Second City Capital Partners I, Limited Partnership

April 05, 2011 07:00 ET

Second City Announces Nominees to Replace Four Directors of Bennett Environmental

Also Reports Concerns of Self-Serving Behaviour by Bennett Environmental to TSX

VANCOUVER, BRITISH COLUMBIA--(Marketwire - April 5, 2011) - Bennett Environmental Inc.'s largest shareholder, Second City Capital Partners I, Limited Partnership ("Second City"), today confirmed its nominees to replace four of the five directors of Bennett Environmental.

Second City, which owns approximately 22% of Bennett Environmental's shares, also reported concerns of self-serving behaviour by Bennett Environmental's current board to the Toronto Stock Exchange.

Names of Second City's director nominees

Second City's replacement director nominees are Mitchell Gropper, Ian Kidson, Livia Mahler and John Reynolds, each of whom is well known in the business community. Their backgrounds are described in a filing on SEDAR. The Second City nominees would replace the following serving directors of the company, in whom Second City has lost confidence: Michael F. Blair, J. Mark MacDonald, Ralph Neville and Jack Shaw.

Second City believes that Bennett Environmental's special committee of directors has improperly rejected Second City's March 15, 2011 requisition to call a meeting of shareholders, and reserves all of its rights in that regard. Second City believes the special committee, which consists of Mr. Blair, Mr. MacDonald and Mr. Neville, rejected the requisition in order to delay a shareholder vote on their performance.

As previously disclosed, Second City's March 15, 2011 requisition had requested a shareholders meeting to be held by May 31, 2011 to replace directors of Bennett Environmental in whom Second City has lost confidence. Bennett Environmental instead announced yesterday that its annual meeting will be held on June 29, 2011, which is almost the latest date that it could be legally held. Second City believes the delay is unnecessary and may be harmful to the interests of shareholders.

Bennett Environmental's special committee claimed in its disclosure yesterday that the reason for rejecting the meeting requisition was that Second City failed to name its replacement nominees. Second City believes that this claim has no validity, because it is common practice for a dissident shareholder to request a meeting and to provide at a later date the names of its nominees.

In advance of the meeting of shareholders, Second City intends to file a proxy circular containing biographies of its director nominees and reasons in support of Second City's position.

Concerns of self-serving, potentially illegal and oppressive behaviour

Second City's concerns of self-serving, potentially illegal and oppressive behaviour by members of the current board of Bennett Environmental involve a disclosure on March 28, 2011, for which the pertinent details were buried on pages 11 and 12 of the Management Discussion and Analysis. Those pages describe a new stock option backstopping scheme between Bennett Environmental and an unnamed securities dealer. Second City has submitted a letter to the Toronto Stock Exchange, a copy of which has been filed on SEDAR, to express its concerns.

Under the scheme, Bennett Environmental option holders, including members of the board of directors, can exercise vested options and sell the underlying shares to the securities dealer, rather than directly into the market. The scheme seems to be intended to provide the option holders with a higher price than they might receive by selling their shares directly into the market. Bennett Environmental would then be liable for any financial loss (or gain) that might result when the securities dealer resells the shares into the market.

Second City is concerned that that the scheme is detrimental to shareholders because it puts Bennett Environmental on the hook for losses that may be suffered after option holders exercise their options and sell their shares to the securities dealer. This benefit to option holders, which could be very expensive to Bennett Environmental, is not available to other shareholders. Second City has been informed by its sole nominee on the board, Jamie Farrar, that he has no intention of making use of the scheme if and when he exercises his 15,000 options.

As described in the MD&A, the scheme requires new accounting for stock-based compensation and will result in an increase to accounts payable and accrued liabilities of approximately $3 million, a charge to accumulated deficit of $2.2 million and a reduction of contributed surplus by approximately $0.8 million.

In light of the forthcoming shareholders' meeting, this scheme also creates concern with respect to voting control of the subject shares pending their sale by brokers into the open market. Second City believes that this scheme is both illegal and oppressive to shareholders.  

This news release does not constitute a solicitation of proxies, and is being issued in accordance with the "early warning" requirements under applicable Canadian securities laws to update the news release dated March 16, 2011. Second City and Gibralt Capital Corporation may and reserve the right to acquire or dispose of securities of Bennett Environmental as circumstances warrant.

About Second City

Second City is a private equity fund managed by Vancouver-based Second City Capital Partners, a multi-fund private equity group. Gibralt Capital Corporation is a financial and strategic partner of Second City Capital Partners.

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