Boardroom Friction Heats Up For Polar Star

The war being waged in the boardroom of Polar Star Mining (PSR-V, POSRF-O) just got uglier.

The company has accused former president and CEO Douglas Willock of illegally soliciting proxy votes before an upcoming shareholders’ meeting, during which he hopes to replace the current board.

Polar Star has asked the Ontario Superior Court of Justice to have Willock, a director who holds 10% of Polar Star shares, removed from the board.

The junior company, which has gold, copper and uranium projects in Chile, has also asked the court to bar Willock from voting at the annual meeting on April 17, to prevent him from standing for election to the board in the future and to direct him to disclose all communications he has had with Polar Star shareholders.

Willock claims to have written support of 53.6% of shareholders. His lawyer, Walied Soliman of Ogilvy Renault, says he has not breached any rules of the Canada Business Corporations Act.

“We’ve been extremely careful to ensure that we have only spoken with the number of people that is under the minimum required before a circular is put out,” Soliman says.

Under the act, a person may solicit proxies from up to 15 shareholders without sending out a dissident proxy circular to shareholders. Willock will be sending out a circular that details his vision and names his slate of potential board members in the next couple of weeks.

Soliman says Polar Star knows who is supporting Willock because it’s been given written letters from the shareholders who support him.

“There is no question that Doug (Willock) does have the support of the majority of the shares of the company,” Soliman says.

Willock first called for a meeting to replace the board in January and was terminated as president and CEO soon after by the board. The vote was at first a tie, but was settled by executive chairman Stephen G. Roman, who voted twice (as is allowed in such circumstances). Roman also holds about 10% of Polar Star shares.

Roman says Willock was fired because his requisition for a shareholders’ meeting was a conflict of interest for someone in the role of president.

“We told him if you want to do that, that’s fine, we’ll call a meeting, we’ll go by the rules but you have to step aside,” Roman says.

But Willock has received different advice from Soliman, who says the statutory rights of any shareholder are very clear.

“Any shareholder is allowed to requisition a meeting, including a director or officer of a company,” Soliman says. “It is our view that that does not put you in conflict of interest with the company.”

Roman first learned that Willock wanted to overthrow the board last December, when GMP Securities and Deacon Securities proposed a financing with the condition that the current board be replaced.

“This whole thing came as a surprise; we were always supporting Mr. Willock, we gave him all of the budgets that he asked for,” Roman says. “So when he said: ‘Listen fellows, I want all of you guys gone,’ it came as a big surprise, a shock.”

Roman says HudBay Minerals (HBM-T, HBMFF-O), which holds just under 10% of Polar Star shares, was involved in the December financing, too.

“We knew there were some discussions in the background,” Roman says. “There was a bit of a group there working to move their agenda forward. . . It all seemed a bit too friendly.”

Annemarie Brissenden, Hud- Bay’s manager of investor relations, would not confirm or refute Hud- Bay’s role. “We have no comment,” she said. Soliman also had no comment, but said all the necessary information would be in the circular.

Polar Star eventually closed $7 million of an $8-million private placement on Feb. 17 with D&D Securities and GMP securities at 35¢ per share.

GMP wasn’t originally included in the financing, even though Polar Star had granted it a 50% participation right last July. The financing, with D&D, was first announced on Feb. 4 and was supposed to close two days later. Willock brought the matter to the courts but the two sides worked out a deal between meetings with a judge. The closing date was extended to Feb. 16 to include GMP.

The details of the clash have not yet been disclosed. Wes Hall, CEO of Kingsdale Shareholder Services, says many Polar Star shareholders felt the company wasn’t in a position to get adequate financing with the current board. “They wanted to have people who were bankable, people who the Street knew and had a lot of confidence in,” Hall says.

Roman, a financier involved with uranium producer Denison Mines(DML-T, DNN-X) (founded by his father, Stephen B. Roman) has been involved with a series of mineral and oil and gas juniors.

Roman says he first met Willock around 1993, when Willock was working as an investment banker for the mining group at Deutsche Bank Securities. Roman says he eventually hired Willock to work for Exall Energy (EE-T) in a financial capacity, stressing in a phone interview: “He’s not a mining engineer, he’s not a geologist and he’s never run an exploration or mining company.

“He asked me if he could become the president of Polar Star because he knew I was very busy. . . I thought that would be a good way to relieve some of the pressure I had on me, so I agreed, the board agreed.”

It was Willock who formed Polar Star Mining in 2003 to look for precious metals in Finland, but never ended up acquiring any properties.

In early 2007, Polar Star began looking at projects in Chile. The company completed a reverse takeover of Genetic Diagnostics Technologies in August 2007 and listed on the TSX Venture Exchange under the symbol POS (it now trades under PSR). Roman says he had already formed a board of mining engineers and chartered accountants who had experience in large mining companies and who could provide support to Willock in moving the company forward.

“We thought we had a good team because he had a financial expertise, as he came from the investment banking side and I had the mining expertise and the contacts and the people I brought in,” Roman says. “It seemed that wasn’t enough for Mr. Willock.”

Roman says Willock has exercised bad judgment given the current market conditions. “Companies are struggling to survive,” he says, pointing out that Polar Star shareholders have invested in the company to make money. “I don’t think they really care who’s running the company so much as can they be trusted and are they doing a good job.”

Willock says he is grateful for the support he has received from Polar Star shareholders.

“I do not take the support I have received to date for granted and intend on continuing to impress on my supporters the superiority of the vision I have for Polar Star and the importance of corporate democracy,” Willock said in a statement. “We continue to be vigilant in our review of all actions taken by the board and management and will not hesitate to protect our rights.”