Eastmaque and major shareholder at odds

An apparent falling out over the conversion of its preferred shares into common shares has Eastmaque Gold Mines (TSE) at odds with its major shareholder, VenturesTrident. VenturesTrident filed a lawsuit in the Supreme Court of British Columbia in a move to prevent Eastmaque from converting preferred stock held by VenturesTrident into Eastmaque common stock.

The suit alleges that Eastmaque instituted a plan to force the conversion of the preferred shares as part of a scheme to improve its balance sheet at the expense of the preferred shareholder.

The court subsequently issued an order blocking Eastmaque from converting the stock until a hearing can be held. The hearing has been scheduled for Dec. 17.

This summer, Eastmaque negotiated a change in the conversion feature of its preferred shares with VenturesTrident which owns 1,022,500 of the 2,804,900 outstanding shares.

The stated conversion ratio of the shares is 0.833 common per preferred. A temporary conversion ratio of 1.2 common shares per preferred share was agreed to by VenturesTrident in January and Eastmaque obtained shareholder approval for the change in April. At this time Eastmaque stated VenturesTrident intended to convert its stock under the new terms.

Since then, a drop in the price of both the common and the preferred stock have significantly altered the benefit of converting.

At the time the new conversion ratio was set, the common and the preferred stock were both trading at the $3.50 level. The common stock has since sunk to the 65 cents level while the preferred has slipped to the $1.50 level.

The special conversion period is set to run from Nov. 19 to Dec. 18.

When it became apparent that VenturesTrident did not intend to convert its shares, Eastmaque released a statement saying the board of directors authorized management to take the necessary steps to determine if there is an agreement, and if so, if the agreement can be enforced.

Paul Bailly, president of Fulcrum Management which oversees the partnership, said the company has no intention of converting the stock and does not believe there is any binding agreement.

With more than $3 million in accrued dividends owed to preferred shareholders plus a par value of $10.5 million, Eastmaque has much to gain in a conversion.

In a strongly worded press release, Bailly said Eastmaque’s move to force conversion of VenturesTrident’s preferred shares “can only be explained as an extraordinary and unauthorized attempt by Eastmaque’s management to further their own interests as holders of Eastmaque common shares, and threatens not only VenturesTrident, but the integrity of all Eastmaque shares.”

As at Feb. 21, Adolf Lundin, chief executive officer of Eastmaque, held over 1.8 million common shares of the company or about 17.3%.

In addition to its preferred share holding, VenturesTrident owns 1.5 million common shares of Eastmaque.