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Stockholder group grills Calmare over 'egregious' conduct

A group of stockholders has said it is "outraged by the egregious conduct" of Calmare Therapeutics Inc.'s board and management.

The group, which calls itself the Calmare Committee to Restore Stockholder Value, holds an approximately 20% stake in the company and had previously requested shareholders' consent for the ouster of the company's board and to replace them with its own nominees.

Board members recommended by the group included Stan Yarbro, Robert Conway, Steve Roehrich, Robert Davis and Ben Large. The group also sought the removal of the CEO Conrad Mir and CFO Thomas Richtarich, and planned for Yarbro to be appointed as acting CEO after the new board had been installed. They planned to identify an individual to become CEO once the company had stabilized its finances.

Among other reasons, the group noted the decline in the company's share price, the management's compensation and the management repeatedly misleading shareholders and investors with respect to corporate opportunities as reasons for the consent solicitation.

In a Jan. 16 filing, the company denied the stockholder group's accusations, calling them false and misleading, and advised shareholders to not sign or return any form of consent.

On Feb. 9, the group advised the company that shareholders holding a majority of the outstanding stock of record of Calmare had agreed to the actions being proposed by the group and each of the officers and directors of Calmare had been removed as a director or officer of the company and the five nominees of the committee had been elected as directors.

The Calmare Committee to Restore Stockholder Value presented consents exceeding 50% of the issued and outstanding stock of Calmare as of Feb. 13, according to an SEC filing. The company agreed on setting Feb. 13 as the record date for the consent solicitation in a later filing, resolving an earlier dispute regarding the record date.

In a Feb. 19 letter, the stockholder group expressed dissatisfaction with the conduct of Mir, Chairman Peter Brennan and the rest of Calmare's board and management in connection with their actions at the company.

"The old board forgets that Calmare is a public company owned by the shareholders, and not their own private piggy bank as they continue to rape the stockholders and use the company for their own personal gain," the group stated in the letter.

On Feb. 16, the company posted an 8-K filing where it disclosed the issuance of 8,621,332 common shares, stating that on Feb. 12 Brennan exercised common stock purchase warrants for an aggregate of 4,594,117 common shares and an aggregate exercise price of $841,765.04.

Brennan paid for the exercise price of the warrants by forgiving $841,765.04 of the principal amount owed to him by the company under certain promissory notes.

In addition, Mir exercised 1,000,000 options to buy common shares at an exercise price of 8 cents per share, for an aggregate exercise price of $80,000. The company also issued a certain number of shares to Richtarich, along with certain other individuals and consultants

The stockholder group believes these issuances were made as the board and management were "clearly faced with their ouster by a significant majority of the outstanding stock of Calmare" and seemingly issued these shares on the same day the stockholder group delivered shareholders' consents to their agent for service of process ousting them from their positions.

Also, the group believes Brennan allegedly converted outstanding bad debt to the company at 60 cents per share, while Mir exercised options for "unpaid salary." The committee said that more than 2 million shares were issued to consultants, however, no information was provided about them, adding that it does not deem the issuances to be legitimate for valid corporate purposes.

The stockholder group stated the issuances were "almost certainly were not properly authorized by actual board members with authority, or were anything but what they look like — a clear attempt to entrench existing management as an absolute violation of fiduciary duties to you, the Calmare shareholders."

In addition, the group stated its SEC counsel and Delaware counsel believe that a Delaware court will find these actions "egregious breaches of fiduciary duty" which result in unwinding any action that may have been taken and will also result in personal liability for the directors as this is intentional conduct in direct violation of shareholder desires, noting that the liability would not be covered by any insurance policy.

The group noted that it is filing litigation in Delaware to confirm the shareholders' vote to remove these "corporate criminals" and the litigation will also bring action against Mir and Brennan, as well as directors Rus Howard and Carl O'Connell, individually for breach of fiduciary duty to shareholders, fraud, self-dealing, conflict of interest and violations of various U.S. and state securities laws.

In addition, the stockholder group has filed a complaint with the SEC, stating that the old Calmare board violated several securities laws, including the failure to complete any financial statement filings for the past year while expending significant shareholder funds to fight the shareholders in ousting them.

The group said it may notify the Internal Revenue Service of the issuance of the shares valued at 60 cents per share so that the old board can understand that they have personal income tax consequences for these actions.