Ex-CEO sparks boardroom battle at Athabasca Potash

Vancouver – Accusations of incompetence are flying back and forth between the current, independent board of Athabasca Potash (API-T) and an alternate board being promoted and led by the company’s founder, former president and CEO, Dawn Zhou, and shareholders have until the company’s September 3rd annual meeting to decide who to believe.

Zhou founded Athabasca Potash in late 2007, listing it on the Toronto Stock Exchange with an initial public offering that raised $43 million. She led the company for its first six months and in that time drilled 17 resource definition holes at the Burr potash project, which is 100 km east of Saskatoon, Sask.

The work proved up a considerable resource: Burr is now home to 424.8 million measured and indicated tonnes grading 22.54% K₂O as well as 186.9 million inferred tonnes grading slightly better. In January Athabasca Potash initiated a prefeasibility study for the project, which should be completed within the next few weeks.

In late June, however, the board of directors removed Zhou from her position as president and CEO. In the release announcing the news, the board said that the company had “reached a stage where the skills required of its chief executive officer, in addition to familiarity with potash and the related chemicals processing industry, include mining project finance and development, and building completion and operations experience.”

Even though Zhou’s “entrepreneurial expertise and experience in geotechnical matters surrounding exploration” had been key to the company in its nascent days, the board said she was now, essentially, in over her head.

The company then established two special committees. One was responsible for running the company until a new leader was found; that committee was also charged with finding a replacement for Zhou. A few weeks later the company formed a second committee, which included Zhou, that was responsible for evaluating any proposals regarding development at Burr from interested partners.

In announcing that committee, Athabasca Potash said it had expanded the scope of transactions it was considering for Burr development from joint ventures and other forms of direct participation to include potential mergers or acquisitions of all or part of the company.

In early August the company found its new leader in Robert Boyd, who was appointed president and CEO. Zhou remained on as a board member.

It seemed from the outside that the leadership transition had been smooth. But in late August Zhou, through her wholly-owned company CSIT Consulting, which is also an Athabasca Potash shareholder, filed proxy materials nominating a new board of directors for election at the company’s annual meeting.

Speaking through CSIT Consulting, Zhou is arguing that the current board of directors is “not adequately exploring the options which may be available to [Athabasca Potash] with respect to development of the Burr project.” She nominated seven new directors, including herself and Kenneth MacNeill. MacNeill was chairman of Athabasca Potash until just after Zhou’s termination, at which point he quit.

Zhou owns or controls, through CSIT, 4.39 million shares of Athabasca Potash, which represented 11.75% of the company’s outstanding shares.

The independent members Athabasca’s current board soon responded to Zhou’s actions with a long letter to shareholders arguing against Zhou’s nominees and for themselves. Their main points: that they are exploring all of the options that might be available in developing Burr and that “the goal of the dissident is to return control of [the company] to Ms. Zhou.”

In their letter the current board members described the reasons Zhou was terminated in the first place, in considerably more detail than before. The list of reason was introduced by the statement: “…the board had to deal with a litany of decision and management issues created by the former chief executive officer.”

The board alleges it had to intervene to stop Zhou’s unauthorized, multimillion-dollar plans to lease new corporate headquarters, redefine the company’s project plans with proper budget constraints, force Zhou to answer questions raised by the board regarding plans at Burr, liaise between Zhou and the advisors hired to find a project partner because she refused to do so, rewrite most material information for release, and renegotiate a number of employment contracts that had been negotiated or changed in ways either not authorized by the board or not in line with good governance practices.

The board also says Zhou “bridled at any constraints on her management autonomy… especially as related to the authority to make, and the manner of accounting for, future expenditure commitments.”

The board also takes issue with Zhou’s claim that five of her seven nominees are independent. Specifically, the board is arguing that two of the nominees that Zhou has designated at independent are not because they have recently acted as consultants for the company and have outstanding options, the exercise of which is tied to their being board members.

In the three days following news of Zhou’s boardroom challenge, Athabasca Potash’s share price lost 18¢ to close at $5.32. The company has a 52-week trading range of 75¢ to $7.06 and has 37 million shares outstanding. Athabasca Potash had almost $23 million in the bank at the end of June.