TORONTO, ONTARIO--(Marketwired - Feb. 20, 2014) - Hanfeng Evergreen Inc. (TSX:HF) ("Hanfeng" or the "Corporation") reported today on its current situation during its management transition.
Court Application - Annual General Meeting
As previously disclosed, the Corporation, subject to regulatory approval, has set the date for the Annual General Meeting of shareholders as June 13, 2014, a date permitted by applicable corporate law. The Toronto Stock Exchange has since advised the Corporation that it will not grant its request for an extension to June 13, 2014 and that it requires the meeting to be held at the earliest possible date, not later than March 31, 2014. In addition, the former CEO, Mr. Xinduo Yu, ("Former CEO"), has made an application to the Ontario Superior Court (the "Court") seeking, amongst other things, directions with respect to the holding of a shareholder meeting at the earliest practicable date.
A date has been established for February 24, 2014 for the hearing of the application of the Former CEO. In support of the Corporation's position, the Corporation has now filed affidavits (the "Affidavits") of Edwin Nordholm, one of the independent directors of the Corporation, in response to the Former CEO's application and in support of the Corporation's motion for an order that the Former CEO pay the Corporation the $750,000 reverse break-fee pursuant to the Arrangement Agreement relating to the privatization proposal made by the Former CEO in 2013. The Affidavits provide background for the Court on the circumstances leading to the termination of the Former CEO's employment as president and chief executive officer, the actions of the Former CEO, to disrupt the Corporation's operations and management, and the ability of the Corporation to meet its public company obligations, recruit new independent directors to be considered by shareholders and to convene a shareholder meeting on a timely basis with full information on which to make decisions regarding director elections.
In response to the Former CEO's application for directions, the Corporation will be asking the Court to make directions not only as to the timing of the shareholders meeting, but also as to the manner in which directors will be elected. The Affidavits provides an outline of a number of inter-relationships between the Former CEO and the persons that he has identified as his "supporting shareholders" for the director nominees that he intends to put forward for election at the shareholder meeting. The Corporation believes that some or all of these shareholders acquired their shares acting in jointly and concert with the Former CEO (the "Joint Actors") without making disclosure and in breach of applicable securities laws, and accordingly the Corporation will be asking the Court to provide directions that ensure the Former CEO and his Joint Actors do not obtain control over the Corporation through the exercise of voting rights attached to any shares that have been acquired in breach of applicable securities laws, thus ensuring that the non-insider shareholders (who are a majority of the shareholders of the Corporation) retain truly independent directors on the board.
Contrary to what Mr. Yu has disclosed today by press release, the Company's meeting is not scheduled to occur on February 28, 2014. The Company will provide a further update following the Court proceedings.
Review of Operations
Information has come to the attention of the Corporation regarding unexplained commercial transactions and banking transactions that appear to be detrimental to the interests of the Corporation. The Corporation continues to review the following:
- Transactions arose in the latter part of 2013 that appear to result in diversion of revenue from the Corporation to "new customers" at unfavourable pricing to the Corporation.
- Investment has been made in raw materials for the upcoming growing season that is inconsistent with the repeated assertion that the Corporation's largest customer, Beidahuang, will no longer transact business with the Corporation and the Corporation has no alternative customers.
- The Chairman of the Board and FTI Consultants have discovered other irregularities, including documentation under which the Corporation purported to sell 51% of its Heilongjiang subsidiary to Beidahuang in 2012.
The Corporation is working with local authorities concerning these irregularities. The Corporation has been advised by the provincial police in Heilongjiang Province of the People's Republic of China that they are conducting a formal investigation into the activities of the Former CEO.
Management and Governance
As previously disclosed, the Former CEO was removed on January 7, 2014, by the Board as an officer of the Corporation, and as an officer, director or legal representative of any subsidiary of the Corporation. All other directors of the Corporation's subsidiaries were removed on January 10, 2014.
As part of the effort to notify applicable regulatory authorities and third parties in China, the Corporation has placed a circular in the Heilongjiang Economic Daily announcing the change of the legal representatives, directors and corporate officers in the Corporation's subsidiaries in China. A copy of this circular is available at: http://www.hljjjb.com/File/hljjjb/2014-2-14/20140213052928.htm?id=40574 confirming the appointment of FTI Consulting's Marcus Paciocco as the only authorized legal representative for the Company in China.
As the Corporation's news release stated on January 8, 2014, this management transition is a complex process occurring within a global enterprise operating under multiple corporate legal systems. Accordingly, such changes are not fully accomplished instantly. The Chairman of the Board of Directors of the Corporation ("Chairman") has been in China for more than four weeks working with counsel in China and FTI Consulting to complete the management transition and secure access to the Corporation's operations, banking and records. On February 18, 2014, the Chairman and representatives of FTI Consulting gained access to the Heilongjiang facility in the presence of the provincial police authorities. As a result of this attendance at the facility, Mr. Owen and FTI Consulting are reviewing whether corporate records and other property of the Corporation have been destroyed or removed without authorization from the facility.
Despite the ongoing efforts of the Chairman and FTI Consulting, the Corporation has not yet recovered the business license, chops, tokens and other material required to complete the registration of the new legal representative of the Chinese subsidiaries. Steps have been taken to notify all employees, suppliers and customers of the change in legal representative, but the legal representative will not have full access to the banking records and other business records until such time as this registration is completed. The Chairman and FTI Consulting are now working with appropriate government authorities to complete the registration on the basis that the original business license and chops have been lost or stolen.
Update on Electronic Communications
As previously disclosed, after the termination of the Former CEO, the electronic communications for the Corporation's e-mail (@hanfengevergreen.com) and web site (www.hanfengevergreen.com) were transferred to a new service provider in China without the approval of the Board of Directors in Canada. The domain www.hanfengevergreen.com and the email server from this domain have been repatriated and are now back under the control of the Board of Directors.
However, electronic communications for certain Chinese subsidiaries at www.hanfeng-group.com have not yet been transitioned to the Corporation. The Corporation is attempting to regain complete control of these communication platforms and in the meantime advises all parties sending or receiving e-mails or communicating by way of any e-mail associated with the domain www.hanfeng-group.com, or any representation concerning the Corporation or its subsidiaries on those web sites and e-mail servers, that until further notice, those communication platforms are not fully under the control or direction of the Corporation and may not be relied upon.
The events described in this press release, and in the Corporation's previous disclosure, have led to the suspension of trading in the shares of the Corporation on the Toronto Stock Exchange, and have now resulted in the failure of the Corporation to meet its timely reporting obligations and the imposition of a temporary cease trade order by the Ontario Securities Commission.
This news release contains forward-looking statements based on current expectations, including but not limited to the Corporation's plans, objectives and expectations and the exploration by the Corporation of strategic alternatives. These forward-looking statements entail various risks and uncertainties that could cause actual results to differ materially from those reflected in these forward-looking statements. Risks and uncertainties about the Corporation's business are more fully discussed in the Corporation's disclosure materials, including its annual information form and MD&A, filed with the securities regulatory authorities in Canada. Additional important factors that could cause actual results to differ materially include, but are not limited to: the ability of the Corporation to preserve or monetize its working capital; the effective ability of the Corporation to appoint directors and representatives of its subsidiaries in China and elsewhere; delays in financial reporting; and the implementation of any alternative or financing transaction on acceptable terms. Forward-looking statements are not guarantees of future performance. In light of the significant uncertainties inherent in the forward-looking statements included herein, any such forward-looking statements should not be regarded as representations by the Corporation that its respective objectives or plans will be achieved. Investors are cautioned not to place undue reliance on any forward-looking statements contained herein. Forward-looking statements are provided for the purpose of providing information about the Corporation's current expectations and plans relating to the future. Readers are cautioned that such information may not be appropriate for other purposes. In addition, these forward-looking statements relate to the date on which they are made. The Corporation expressly disclaims any intention or obligation to update or revise any forward-looking statements or the foregoing list of factors, whether as a result of new information, future events or otherwise, except to the extent required by law.
About Hanfeng Evergreen Inc.
Hanfeng is a producer and supplier of value-added fertilizer solutions in emerging markets, with facilities in two of world's most significant agricultural markets: the People's Republic of China and the Republic of Indonesia. Hanfeng is headquartered in Toronto, Ontario and its shares are listed on the Toronto Stock Exchange under the symbol HF.