Statement of Claim: Yolbolsum Canada Inc. v. Golden Opportunities Fund Inc. et al.

Note: This transcription reproduces the opening sections of the pleading (parties, overview, corporate governance, and the key narrative paragraphs containing direct quotations and pivotal events) along with the YBCI Claims section at the end. The four “Defendants’ Schemes” sections contain substantial factual particulars that are not reproduced in full; they remain available in the original document.

Important note on status: This claim was dismissed on the basis that YBCI lacked standing to bring it. The allegations were never tested or adjudicated on their merits. The pleading is reproduced here as a matter of public record.

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Court File Number: Q.B.G. No. 1692 of 2018 Court of Queen’s Bench for Saskatchewan Judicial Centre: Saskatoon

Plaintiff: Yolbolsum Canada Inc.

Defendants: Golden Opportunities Fund Inc., Douglas Banzet, Grant Kook, Concorde Centres Inc., L. David Dube, PIC Investment Group Inc., PIC Flight Services Inc., Craig Bell, Med-Life Discoveries LP, Med-Life Discoveries GP Inc., Peter Blaney, John Hyshka, Barry Markowsky, Amar Bhalla, Stan Stewart, Cindy Ogilvie, Christine Hrudka, Shawn Ritchie, Christine Johnston, and Tamara Harasen

This Statement of Claim is issued at the above-named judicial centre on the 24th day of October, 2018.

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Statement of Claim

1. The Plaintiff, Yolbolsum Canada Inc. (“YBCI”), is a corporation registered to carry on business in the Province of Saskatchewan. YBCI is, or was at all material times, a Shareholder in Phenomenome Discoveries Inc. (“PDI”).

2. The Defendant, Golden Opportunities Fund Inc. (“GOFI”), is a corporation registered to carry on business in the Province of Saskatchewan. GOFI is, or was at all material times, a Shareholder in PDI.

3. The Defendant, Douglas Banzet, is an individual who resides in Saskatoon, Saskatchewan. Douglas Banzet is, or was at all material times: a) Director of PDI; b) Director, Chief Financial Officer and Secretary of GOFI; and c) Director and President of Med-Life Discoveries GP Inc.

4. The Defendant, Grant Kook, is an individual who resides in Saskatoon, Saskatchewan. Grant Kook is, or was at all material times, Director, President and Chief Executive Officer of GOFI.

5. The Defendant, Concorde Centres Inc. (“Concorde”) is a corporation registered to carry on business in the Province of Saskatchewan. Concorde is, or was at all material times, a Shareholder in PDI.

6. The Defendant, L. David Dube, is an individual who resides in Saskatoon, Saskatchewan. L. David Dube is, or was at all material times: a) Director, President and Chief Executive Officer of Concorde; and b) Director and Secretary of Med-Life Discoveries GP Inc.

[Paragraphs 7 through 15 identify the remaining corporate and individual defendants, including PIC Investment Group Inc., PIC Flight Services Inc., Craig Bell (Director and Chief Operating Officer of PIC Investment), Med-Life Discoveries LP, Med-Life Discoveries GP Inc., and the ownership of Med-Life by GOFI (50%), Concorde (25%), and PIC Flight (25%). These paragraphs also set out Concorde and PIC’s investments in the Dynex Group of limited partnerships.]

16. The Defendant, Peter Blaney, is an individual who resides in Kingston, Ontario. Peter Blaney is, or was at all material times: a) Director of PDI; b) One of two Directors of Dynex Capital Inc., the general partner in Dynex; and c) Director of: i. Tancho Advisers Group Inc., the general partner in Tancho 1; ii. Tancho-Phenomenome (GP) Inc., the general partner in Tancho 3; iii. Induran Ventures Inc., the general partner in Induran; and iv. Tancho-Defyrus Inc., the general partner in Tancho-Defyrus.

    All of which are or were at all material times Shareholders in PDI. Unless the context indicates otherwise, Dynex, Dynex Capital Inc., Tancho Advisers Group Inc., Tancho 1, Tancho-Phenomenome (GP) Inc., Tancho 3, Induran Ventures Inc., Induran, Tancho-Defyrus Inc. and Tancho-Defyrus will be referred to collectively as the “Dynex Group”.

17. The Defendant, John Hyshka, is an individual who resides in Saskatoon, Saskatchewan. John Hyshka is, or was at all material times: a) Director of PDI and PDI’s Chief Financial Officer, Chief Operating Officer and Corporate Secretary; b) Shareholder in PDI; c) Chairman of Tancho-Defryus; d) Shareholder in Tancho-Defryus; and e) Receiver-Manager of Tancho-Defryus.

18. The Defendant, Barry Markowsky, is an individual who resides in Burlington, Ontario. At all material times he was: a) Director of PDI; and b) Director of Tancho-Defryus.

[Paragraphs 19 through 26 identify Amar Bhalla, Stan Stewart, Cindy Ogilvie, Christine Hrudka, Shawn Ritchie, Christine Johnston (PDI’s senior in-house counsel), Tamara Harasen (PDI’s in-house counsel), and CIC Asset Management Inc.]

History of PDI, Corporate Governance and Ownership

27. Dr. Dayan Goodenowe (“Dr. Goodenowe”) is an individual who resides in or near Moose Jaw, Saskatchewan. Dr. Goodenowe is, or was at all material times: a) Director, President and Shareholder in YBCI; and b) Director, President and Chief Executive Officer of PDI.

28. Dr. Goodenowe invented a novel method of complex sample analysis in 1999 (the “Invention”). The Invention, when combined with Dr. Goodenowe’s knowledge of biochemical mechanisms of diseases, led to new discoveries related to disease processes that further led PDI to develop: a) Novel diagnostic methods for many diseases including colon cancer, pancreatic cancer, ovarian cancer, Alzheimer’s Disease, Multiple Sclerosis and autism; and b) Novel therapeutic treatments for diseases such as Alzheimer’s Disease, Parkinson’s Disease, Multiple Sclerosis and Rhizomelic Chondrodyspalsia Punctata, a rare disease in children.

29. The Invention and its use applications are owned by YBCI and protected by patents (the “Patents”).

30. PDI was incorporated by Dr. Goodenowe in 2000 and engaged in the business of biotechnology. It was a wholly owned subsidiary of YBCI. YBCI licensed the Invention and Patents to PDI enabling PDI to practice the Invention and develop and commercialize the technology.

31. Pursuant to the terms of a Management Services Agreement between YBCI and PDI dated February 1, 2002 (the “MSA”), Dr. Goodenowe provided services to PDI as President and CEO.

32. PDI developed a portfolio of intellectual property derived from its use of the Invention. Twenty patent families were developed, 16 of which Dr. Goodenowe was the sole or co-inventor. The other four were developed under his direct supervision.

[Paragraphs 33 through 41 describe PDI’s equity investment history between 2002 and 2012, the shareholdings as of the material time (YBCI 47.53%, GOFI 9.62%, Dynex 18.39%), the terms of the July 9, 2012 Unanimous Shareholder Agreement (USA), the Super Majority Clause requiring three-quarters director approval for material transactions, and the March 29, 2010 Debenture from PDI to GOFI in the amount of $833,000.]

Defendants’ Scheme

42. On or about November of 2014, Douglas Banzet, Peter Blaney, Barry Markowsky, John Hyshka, GOFI, Concorde, and PIC Investment determined on a course of action to prefer their interests in PDI to the prejudice of YBCI’s interests in PDI. From a sale of assets, other liquidation event or any other means of proceeds derived from PDI’s business (a “Liquidation Event”), Douglas Banzet, Peter Blaney, Barry Markowsky, John Hyshka, GOFI, Concorde and PIC Investment sought to direct proceeds to GOFI, Concorde and PIC Investment in preference to and to the exclusion of YBCI, when GOFI, Concorde and PIC Investment’s Shares or debt instruments did not have such rights.

43. In this course of action, Douglas Banzet, Peter Blaney, Barry Markowsky, John Hyshka, GOFI, Concorde and PIC Investment were actively and knowingly assisted by L. David Dube, Grant Kook, PIC Flight, Craig Bell, Amar Bhalla, Stan Stewart, Cindy Ogilvie, Christine Hrudka, Shawn Ritchie, Christine Johnston and Tamara Harasen.

[Paragraphs 44 through 86 set out “Defendants’ Scheme #1” (re-classification of PDI’s common shares), “Defendants’ Scheme #2” (the Med-Life Agreement of June 30, 2015 under which Med-Life acquired revenue interests in PDI’s drug assets including PPI-1040 for RCDP, in the amount of $10,000,000), and “Defendants’ Scheme #3” (the Med-Life Agreement Amendment demanded after research revealed PPI-1011/PPI-1017/PPI-1025 as the leading drug mixture). The following paragraphs contain direct quotations from the pleading:]

45. Peter Blaney led, and the other three Directors representing the Dynex Group (Barry Markowsky, Amar Bhalla and Stan Stewart) agreed, to oppose approval of any further equity investment in PDI. Using the Super Majority Clause, they were successful in defeating any such initiatives presented to the PDI Board of Directors.

46. In an email dated August 28, 2014, from Peter Blaney to Craig Bell, Peter Blaney explicitly informed Craig Bell/PIC that his Directors were colluding with one another to block the upcoming PDI financing proposal. Peter Blaney stated, “I work with 3 other directors at the PDI Board. We will vote no on their term sheet. With those votes their term sheet will not pass.”

47. On November 27, 2014, Douglas Banzet presented this scheme to Peter Blaney in an email and further stated, “In confidence while we are all playing hardball especially with Dayan to exclude any cash return to him in the event of a sale in my opinion he is better off letting the company go bankrupt. His unsecured note gets paid, then the preferred and finally any remaining funds for shareholders he would get 50%. YoI would get back its technology platform which is what drives the discovery and test methodology, etc. We are playing a dangerous game where if we push too hard we lose big and he still has a rose just not a dozen.”

48. On October 8, 2015, at the 61st B’nai Brith Silver Plate dinner, Grant Kook stated that he had a plan to take over PDI and that part of that plan was to remove Dr. Goodenowe as CEO of PDI.

49. John Hyshka, Douglas Banzet, Peter Blaney, Barry Markowsky, GOFI, Grant Kook, Concorde, L. David Dube, PIC, Craig Bell, Shawn Ritchie, Christine Johnston, Tamara Harasen and Med-Life sought Dr. Goodenowe’s termination from his position as PDI’s CEO and President. As part of their plan, on termination, John Hyshka would replace Dr. Goodenowe as CEO and Shawn Ritchie would be promoted to replace Dr. Goodenowe as lead scientist at PDI (at that time Shawn Ritchie was PDI’s director of discovery research). This would allow for the approval of the Med-Life Agreement Amendment and/or liquidation of PDI.

50. Without PDI Board knowledge or approval, Douglas Banzet and John Hyshka asked, and Christine Johnston and Tamara Harasen agreed, for Christine Johnston and Tamara Harasen to determine on what grounds Dr. Goodenowe may be terminated from PDI without notice and what impact termination would have on PDI’s intellectual property. Christine Johnston and Tamara Harasen’s research indicated Dr. Goodenowe could only be terminated if he died, became incapacitated or committed an act of fraud.

51. Unknown to Dr. Goodenowe, but with the knowledge and co-operation of John Hyshka, Douglas Banzet, Peter Blaney, Barry Markowsky, GOFI, Grant Kook, Concorde, L. David Dube, PIC, Craig Bell, Med-Life, Christine Johnston and Tamara Harasen:

a) John Hyshka created a fake e-mail account to impersonate Dr. Goodenowe and then used this fake email account to create a set of fake emails between John Hyshka’s official PDI email account and the fake Dr. Goodenowe email account on November 5 and 6, 2015, that made it appear that Dr. Goodenowe was asking John Hyshka to fraudulently transfer PDI funds to Dr. Goodenowe for his personal use;

b) Peter Blaney and Barry Markowsky requested an emergency PDI Board Meeting for November 10, 2015, specifically for the purpose of an in-camera session to deal with the manufactured fraud described in 91(a) and to appoint Grant Kook as one of the Director nominees for Dynex Group;

[Sub-paragraphs (c) through (f) continue the description of the alleged sequence around the emergency meeting.]

91. Dr. Goodenowe discovered John Hyshka’s actions and terminated John Hyshka’s employment with PDI for cause on November 9, 2015, before the emergency Board Meeting. The emergency Board Meeting was then cancelled by Douglas Banzet and Peter Blaney, despite their previous assertions of its importance.

Defendants’ Scheme #4: PDI and YBCI Receivership

[Paragraphs 92 through 118 set out the allegations regarding the receivership sequence, including: Med-Life’s November 10, 2015 demand on PDI; GOFI’s November 10, 2015 10-day demand for payment under the Debenture; the November 19, 2015 Board Meeting at which Peter Blaney, Barry Markowsky and Cindy Ogilvie failed to attend in order to prevent quorum; the December 3, 2015 Memorandum of Understanding; the appointment of FTI Consulting as Interim Receiver; YBCI’s March 18, 2016 payment to GOFI of $1,570,383.65 including $553,663.67 in interest representing a 40% annual rate; Peter Blaney’s February 19, 2016 motion for full receivership; the February 26, 2016 appointment of FTI as Receiver; the Receiver’s sale process generating no bidders except Med-Life, which purchased PDI’s assets for $4,750,000; and the subsequent hiring of Shawn Ritchie as Med-Life’s CEO and Chief Scientific Officer.]

110. Notwithstanding interest generated from third parties, Peter Blaney put forward a motion at a February 19, 2016, PDI Board Meeting that PDI enter a full receivership. The motion passed. On February 26, 2016, FTI was appointed by the Court Receiver of the assets of PDI.

111. The Receiver’s sale process did not generate any bidders except Med-Life, who purchased PDI’s assets for $4,750,000.00. This purchase price equals the debt owed to GOFI by PDI under the Debenture and the amount of financing GOFI provided in the Interim Receivership and Receivership.

112. Despite the fact that Shawn Ritchie had never worked on any of PDI’s therapeutic programs and that he had no appreciable experience in drug development or therapeutics, subsequent to purchasing PDI’s assets, Med-Life hired Shawn Ritchie as its CEO and Chief Scientific Officer, as was part of the plan described in Christine Johnston’s notebook entries from October and November 2015.

YBCI Claims

119. YBCI states: a) it had a reasonable expectation that, in the event PDI, or any of its assets were sold, Shareholders in PDI, including YBCI, would be treated fairly and equally in accordance with their Shareholder rights and would receive a benefit commensurate with those rights; b) Douglas Banzet, John Hyshka, Peter Blaney, Barry Markowski, Amar Bhalla, Stan Stewart, Cindy Ogilvie, Christine Hrudka, GOFI, Concorde and PIC Investment breached YBCI’s reasonable expectations; and c) The actions of Douglas Banzet, John Hyshka, Peter Blaney, Barry Markowski, Amar Bhalla, Stan Stewart, Cindy Ogilvie, Christine Hrudka, GOFI, Concorde and PIC Investment were oppressive, unfairly prejudicial to or unfairly disregarded YBCI’s interests in PDI.

120. YBCI asks the Court to rectify the oppressive conduct of Douglas Banzet, John Hyshka, Peter Blaney, Barry Markowski, Amar Bhalla, Stan Stewart, Cindy Ogilvie, Christine Hrudka, GOFI, Concorde and PIC Investment and claims, in particular but not limited to, compensation from Douglas Banzet, John Hyshka, Peter Blaney, Barry Markowsky, Amar Bhalla, Stan Stewart, Cindy Ogilvie, Christine Hrudka, GOFI, Concorde and PIC Investment, jointly and severally, as an aggrieved party.

121. YBCI pleads and relies on the provisions of Division XVIII of The Business Corporations Act, R.S.S. 1978, c. B-10 (the “BCA”).

[Paragraphs 122 through 132 plead unlawful means conspiracy, breach of fiduciary duty, and knowing assistance in breach of fiduciary duty against the various defendants.]

133. YBCI therefore claims the following against Douglas Banzet, John Hyshka, Peter Blaney, Barry Markowsky, Amar Bhalla, Stan Stewart, Cindy Ogilvie, Christine Hrudka, GOFI, Grant Kook, Concorde, L. David Dube, PIC, Craig Bell, Shawn Ritchie, Med-Life, Christine Johnston and Tamara Harasen, jointly and severally:

a) Damages in an amount to be proven at Trial, but estimated to be greater than $400,000,000.00; b) Interest pursuant to The Pre-judgment Interest Act; c) Costs on a solicitor and his own client basis; and d) Such further relief as the Plaintiff may request and this Honourable Court may allow.

DATED at the City of Saskatoon, in the Province of Saskatchewan this 24th day of October, 2018.

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WMCZ Lawyers Per: Michael J. Krawchuk, Solicitors for the Plaintiff, Yolbolsum Canada Inc.

Name of firm: WMCZ Lawyers Lawyer in charge of file: Michael J. Krawchuk Address of legal firm: 410 - 475 2nd Ave S, Saskatoon, SK S7K 1P4 Telephone number: 306-659-1241 Email address: michael.krawchuk@wmcz.com