Thursday, June 22, 2017

Why Meridian Initiated its Lawsuit Against Michael Arlen Davis

 From Meridian Schedule 13D filing on May 25, 2016

"On May 24, 2016, Meridian filed a shareholder derivative action on behalf of Cyanotech's stockholders against the Company, its Chairman of the board of directors and the Rudolf Steiner Foundation ("RSF").  The civil complaint, filed in the United States District Court for the District of Nevada, seeks Declaratory and Injunctive Relief under the Securities Exchange Act of 1934 and the Nevada Control Share Statute due to the undisclosed group created by the Chairman and RSF, and that group's ability to control Cyanotech.

Meridian also claims that the misrepresentations or omissions of material facts by the Chairman caused Cyanotech to violate Section 10(b)(5) of the Securities Exchange Act of 1934.  Finally, Meridian claims that the Chairman's actions breached his fiduciary duties as a member of the board of directors of Cyanotech.

A copy of Meridian's complaint may be read--here

Meridian brought its claims in Federal court after Cyanotech's board of directors failed to take action with respect to numerous securities disclosure and corporate governance deficiencies detailed by Meridian in a letter to the board of directors (see the above link starting at page 27).  On May 6, 2016, Meridian delivered the letter to Cyanotech's interim CEO, who is also a board member, and encouraged him to first share the letter with the chairman of the Company's audit committee and then for these two directors to consider engaging legal counsel independent of Cyanotech's Chairman to consider the contents of the letter and appropriate next steps.

Since delivering the May 6, 2016 letter, Meridian has received no indication that Cyanotech's board of directors has taken action to address the issues raised by the letter.  To the contrary, on May 23, 2016, the Company issued a press release reporting that the chairman of its audit committee had resigned from the board of directors on May 17, 2016.  One possible interpretation of this news is that the audit chairman attempted to take the appropriate actions in response to Meridian's May 6, 2016 letter, was blocked and therefore considered it impossible to continue to serve on Cyanotech's board of directors.  Meridian believes the audit chairman's resignation is further evidence of the inability of the Cyanotech board to function properly under the leadership of its current Chairman."