TORONTO, ONTARIO--(Marketwired - Sep 23, 2015) - Changfeng Energy Inc. ("Changfeng" or the "Company") (TSX VENTURE:CFY), announces that it has entered into a Loan Discharge Agreement with two companies (the "Lenders") controlled by Mr. Huajun Lin ("Mr.Lin"), the Chairman, Chief Executive Officer and President of Changfeng.
In 2007, the Lenders advanced loans in the aggregate amount of RMB 40,000,000 ($8,048,000; December 31, 2014, $7,476,000) to a 100% owned subsidiary of Changfeng, in accordance with Consignment Loan Agreements dated May 23rd, 2007, and June 26th, 2007, a Subordination and Forbearance Agreement dated April 27th, 2007, and other ancillary documentation (collectively, the "Loans"); Pursuant to a Loan Renewal Agreement dated April 27, 2007 the parties to the Loan Agreements agreed to enter into further loan agreements on the same terms and conditions every three years, in perpetuity.
The Loans are non-interest bearing, due on demand after April 27th, 2010, but on April 27th, 2010, the Loans were renewed for three years with the same terms and conditions, on April 27th, 2013, the Loans were renewed for two years with the same terms and conditions, and on April 27, 2015, the Loans were renewed for one year with the same terms and conditions.
On March 20, 2015, Changfeng formed a Special Committee of its directors, composed entirely of directors unrelated to Mr. Lin, to review alternatives for the discharge of the Loans. The Special Committee retained independent legal counsel and an independent financial adviser, and thereafter negotiated with the Lenders for the discharge of the Loans. The independent financial adviser has issued an opinion that the terms of the Transaction are fair, from a financial point of view, to the Minority Shareholders.
The Loan Discharge Agreement between Chanfeng and the Lenders provides for an absolute discharge of the Loans, in exchange for the issuance by Changfeng to the Lenders of 5,000,000 preferred shares of Changfeng. These preferred shares will be non-dividend bearing, are not convertible, will have three votes per share, will not be redeemable or retractable by the holder, will be redeemable at the option of Changfeng at $0.96 per share until April 27, 2025, and thereafter at $1.20 per share, must be redeemed by the Company at a price of $0.96 per share until April 27, 2025, and thereafter $1.20 per share, in the event of a change of control of the Company or a sale of substantially all of its assets, and would have a liquidation preference before the holders of the common shares, and have a fixed liquidation value of $0.96 cents until November 15, 2030 and $1.60 per share thereafter. Upon issuance of these preferred shares, the voting rights in Changfeng of entities controlled by Mr. Lin will increase from approximately 55% to approximately 63.6%.