CRC Royalty Corporation

February 26, 2015 15:31 ET

CRC Royalty Corporation Announces Commencement of Lawsuit Against Caledonian and Others

VANCOUVER, BRITISH COLUMBIA--(Marketwired - Feb. 26, 2015) - CRC Royalty Corporation ("CRC") provides the following update on matters pertaining to Caledonian Royalty Corp. ("Caledonian"):

  1. On January 21, 2015, Caledonian held a special meeting of its Royalty Unitholders at which a special resolution was passed authorizing the redemption of all outstanding Royalty Units and the issuance of one common share of Caledonian in exchange for each Royalty Unit.

    As the holder of 13.84% of the outstanding Royalty Units, CRC voted against the redemption because CRC management considered the proposed redemption to be contrary to the best interests of CRC and, therefore, the shareholders of CRC. It is CRC's position that the Information Circular provided for the meeting failed to provide full, true and plain disclosure of all material facts relating to Caledonian and the proposed redemption, that votes were improperly solicited and that the purported redemption was therefore a nullity. These issues will be raised in the legal proceedings described below, including in relation to the relief that is sought from the Court.

    If the purported redemption was effective, CRC no longer holds any Caledonian Royalty Units and Caledonian no longer has any obligation to pay royalties to CRC, which means that CRC no longer has the source of royalty income it has used to pay monthly dividends to CRC Shareholders since 2011. Instead, CRC's sole entitlement will be to receive 2,107,000 Caledonian Shares, representing 13.84% of Caledonian's outstanding shares, upon surrender of the certificate representing its Caledonian Royalty Units. Caledonian indicated in the Information Circular prepared for the special meeting of its Royalty Unitholders that it may pay dividends on the shares issued in exchange for Royalty Units, but that the payment of dividends "is not guaranteed" and "could be reduced or suspended entirely".

  2. By a Notice of Claim filed in the Supreme Court of British Columbia, CRC and others (the "Plaintiffs") have commenced legal proceedings (the "Proceedings") against Caledonian, James Kinnear, Charles Selby, Stuart Crichton, Caledonian Investment Management Limited and Kinnear Financial Corporation (the "Defendants") claiming for damages suffered by reason of, among other things, breach of contract, breach of warranty, negligence, breach of fiduciary obligations and unjust enrichment resulting from acts and omissions of the Defendants, including acts and omissions relating to the 2011 Restructuring Agreement pursuant to which CRC received Caledonian Royalty Units in exchange for the royalty producing assets of three limited partnerships (the "WCSB LPs") and those persons who were then Limited Partners of the WCSB LPs received CRC shares in exchange for their Limited Partnership Units. A copy of the Notice of Claim is available for review under the Company's profile on SEDAR at www.sedar.com.

    A significant portion of the damages sought in the Proceedings have been incurred by the CRC Shareholders as a result of Caledonian's continuing breach of its contractual covenant to issue securities of Caledonian which are listed on a recognized stock exchange in Canada to the CRC Shareholders in exchange for their CRC Shares and thereby afford the CRC Shareholders the ability to sell such securities to liquidate their investment in CRC. Simply put, Caledonian contracted to cause a "liquidity event" for the CRC Shareholders and has failed to do so.

  3. It is CRC's intention that the CRC Shareholders benefit directly from damages awarded in the Proceedings. Accordingly, the Proceedings include a claim made on behalf of the CRC Shareholders by the companies which were formerly the General Partners (the "Plaintiff GPs") of the WCSB LPs and by certain of the former limited partners. To facilitate the advancement of those claims, CRC has been advised that it would be desirable to propose an arrangement (the "Arrangement") to the CRC Shareholders which provides, in essence, for:

    (i) the assignment of all claims against the Defendants, including those claims made in the Proceedings, to the GPs;
    (ii) the conduct of the Proceedings by the GPs;
    (iii) payment of legal and other expenses relating to the Proceedings by CRC, without recourse to any CRC Shareholders; and
    (iv) distribution of the net proceeds of all damage awards to the CRC Shareholders.

In contemplation of approval of such an Arrangement, CRC has entered into an agreement with the GPs which provides for those things and intends to call a special meeting of CRC Shareholders to seek approval of the Arrangement. The reasons for the proposed Arrangements and the specific terms thereof will be set out in the Information Circular prepared for that meeting.

It is unfortunate that resorting to litigation is necessary, but the Defendants have ignored all attempts by CRC and the GPs to reach a business solution to the regrettable situation which the Defendants have created. Instead, the Defendants have maintained a course of action which prefers their own interests over those of their stakeholders.

We thank you for your continued support and patience in this matter, and look forward to providing further updates and information to you as it becomes available.

CRC ROYALTY CORPORATION

"Hugh Cartwright"

Director

Contact Information

  • Hugh Cartwright
    Director
    604-630-7020