CF Energy Responds to Dissident Proxy Circular and Press Release

TORONTO, Oct. 19, 2020 (GLOBE NEWSWIRE) -- In connection with the annual meeting of shareholders of CF Energy Corp. (TSX-V: CFY) (“CF Energy” or the “Company”) to be held on October 29, 2020 (the “Meeting”), the dissident shareholder 11882716 Canada Inc. (the “Nominating Shareholder”) has filed a dissident proxy circular dated October 14, 2020 (the “Dissident Circular”) and issued a press release dated October 16, 2020 (the “Dissident Press Release”).

The Dissident Circular and the Dissident Press Release raise critical concerns for the Company and its shareholders:

• The Nominating Shareholder’s stated concerns regarding the governance practices of the Board of Directors and the Company’s stock price performance have not previously been raised with the Board or Directors or Company management.

• The Nominating Shareholder and its nominees for the Board of Directors (the “Dissident Nominees”) have no credibility: they have minimal or no investment in the Company, they lack both expertise in the natural gas and/or green energy industry and experience as public company directors necessary to lead the Company, and have no plan to run the Company.

• The Nominating Shareholder holds approximately 0.03% of the outstanding common shares of the Company, yet seeks to acquire control of the Company through replacing the Board of Directors with its nominees.

• The Nominating Shareholder appears to be a front for Mrs. He Mingfei and Mr. Zhipei Lin: it is being used as a tool by them to advance their personal agenda to obtain control of the Company.
  

The Company’s Board of Directors has always been fully committed to a high standard of corporate governance, and to the accountability and transparency of its management. The Board of Directors believes that through such an approach, the long-term benefit of the Company and its shareholders will be achieved, and their interests safeguarded.

For these key reasons, the Special Committee and the Board of Directors recommend that shareholders vote for the re-election of the existing directors of the Company.

The Dissident Circular and Dissident Press Release contains a number of misrepresentations and unsubstantiated allegations. The most significant of these, and the Company’s concerns with the Dissident Nominees, are outlined below.

The Nominating Shareholder Appears to be a Front for Mrs. He Mingfei and Mr. Zhipei Lin to Advance Their Personal Interests

• Mrs. He Mingfei, the spouse of the late Mr. Huajun Lin, founder of the Company, and Mr. Zhipei Lin, the son of the late Mr. Lin, appear to be using the dissident process to advance their personal litigation agenda currently being pursued through a civil action in China, and to take control of the Company.

○ He Mingfei and Zhipei Lin have no disclosed investment in the Company. Through their participation in the Dissident Circular, acting as a Dissident Nominee, and urging shareholders to support the Dissident Nominees, their attempt to leverage the Nominating Shareholder’s minimal investment of 20,000 common shares of the Company (representing approximately 0.03% of the issued and outstanding common shares) to obtain control of the Company through its Board of Directors is clear.

○ The claims of He Mingfei made in the Dissident Circular regarding the civil action in China involving the estate of Huajun Lin, including those specifically related to Ann Lin, are unsubstantiated. All matters in that action remain to be ruled on by the Chinese court. The Company previously disclosed to shareholders the existence of this litigation, and given that that it involves the affairs of the estate and not the Company, the Company’s Board of Directors determined that it was not appropriate for the Company to participate in or expend its resources in connection with this litigation.

○ With respect to the letter dated July 29, 2020 delivered by He Mingfei’s lawyer to the Company’s directors, it would not be appropriate for the Company to respond to unsubstantiated allegations from a party to the civil action in China that has no interest in the Company. Furthermore, the allegation of a disposition of the shares held by the estate of Mr. Lin made by He Mingfei’s lawyer and repeated by the Nominating Shareholder, is patently false, as discussed below.

○ Pursuant to the Loan Discharge Agreement with Huajun Lin, the Company exercised its right to require the estate of Mr. Lin to use the proceeds of repayment for the loans of approximately RMB 36.0 million (approximately $7.04M) to subscribe for common shares from the Company at a price of $0.68 per share, as determined in accordance with the rules of the TSXV. He Mingfei and Zhipei Lin have acknowledged this obligation of the estate, but have refused to provide their consent as required for the estate to fulfill its obligations to the Company. Only Ann Lin, as a beneficiary of the estate, has provided such consent. Given the ongoing litigation regarding the estate in China, the Company has reserved its rights against the estate, and has deferred from bringing court proceedings given the substantial costs and the ongoing estate litigation in China.

○ By refusing to consent to the estate performing its obligations to the Company, and by using the dissident process to advance their litigation agenda, He Mingfei and Zhipei Lin are placing their personal interests ahead of the Company’s best interests, depriving it of cash from the estate to which it is entitled, and subjecting the Company to an unnecessary and expensive dissident proxy process.

The Dissident Nominees Have No Plan and Lack Experience

The Nominating Shareholder and the Dissident Nominees have not provided shareholders with any plans for the Company’s business. This is consistent with the Dissident Nominees’ lack of experience relevant to the Company’s business, and no investment in the Company’s shares. The Nominating Shareholder has not provided information regarding the Dissident Nominees, as requested by the Company on October 5, 2020, including information as to their independence as required to be provided pursuant to the Articles of the Company. The following summary based on the limited information in the Dissident Circular and information within the Company’s knowledge, evidences the Dissident Nominees’ lack of relevant experience or expertise required to lead the Company:

Dissident Nominee	Experience in Energy Industry	Business Experience in China	Experience as a Director of a Public Company	Number of Common Shares Owned or Controlled (Directly or Indirectly)
Zhipei Lin	Joined the Company in 2015 as chairman of a natural gas refueling station subsidiary and since 2017 has been the deputy manager of the human resources department of one of the Company's investment holding vehicles in China	Limited involvement with the Company, not on the senior management team of major projects	No	Nil
Paul Liu	Limited to energy related construction projects in Southern Ontario	None	No	Nil
Alex Beck	None	Limited to leading an investment firm’s expansion into China	No	Nil
Jian Guo	None	None disclosed other than acting as a director of China Wind Power	Yes	Nil
Lin Zhang	None	Limited to logistics shipping, hospitality services and financial services in China	No	Nil

Given the Dissident Nominees lack of experience, the Company’s senior management does not support the Dissident Nominees. Senior management of the Company, including Chief Executive Officer (“CEO”) Ann Lin, have advised the current directors of the Company that they support the current directors and the Company’s current strategy, and that they are not prepared to serve in the event that the Dissident Nominees are elected. In a statement to the Board of Directors, senior management indicated:

The management team of CF Energy support Ann Lin and the current Board of Directors. Both as shareholders and management of the Company, we do not support the actions of the dissident group and we do not believe that the dissident nominees can effectively lead and bring any value to the Company. It is difficult to understand how the Nominating Shareholder expects to improve the performance of the Company, with an inexperienced board and not being able to rely on the experienced current management team.

The loss of Company management would negatively affect the Company’s business, including its long-established relationships with the Chinese government, business partners and customers on which the continued growth of the Company’s business is dependent.

The Dissident Nominees Lack Public Company Experience

The Nominating Shareholder and Dissident Nominees have already demonstrated their lack of experience in acting as directors of public companies and unsuitability to be elected directors of the Company:

• The Nominating Shareholder, in its initial press release, in addition to nominating the Dissident Nominees, noted that it had also nominated Hui Cai, a current director of the Company, and Yan Li, a member of the current management team of the Company, to act as the interim CEO if the dissidents were successful in their attempt to take over the Company. Neither Mr. Hui and Mr. Yan were contacted in advance of this announcement by the Nominating Shareholder or the Dissident Nominees, or had consented to act in this capacity. Both advised the Company that they were not prepared to serve in such capacities if the Dissident Nominees were elected.
• Buried on page 21 of the Dissident Circular, the Nominating Shareholder states:

If for any reason, any of the Concerned Shareholder Nominees do not stand for election or are unable to serve as such, proxies in favour of the Concerned Shareholder Nominees will be voted for another nominee in the discretion of the persons named in the enclosed form of BLUE proxy or BLUE VIF…

Apart from raising questions as to the Dissident Nominees’ interest in serving as directors of the Company, the indication that other nominees, not disclosed to the Company’s shareholders, could be substituted for the Dissident Nominees is offensive to shareholders, and clearly in breach of the Company’s Articles, which require nominees to have been nominated at least 30 days prior to the meeting of shareholders.

The above examples, together with the lack of any business plan for the Company, demonstrate that the Dissident Nominees lack the necessary judgment and understanding of even basic corporate governance principles necessary to act as directors of the Company.

Based on the limited information in the Dissident Circular, in the view of the Special Committee and the Board of Directors the Dissident Nominees are, as a group, unprepared and unfit to serve as directors of the Company.

The Chair and CEO of the Company Has the Full Support of the Board and the Late Mr. Lin

• As Huajun Lin’s health declined, Ann Lin was appointed Chair and CEO of the Company with the support of the Company’s Board of Directors, including Mr. Lin. In the Company’s press release announcing such appointment, Mr. Lin stated:
  

My successor, Ann Lin, has served the Company since 2005 and has been a key member of the senior management team. Ann has intimate knowledge of the daily operation and strategic direction of Changfeng. Ann has spearheaded the Company’s efforts in the …Integrated Smart Energy Project in Haitang Bay, as well as the LNG supply distribution operation in Hebei, the PRC. I trust Ann, along with the Board and senior management team, to lead Changfeng going forward.

Prior to such appointment, Ann Lin worked closely with and was groomed by Mr. Lin in her various roles with the Company. In particular, Ann Lin has served as an officer of the Company since 2009, including in the positions of Vice-President, Corporate Development and Corporate Secretary, and as a director of the Company since January 2018.

• Unlike the Dissident Nominees who hold no common shares of the Company, Ann Lin is personally invested in the future of the Company and holds 850,500 common shares (independent of her interest as a beneficiary of the estate of Mr. Lin).

The Company’s Business Is Performing Well and Positioned For Growth

• Since December 31, 2018, following significant investment in The Stock Exchange of Hong Kong Limited (“HKSE”) listing process, the Company has improved its cash position from approximately RMB 80.5M (approximately $15.8M) to approximately RMB 132.7M (approximately $26.1M) as at June 30, 2020 (based on the Company’s financial statements filed with securities regulators), representing an increase of approximately RMB 52.2M (approximately $10.3M). In the period January 1, 2019 to June 30, 2020, the Company generated cash from operating activities in the aggregate amount of approximately RMB 72.0M (approximately $14.2M).
• On January 17, 2017, the Company adopted a dividend policy. Since the adoption of the policy, and prior to its suspension to preserve cash, the Company made 6 dividend payments, returning an aggregate of approximately RMB 29.9M (approximately $5.9M) to shareholders.
• The Board of Directors and the Company’s long-term senior management have overseen significant diversification into an integrated energy provider through expansion into the smart and green energy sector, which represents the future of the energy industry, including:

◾ developing the Haitang Bay Integrated Smart Energy Project, with long-term loan financing of RMB 230 million having been obtained;

◾ developing the Meishan Integrated Smart Energy Project in Sichuan Province;

◾ developing Electric Vehicle (EV) battery swap station initiatives in Hainan Island and Zhuhai with a well-known EV manufacturer in China;

◾ establishing EV battery swap stations in Hainan Island; and

◾ implementing cost control measures and increased efficiency.

Dissident Misrepresents Decline in the Company’s Share Price

The Nominating Shareholder suggests that the decline in the Company’s share price is based on the appointment of Ann Lin as Chair and CEO of the Company. Given the decline in the Company’s share price is based on a number of factors, including external factors and market events, none of which can be quantified, the Nominating Shareholder must believe that shareholders can be easily duped by its suggestion. The factors that the Nominating Shareholder fails to cite as reasons for the decline in the share price appear to reflect the lack of understanding of the Nominating Shareholder and the Dissident Nominees of the Company.

While there can be no certainty as to the reason for a decline in the share price of the Company, the Special Committee and the Board of Directors are of the view that any such decline is not related to Ann Lin’s appointment as CEO.

The Company notes that despite its stated concerns, the Nominating Shareholder would have a maximum loss on its investment of $1,600, given it was only recently incorporated.

Dissident Circular Contains Misrepresentation Regarding Alleged Share Disposition

The Dissident Circular contains the patently false allegation of He Mingfei’s lawyer that 700,000 common shares of the Company held by the estate of Mr. Lin were illegally disposed of. As clearly demonstrated by publicly available insider trading reports filed on SEDI, the securities in question were 700,000 unvested options held by Mr. Lin that, together with an additional 1,740,000 unvested options held by other directors and officers of the Company, were to vest only on completion of a successful initial public offering on the HKSE. These options were cancelled as a result of the Company’s conclusion that such an offering was no longer likely. All of this was disclosed in the Company’s proxy information circular dated June 24, 2019 provided to shareholders for the annual meeting of shareholders held on July 26, 2019.

The Nominating Shareholder’s and Dissident Nominees’ preparedness to circulate such clearly false statements, which they and their counsel must know not to be true, further demonstrates that the Dissident Nominees are unfit to serve as directors of the Company.

Further Misrepresentation in Dissident Press Release

In the Dissident Press Release, the Nominating Shareholder and Dissident Nominees attempt to further mislead shareholders by alleging that the Company has not complied with the PRC Central Government’s natural gas price reduction policies. This allegation is false, and demonstrates that the Nominating Shareholder and Dissident Nominees do not understand the regulation of pricing in the Chinese natural gas industry.

As disclosed by the Company in its July 23, 2020 press release, natural gas pricing for residential and non-residential customers is not set by operators such as the Company, but by local provincial and city regulators. The Company is in compliance with the natural gas utility pricing requirements of its local regulator, the Sanya City Development and Reform Commission (“SYDRC”), which are established taking into account the natural gas price reduction policies of China’s National Development and Reform Commission (“NDRC”).

The extent and timing over which price reductions will be required by the SYDRC is uncertain, and as they are not within the Company’s control, cannot be quantified as the Dissident Press Release suggests. As stated in the Company’s July 23, 2020 press release:

The SYDRC’s decision is no surprise to us. The NDRC has introduced the gas price regulating guiding principles in China since late 2017, although adjustments have been slow to date. We have prepared for this by making an effort to control our gas business operating costs, frequently communicating with the SYDRC, and investing in our alternative new energy business to offset revenue growth limitation caused by potential regulated gas price adjustments like this”, CEO and Chair of the Board Ann Lin said…

The Dissident Nominees’ false allegations demonstrate that they do not understand the Chinese natural gas industry, and do not have the experience or expertise to lead the Company.

In summary, the dissident process is being used by He Mingfei and Zhipei Lin to advance their personal litigation agenda and obtain control of the Company. The Dissident Circular is an empty proposal that fails to provide any meaningful plan for the Company and contains allegations that are unsubstantiated and misrepresentations regarding the Company and its management. The allegations referred to in the Dissident Press Release vividly demonstrate the Dissident Nominees’ lack of experience and expertise in the Chinese natural gas industry required to lead the Company. Based on this, the dissident proposal and the Dissident Nominees are completely lacking in credibility, and should not be supported by shareholders.

Shareholders are encouraged to read the Company’s Management Information Circular dated September 25, 2020 (the “Circular”) available at www.sedar.com.

Your vote has never been more important, please take the time to vote using only Management’s form of WHITE proxy or WHITE voting instruction form “FOR” the re-election of the Company’s existing directors in advance of the Meeting. Please disregard any other proxy received, if you have already voted using the dissident proxy you are able to change your vote for the current board by using the management WHITE proxy or WHITE voting Instruction form. A later dated proxy will revoke any previous proxy submitted. Shareholders are asked to vote in sufficient time for their proxy or voter information form to be received by Computershare Investor Services Inc. or the Corporate Secretary of the Company not later than October 27, 2020 at 10 a.m. (Toronto time), or in the case of any adjournment of the Meeting, not less than 48 hours, Saturdays, Sundays and holidays excepted, prior to the time of the adjournment.

Shareholders that have additional questions regarding the information contained in the Circular or would like assistance in voting their shares may contact the Company’s proxy solicitation agent, Shorecrest Group Ltd., by phone at 1-888-637-5789, collect call outside North America at 1-647-931-7454 or by email at [email protected].

About CF Energy Corp.

CF Energy Corp. is a Canadian public company currently traded on the Toronto Venture Exchange under the stock symbol “CFY”. It is an integrated energy provider and natural gas distribution company (or natural gas utility) in the PRC. CF Energy strives to combine leading clean energy technology with natural gas usage to provide sustainable energy to its customer base in the PRC.

Contact Information

Corporate Investment Relations
[email protected]

Charles Wang
Executive Assistant to CEO & Chair of the Board
[email protected]

Frederick Wong
Director of the Board
[email protected]

Forward-Looking Statements

Certain statements contained in this news release constitute forward-looking statements and forward-looking information (collectively, “Forward-Looking Statements”). All statements, other than statements of historical fact, included or incorporated by reference in this document are Forward-Looking Statements, including statements regarding activities, events or developments that the Company expects or anticipates may occur in the future, including the negative effect on the Company’s business, the achievement of benefit for, and the safeguarding of interests of, the Company and its shareholders, the impact to the Company’s relationships with Chinese government, business partners and customers resulting from the loss of senior management, the future potential of the smart and green energy sector, and the Company’s position for growth. These Forward-Looking Statements can be identified by the use of forward-looking words such as “will”, “expect”, “intend”, “plan”, “estimate”, “anticipate”, “believe” or “continue” or similar words or the negative thereof. No assurance can be given that the plans, intentions or expectations or assumptions upon which these Forward-Looking Statements are based will prove to be correct and such Forward-Looking Statements included in this news release should not be unduly relied upon.

Although management believes that the expectations represented in such Forward-Looking Statements are reasonable, there can be no assurance that such expectations will prove to be correct. Such Forward-Looking Statements are not a guarantee of performance and involve known and unknown risks, uncertainties, assumptions and other factors that may cause the actual results, performance or achievements to differ materially from the anticipated results, performance or achievements or developments expressed or implied by such Forward-Looking Statements. These factors include, without limitation, no significant and continuing adverse changes in general economic conditions or conditions in the financial markets. Readers are cautioned that all Forward-Looking Statements involve risks and uncertainties, including those risks and uncertainties detailed in the Company’s filings with applicable Canadian securities regulatory authorities, copies of which are available at www.sedar.com. The Company urges readers to carefully consider those factors.

The Forward-Looking Statements included in this news release are made as of the date of this document and the Company disclaims any intention or obligation to update or revise any Forward-Looking Statements, whether as a result of new information, future events or otherwise, except as expressly required by applicable securities legislation. This news release does not constitute an offer to sell or solicitation of an offer to buy any of the securities described herein and accordingly undue reliance should not be put on such.

Neither the TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.