Attention Business Editors:
Flag Resources (1985) Limited Appeals Before The Alberta Securities Commission and the Court Of Appeal Of Alberta, Respectively, Against Sanctions Imposed By The TSX Venture Exchange
CALGARY, Aug. 30 /CNW/ - At Flag's appeal hearing before the Court of
Appeal of Alberta on May 11, 2006, in regard to sanctions against it by the
Exchange, including delisting of its shares and demanding resignation of
certain Flag directors, the Court suggested that there were some procedural
unfairness by the Exchange and Alberta Securities Commission.
The Court suggested that the Exchange should have given Flag a choice,
before deciding on its sanctions, suggesting perhaps a $25,000 fine or a
30 day suspension. The Court suggested that the Exchange should have allowed
Flag to respond before and after the imposition of sanctions against it.
The Court suggested that the Alberta Securities Commission should have
allowed Flag to call witnesses, in addition to its Chairman and President.
The Commission allowed the Exchange to cross-examine, in detail, Flag's
Chairman and President, but refused to allow Flag to cross-examine Exchange
personnel.
However, in its Memorandum of Judgment, on July 31, 2006, the Court,
citing legal precedences, stated that there had been no procedural unfairness
by the Exchange.
The two main allegations of non-compliance against Flag, by the Exchange,
were that the Settlement Agreement with Canada Customs and Revenue (Revenue
Canada) resulted in Flag paying $150,000 of its President's personal tax
liability. The second allegation of non-compliance was the late payment by
Flag's President on his exercise of stock options.
A. Alleged Payment by Flag of $150,000 of Flag's President's Personal Tax
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Liability
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The Exchange's allegation that Flag paid $150,000 of its President's tax
liability was accepted by the Alberta Securities Commission and the Court of
Appeal of Alberta, although it was denied by Revenue Canada, stating that
settlement by Flag of its tax liabilities would not be assessed as a benefit
to Mr. McLeod, Flag's President. The effect of the settlement was not to
settle taxes payable, but to hold collection proceedings (Requirement to Pay)
in permanent abeyance.
It was confirmed again in an October 2, 2004 letter from Revenue Canada:
"this letter is to confirm that Flag's tax liability has arisen directly under
subsections 224(1) and (4) of the Act, provision wholly inapplicable to Mr.
McLeod, in the circumstance, and that the settled liability is that of
Flag's."
The Exchange assumed that there had been a single Requirement to Pay,
when there were several, with which Flag had to deal, not just one. A
Requirement to Pay served on Flag's banker resulted in the seizure of $194,000
by Revenue Canada.
Flag's legal council had the seized funds paid into court. At a hearing
on August 23, 2001, a Master, Alberta Supreme Court, returned the funds to
Flag.
The Revenue Canada official involved endeavored to have the Justice
Department appeal the decision, but the time for appeal had lapsed.
The same Revenue Canada official, six months later, in March 2002, in the
Settlement Agreement with Revenue Canada, levied the tax liability of $150,000
against Flag, under 224(1) and (4) of the Act.
At the time, Revenue Canada was issuing requirements to Pay, their legal
right to issue them was being challenged by legal proceedings against them,
stating that under terms of the March 22, 1992, Security Agreement, between
Murdo McLeod and Revenue Canada, it was believed that the requirements to pay
were improper and requested that they be withdrawn.
Although legal counsel's recommendation to approve the settlement was
accepted by Flag, Flag's President, in retrospect, thought Flag's $150,000 tax
liability was excessive, and reached agreement with Revenue Canada to pay
$100,000 of the tax liability.
The Court of Appeal of Alberta, in its Memorandum of Judgment, erred in
stating that Flag's President received a benefit to the detriment of Flag, as
it was Flag that received a benefit from Flag's President.
B. Late Payment of Stock Option
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In March, 2003, Flag filed a Debt Conversion Agreement with the Exchange,
for approval. Under the terms of the agreement, Flag agreed to accept
ten million shares of associated Golden Briar's stock, valued at $0.l0 a
share, for payment of indebtedness of $1,151,000.
After considerable delay, the Exchange analyst, on July 17, 2003,
conditionally approved the filed agreement, subject to certain conditions,
including a referral to the S.E.C. for the proposed amalgamation between Flag
and Golden Briar, which had never been proposed. The conditions set forth in
the July 17 letter were answered by Flag's legal counsel, by letter, on
August 27, 2003, with no response from the Exchange analyst.
In January, 2004, the Exchange Analyst submitted an additional set of
conditions to Flag that were not relevant to the Debt Conversion Agreement,
asking for extensive geological information on Flag's properties, for whatever
reason.
The Debt Conversion Agreement was continually deferred for 15 months,
along with three other filings, and is still in abeyance.
With the deferral, denying Flag the benefit of a $1,000,000 share equity,
Flag's President, to provide Flag with interim financing, exercised options on
1,810,000 shares. The shares were sold at a substantial loss to Flag's
President.
The failure of the Exchange to approve the Debt Conversion Agreement,
within a reasonable time frame, seriously diluted Flag's shareholder value, by
causing 1,810,000 share options to be exercised and sold, to fill the vacuum
caused by the Exchange's failure to approve the Debt Transaction.
Other procedural unfairness, by the Exchange, noted by Flag, included a
letter dated January 12, 2005, from the Exchange's Director, Compliance and
Disclosure, stating that Flag had failed to disclose the resignation of
Richard Dye as a director. Flag had not announced his resignation, as he had
not resigned. The Exchange then communicated with Mr. Dye and got him to
resign three days later.
Mr. Dye's son wrote a letter to Flag about his Father's major heart and
diabetic problems and having trouble remembering things. Because of his
physical and mental health problems, the 80 odd years old Mr. Dye was not
going to be reappointed at the next annual meeting. Flag questions the ethics
of the Exchange officials, under the circumstances, in going after Mr. Dye to
secure his resignation.
Another procedural unfairness was the Exchange's refusal to hold
discussions on any of the responses made by Flag, under questions raised by
the Exchange in its Compliance Review. Every response was met with a Not
Satisfactory notation.
Flag believes the sanctions imposed by the Exchange against Flag were
excessive. The Exchange did not attempt to abide by the factors set down by
the Supreme Court of Canada in determining the extent and degree of sanctions
that should be imposed. (Security Trading and the Toronto Stock Exchange
(1994) 17 O.S.C CB6097, as pp 15,17,18, BA. VOL. 11 TAB.(6))
Flag had been listed on the Exchange for 28 years, without ever having
any sanctions imposed by the Exchange.
With the delisting of Flag's shares by the Exchange, Flag's Chairman,
Sydney Miszchuk, to whom Flag had indebtedness in excess of $7,000,000, could
have seized all of Flag's assets. He elected instead to make the welfare of
Flag's shareholders his prime concern, advancing in excess of $800,000 from
December, 2004, to Flag, to fulfill all its obligations and operating
requirements.
Flag's Exploration Program
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On its large holdings in Sudbury, Ontario, Flag is preparing to drill the
middle of three coinciding magnetic and EM anomalies, extending 225 meters
(738 feet), from east to west. The coinciding magnetic and EM anomalies
commence 200 feet due west of drill holes with large mineral intersections, in
the Campsite Zone, at Wolf Lake, Mackelcan Township, Sudbury, Ontario.
Some of the drill holes include: WL90-3, with 73.5 feet of 0.519 oz gold
from 104 to 177.5 feet, WL83-28 with 74.5 feet of 2.5% copper and .033 oz
gold, from 121 to 195.5 feet and WL83-41, with 100.5 feet of .08 oz gold, from
147 to 247.5 feet.
Rathbun Lake Occurrence, Rathbun Township
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A sample, from the mined out surface occurrence (the Rathbun Lake
Occurrence) of massive sulfides, at Rathbun Lake, Rathbun Township was
recently assayed, June 15, 2006. It assayed 11.81% copper, 3.21% nickel, and
1.33 oz palladium (43.95 grams), (Swastika Laboratories). The sample is being
assayed for other rare earth minerals, and gold.
Flag proposes to explore, at depth, the contact between the sediments and
gabbro intrusion, below the surface occurrence of massive sulfides.
Cobalt Hill, Mackelcan Township
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In the near future, Flag proposes to complete an extensive exploration
program at Cobalt Hill, Mackelcan Township, where minute inclusions of four
different nickel-bearing sulfides occur in pyrite mineralization, and, with
the presence of chromium, it is suggested that, as chromium does not move far
from its source, the source of mineralization is suggested to be close by. The
mineralization has been found in drill holes on either side of a 600 foot wide
valley.
Flag's Appeal to the Supreme Court of Canada
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Flag's proposing to ask the Supreme Court of Canada to hear its appeal
against the sanctions issued by the Exchange. Flag will ask the Supreme Court
to rule on whether the Exchange has the legal right to demand the resignation
of Directors. Flag recognizes the right of the Exchange in prohibiting an
individual from being a Director of a listed company, but questions their
right to demand that the individuals resign from a company, believing that
only shareholders or perhaps the courts have that right.
Market For Trading Flag Shares
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Flag is taking whatever steps are necessary, to have its shares trading
in a recognized market. |
