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Ontario judge to rule by next week on fate of Melnyk's challenge of Biovail vote |
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Written by Eric Shackleton, THE CANADIAN PRESS
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Tuesday, 08 July 2008 |
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TORONTO - A lawyer for Biovail Corp. (TSX:BVF) argued Tuesday that the drug maker's board of directors was within its legal right to change some rules of a shareholder meeting in response to a procedural manoeuvre by dissident shareholder Eugene Melnyk.
Melnyk is seeking a declaration by Justice Herman Siegel of Ontario Superior Court that the June 25 meeting proceeded illegally after he withdrew his dissident proxies before the vote, leaving less than half of the company's stock represented.
Melnyk also wants a new annual meeting and another directoral vote taken, claiming shares revoked by E.M. Holdings and Royal Bank of Canada (TSX:RY) indicated a shift in shareholder sentiment to his position.
But Biovail lawyer Joel Richler argued Tuesday in court that a hasty board decision to reduce the quorum requirement to 25 per cent of the shares represented at the meeting is valid under the Canada Business Corporations Act.
A protocol for counting votes had been agreed to by both sides of the dispute, he said.
"The process was followed and the result was fair," Richler said.
But he said Melnyk, who owns the largest block of Biovail stock with 12 per cent of the total, frustrated "the will of the shareholders" by withdrawing his votes so that there was no longer a quorum.
As a result, the directors - whom Melnyk wants to replace - were entitled to change the rules regarding the number of shareholders who needed to be represented at the meeting, Richler said.
After the withdrawal of the dissident proxies, the management slate was declared elected by 97.6 per cent of the votes cast.
Since Melnyk had access to confidential data, such as preliminary voting results, under the protocol, said Richler, he should not be allowed to use the information to scuttle the meeting.
The protocol had been negotiated by lawyers for the Melnyk and Biovail and signed ahead of time to ensure that the meeting ran smoothly.
After seeing that he was on the losing side of the vote, Melnyk "picked up his marbles and walked away from the game," Richler told the judge, taking advantage of the data he had seen.
Richler also told Siegel the protocol also made it clear that both sides had to vote their shares. In withdrawing his proxies, Melnyk breached the special agreement.
Richler said the Canada Business Corporations Act empowers directors to make that kind of decision, so long as it's put to a vote at the next shareholders' meeting. He said the law also gives a judge great latitude in deciding how to rule on such a dispute.
But Melnyk's lawyer countered that his client only withdrew his 18 million votes on the morning of June 25 after another large block of votes controlled by Royal Bank was withdrawn the previous evening.
The bank's six million votes had been in support of the management's candidates, and had been withdrawn because of a possible overvote.
Melnyk is at odds with the current board of directors, particularly chairman Doug Squires, over the strategic direction of Biovail - a company Melnyk founded and grew into one of Canada's largest drug manufacturers.
Squires had succeeded Melnyk as Biovail chief executive several years ago but moved to the chairman's post in April, several months after Melnyk began a public campaign to reassert his influence over the company's direction.
Biovail's current CEO is Bill Wells, a director of Biovail since 2005 who left grocery giant Loblaw Co. (TSX:L) to become the drug company's chief executive officer.
Wells has advocated shifting Biovail's focus to work on specialized drugs to treat ailments of the central nervous system, a new area for the company that Melnyk argues is too risky.
Melnyk lawyer Peter Howard said there was a bona fide reason for his client to withdraw his votes after the Royal Bank's move, considering so many shares wouldn't be counted.
"If the annual meeting is allowed to stand, about one-third of shareholders will have chosen the new strategic direction put together by Wells and Squires," Howard told the court.
Howard also said Melnyk was well within his rights to nix the original 51 per cent quorum by withdrawing his shares in an effort to force an adjournment of the meeting and give himself more time to solicit proxies.
But he said Wells and Squires breached the protocol by amending the quorum bylaw, and deciding not to publish a notice for shareholders of a new meeting seeking a shareholder vote on the amendment.
Siegel told the court at the conclusion of the hearing, which Melnyk didn't attend, that he expected to make his ruling by next Monday at the latest.
When the judge asked the Biovail legal team what kind of decision they were looking for, after consulting with members of the management team, Richler relied "a new meeting."
Melnyk, owner of the NHL's Ottawa Senators, had proposed a 10-person board slate led by Bruce Brydon, previously CEO from 1995 to 2001, claiming the company has "become absolutely stagnant."
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Last Updated ( Tuesday, 08 July 2008 )
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