Sattva Capital Corp.

Sattva Capital Corp.

May 11, 2011 08:30 ET

Sattva Capital Reveals the Truths Behind the Fee Dispute with Creston Moly

RICHMOND, BRITISH COLUMBIA--(Marketwire - May 11, 2011) - Sattva Capital Corp. ("Sattva") is pleased to announce that the Supreme Court of British Columbia has upheld the arbitrator's damage award against Creston Moly Corp. ("Creston") for breach of contract.

Creston, in the midst of completing a merger with Mercator Minerals Ltd. ("Mercator"), however, has announced it will appeal the latest judgment from the Supreme Court of BC.

The latest legal ruling, the fourth one in four years, concluded that "the arbitrator's interpretation of the fee agreement was correct." The court then dismissed Creston's appeal with costs.

Justice Armstrong of the Supreme Court of BC reviewed the evidence carefully. Anyone who has read his judgement would have been struck by the depth and balance of his reasoning and the vast number of cases reviewed and cited. He spent more than five months reviewing a wide range of issues raised by the Court of Appeal of BC and by Creston counsels during the trial, the competing evidence, previous legal rulings and numerous other related cases before arriving at the verdict. It was very telling that it only took Creston a few hours before deciding to appeal the judgement.

"This latest ruling from the Supreme Court of BC is a vindication of our courage," said Hai Van Lê, Sattva's Managing Director. "It takes a lot of courage to walk away from a large sum of money and pursue a path of uncertain outcome in the name of self-respect. We were literally entering deep and dangerous uncharted waters where we had never ventured before. It takes a lot of courage to take on a much bigger player, one with tentacles reaching into the many levels within the Canadian mining industry."

From the very beginning, we were literally the proverbial David in an uphill struggle against a modern-day Goliath. Four years and three legal defeats later, it's clear the Goliath has been repeatedly humbled. A worse fate is awaiting it.

"We broker deals for a living. We know the rules. We play by the rules. And when a client unilaterally and intentionally breaches the terms of the agreement, we have to act to uphold the integrity of the agreement, our self-respect - and our reputation," added Mr. Lê. "We refuse to lie down and let them step on us."

Truths Do Matter. Facts Are Not Moving Targets

The time has come to set the record straight. Creston breached the terms of the contract which in turn gave rise to damages. From the very beginning to now, the publicly available information concerning this dispute as disclosed by Creston has been incomplete and misleading.

That was then. A new chapter is about to be written with fresh revelations. "Entirely missing from the public disclosure are six key words: Market Price, Breach of Contract and Damages," said Mr. Lê. "As a result, many of our clients and friends were confused by what they read and heard. The $4.1 million assessed by the arbitrator was the amount of the damage suffered by Sattva Capital as a consequence of the breach of contract.

Truths do matter. Facts are not moving targets. For these reasons, Sattva Capital will make all legal rulings to date publicly available online. We hope to shed light on the chain of events in the months prior to and after the closing of Mexico's biggest molybdenum deposit. The truth is plainly evident in these documents. This disclosure is an important step toward separating fact from fiction, rumours from reality.

"We have nothing to hide," said Mr. Lê. "We are committed to truthful and plain disclosure of all relevant facts and circumstances involved in this dispute."

Get the full story at www.sattvacapital.net/Let_There_Be_Light.htm.

The Background

In a decision released on December 23, 2008, Mr. Leon Getz, Q.C., the arbitrator, based on clear and convincing evidence, assessed damages of $4.1 million plus costs against Creston for breach of contract. It was Creston who chose Mr. Getz as the arbitrator.

Mr. Getz, an experienced securities lawyer with a long record of distinguished service, found Creston had not fulfilled its obligations to obtain TSX Venture approval for the fee payable as specified in the agreement. Under the agreement, the fee payable was to be paid in Creston's common shares at Market Price, defined as the closing price of its stock before the news release announcing the acquisition. He found that Creston management misrepresented the terms of the agreement to the Exchange prior to the closing of the acquisition.

Everything is contextual. The much trumpeted TSX Venture Exchange decision to require Creston to pay the fee in shares at 70 cents or cash was also misleading and entirely without context. This decision came almost six months after the closing of the acquisition and during this period, as determined by the arbitrator, Creston continued to feed the Exchange misleading information about Sattva's intentions.

Not surprisingly, on three separate occasions, both the arbitrator and the Supreme Court of BC did not give much weight to this decision by the Exchange.

Canadian securities rules place a certain standard of behaviour and require a certain level of integrity from officers and directors of a public company. Creston's conduct in this affair is succinctly summarized by the arbitrator: "Georgia [predecessor to Creston Moly] consistently misrepresented or at the very least failed to disclose fully the nature of the obligation it had undertaken to Sattva by representing the finder's fee was payable in cash. It misrepresented this in its public disclosure in its press releases, in its filing statements, in its due diligence responses to the underwriters and in its communication with the Exchange."

Despite the latest Supreme Court of BC's ruling, Creston's decision to launch yet another appeal in BC's already clogged court system where cases can often get tied up for years suggests management doesn't understand the gravity of its misconduct, the disclosure and the corporate governance standards required of a public company.

"Creston's intransigence in owning up to its responsibility isn't funny anymore. It's bordering on contempt for and abuse of the tax-payer funded legal system of the Province of British Columbia," said Mr. Lê.

The Arbitration Process

Arbitration is supposed to be a speedy, cost-effective process of resolving disputes. It is almost as rigorous and intensive as the court. In three days in September 2008, the arbitrator heard testimony from expert witnesses and the parties involved. The damage award arrived at by the arbitrator was the result of months of careful, comprehensive assessment of all the available evidence prior to and after the hearing.

The arbitration award is a legal decision and that decision is supposed to be final and binding for the parties involved. The losing side is supposed to accept and respect the award. Continuing to appeal the arbitration award year-after-year makes a mockery of the arbitration principles.

"These kinds of decisions are made on the basis of facts, not emotions. There's nothing arbitrary about it," Mr. Lê said. "It took about one year from the start of arbitration to the time an award was made. During that period, hundreds and hundreds of pages of confidential corporate minutes, emails, transcripts of examination for discovery sessions, statements of facts and other material were examined by both sides and the arbitrator."

The Stakes

Interest continues to accrue on the unpaid damages and millions of dollars are at stake. Money, however, isn't everything. The reputation of everyone involved is also at risk. Our reputation is very important to us. We will continue to vigorously defend it against half-truths and lies propagated by anyone. As the appeal process drags on and attracts more public attention, all parties' conduct will be under increasing scrutiny.

"We encourage Creston to bear responsibility for the breach of contract and live up to its contractual and legal obligations," said Mr. Lê. "There's far more important business to take care of than continuing to challenge unfavourable court decisions year-after-year."

Having persevered in the last four years and having overcome numerous obstacles, we are prepared for all eventualities, including the possibility that Mercator Minerals, soon-to-be successor to Creston, will appeal all the way to the Supreme Court of Canada. It's been a long, arduous multi-year legal battle. Soon we will be facing off against an even bigger player, an international copper and molybdenum producer with a market value of more than half a billion dollars.

Fortunately, we have professional help from one of Canada's top law firms. We have the mental fortitude, infinite patience and the financial strength to take us through to a successful conclusion, no matter how long it takes. We have no doubt we will prevail.

Chronology of Events

January 12, 2007 – Sattva Capital and Georgia Ventures, Creston's predecessor, signed a fee agreement concerning the availability of Mexico's biggest molybdenum deposit. Georgia's market cap at the time was $6 million.

May 15, 2007 – Creston Moly closed the acquisition of Mexico's biggest molybdenum deposit.

December 23, 2008 – Arbitrator Leon Getz awarded damages of $4.1 million against Creston for breach of contract.

August 7, 2009 – Supreme Court of British Columbia denied Creston Leave to Appeal.

May 14, 2010 – The Court of Appeal of British Columbia granted Creston Leave to Appeal.

May 6, 2011 – The Supreme Court of British Columbia dismissed Creston's appeal with costs. The verdict came a few weeks after Creston agreed to be bought by Mercator in a transaction valued at $195 million.

About Sattva Capital Corp.:

Sattva Capital is a boutique investment bank specializing in cross-border M&A and corporate finance in the mining industry. We pride ourselves on the quality of our advice, ideas and a vast network of contacts around the world to bring clients a steady flow of deals. For more information, visit www.sattvacapital.net.

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