareholder, holding 36 per cent of the company's shares directly and indirectly, he has had no voting control over the lion's share of these shares, due to a protective voting trust, which the CDNX has now scrapped.
The CDNX endorsement could be construed as an apparent return to favour for Mr. Farrell, who has weathered several scandals in recent years surprisingly well.
In March of 1996, Mr. Farrell, along with two other VSE promoters, Arn Schoch and James Curtis, had the misfortune of being named defendants in a series of lawsuits totalling $22.4-million for deposits made in alleged secret dealings by a representative of a Polish banking consortium in 1993 and 1994. The three promoters vigorously denied the unflattering allegations.
The unpronouncable Warsaw-based collective of small co-operative farmers' banks, Bank Gospodarki Zwynosciowj Spolka Akcyjna, claimed an employee, R. Kurek, met the Vancouver trio in June, 1993, in Helsinki, Finland. "The defendants entered into a secret arrangement with Kurek to induce Kurek to cause the plaintiff to deposit the funds," stated a court document.
In January of 1998, less than two years after this Polish pickle was revealed, the former Vancouver Stock Exchange abruptly halted trading in shares of Mr. Farrell's two then-flagship companies, GMD Resource Corp. and LMX Resources. The move followed revelations that Mr. Farrell funnelled $3-million in questionable, unsecured loans out of GMD's treasury, including $1-million loaned to his private holding company, Farrell Financial.
The money-shuffling exercise was intriguing. Under Mr. Farrell's direction, GMD lent $2.06-million to LMX and $904,000 to Farrell Financial. This virtually drained LMX's treasury, leaving the company with current liabilities of $794,000 and a working capital deficiency of $577,000, excluding the loans.
Mr. Farrell immediately resigned as president of GMD, which was forced to suspend all its new exploration programs pending a review of its financial affairs. The long-time Vancouver promoter forgot to tell regulators about the non-arm's-length unsecured loans which were unauthorized, not approved by GMD's board and in violation of regulations of the former VSE, now the Canadian Venture Exchange.
Despite this unfortunate turn of events, Mr. Farrell and his companies agreed to settle up with LMX, with a rolling repayment schedule. In an April, 1998, agreement accepted by the VSE, GMD assigned the LMX loan to Mr. Farrell, who was required to repay the full amount in monthly instalments from July, 1998, to November, 1999.
A second agreement, dated Feb. 3, 1999, called for Mr. Farrell to repay $2.25-million to GMD over 42 months, or three and a half years. The promoter rolled back the repayment schedule again in January of last year, winning a 60-day extension to each of the due dates.
Mr. Farrell pulled another rabbit out of the hat amid all this financial shuffling, emerging with a control position in LMX. In return for assuming LMX's debt to GMD, the promoter was granted the control block of LMX shares (in a voting trust to satisfy the CDNX) which are at the centre of the current dispute.
In the court petition, Mr. Farrell seeks a court declaration that a March 16, 1999, voting trust agreement for about 9.5 million LMX shares was terminated effective Feb. 22, just ahead of the Feb. 27 meeting. Under the trust agreement, the shares, which are held in Mr. Farrell's name, had their voting rights assigned to LMX directors Mr. Campbell, John Brydle and Gerald Locke.
The promoter's lawyer, John Forstrom of MacLean Forstrom Jackson, noted the voting trust was negotiated between Mr. Farrell and the individual directors of LMX at the direction of the CDNX. "The requirement to negotiate such an agreement was imposed upon the petitioners by the CDNX in relation to concerns respecting the petitioners' control of a block of 10 million shares of LMX to be acquired by them," states Mr. Forstrom in the petition.
These CDNX concerns over Mr. Farrell's control appear to have vanished soon after the controversial promoter made a formal request to the exchange a few weeks ago. Mr. Farrell directed lawyer John Cumming to send letters dated Feb. 15 and Feb. 16 to the CDNX, followed by a Feb. 20 meeting between Mr. Cumming and Mani Sanghera, a CDNX surveillance officer.
The next day, Feb. 21, Ms. Sanghera sent Mr. Cumming a hand delivered letter as the CDNX's official authorization to terminate the voting trust agreement.
The CDNX official notes that the shares will remain in escrow with Campney and Murphy, although Mr. Farrell is free to vote the block. "In addition, the shareholders are required to continue to repay the monies owed to GMD Resource Corp. pursuant to the loan agreement dated Feb. 4, 1998, as amended March 27, 1998, and the loan agreement dated March 27, 1998, as amended Feb. 4, 1999," stated Ms. Sanghera in the letter.
The CDNX letter was copied to the enforcement division of the British Columbia Securities Commission, Campney & Murphy, and the boards of both GMD and LMX.
On Feb. 26, the day before the AGM, Mr. Campbell, on behalf of LMX's board, faxed Mr. Farrell a letter advising him that the board did not accept the termination of the voting trust agreement.
Mr. Farrell duly attended the LMX AGM on Feb. 27 and tried to vote the 9.5-million-share block, but meeting chairman Mr. Campbell, acting on the advice of Vancouver securities lawyer Anthony Beruschi, who effectively ran the meeting, disallowed each ballot cast with these trust shares.
"When Farrell requested an explanation as to what basis LMX had to deny Farrell, as the registered owner of the trust shares, the right to vote the trust shares, Beruschi instructed Campbell to refuse to answer the question. Beruschi told the meeting words to the effect 'the chair has made a ruling -- he doesn't have to give reasons,'" states Mr. Forstrom in the petition.
With this crucial 9.5-million-share block blocked from voting, the incumbent Campbell slate won with a slight edge over the dissident Farrell slate. The incumbent slate had votes for 635,000 shares, with 17 proxy shareholders representing 348,000 shares, Buck Lake Ventures voting 100,000 shares, and Mr. Campbell voting 187,500 shares.
The dissident slate had votes for about 597,000 shares, dominated by 593,666 shares held by Mr. Farrell outside the voting trust. The promoter's nominees, Mr. Cumming, Justis Raynier and John Robins, each holding just 1,000 voting shares.
While the contested 9.5-million-share block obviously holds the swing control of LMX, a significant number of shares are also held offshore in various names. As of Jan. 8, the date of record for the AGM, eight offshore holders held a total of 2.64 million shares.
Most of these offshore shares are held in the secretive haven of St. Helier in Jersey, in the Channel Islands. The biggest of these is Mining & Precious Metals Ltd., which uses an address of 17 Bond Street, with 1.09 million shares, followed by a one-million-share-block with the same name, but using a different address, on Hue Street.
LMX's other Jersey backers include Monika Angela Nozedar, with 175,000 shares, and Tirage Investments Ltd., with 100,000 shares, both of St. Peter, and Jason Roy Blackmore, of St. Helier, with 150,000 shares.
With the 9.5-million-share-block marking the future of LMX and Mr. Farrell's hopes for a return to control, the controversial promoter now gets to plead his case before a judge some time in the near future.
(c) Copyright 2001 Canjex Publishing Ltd. canada-stockwatch.com |
