Zefiro founder Debs disappointed with dismissal by BCSC

Executive Summary

• Dr. Talal Debs, founder of Zefiro Methane Corp., reports that the British Columbia Securities Commission (BCSC) dismissed a cross-application by controlling lender David McGrath, which sought to block Zefiro’s largest shareholder, X Machina Capital Strategies Fund I LP (XMC), from voting at the upcoming annual general and special meeting on March 20, 2026.
• While the primary application brought by Dr. Debs and XMC was also dismissed, the proceedings highlighted significant governance failures by incumbent management, including the issuance of debt settlement shares without independent advice, failure to disclose related-party conflicts, and late filing of material contracts.
• X Machina Sustainable Technologies Inc. (XMST) intends to enforce its investor rights agreement to acquire 1,386,184 common shares and warrants/options to acquire 6,096,481 additional shares (approx. 7.63% of the diluted share count), following Zefiro’s claim that the agreement was void.

Key Details

• BCSC Ruling Outcomes:
  • The BCSC dismissed the cross-application by David McGrath (controlling lender) that sought to set aside X Machina Sustainable Technologies Inc.'s (XMST) rights and block XMC from voting.
  • The BCSC denied relief requested by Dr. Debs as a concerned shareholder, but the hearing exposed governance issues.
  • The commission is not expected to provide reasons for its decision in the near term.
• Governance and Disclosure Failures Exposed:
  • Debt Settlement Shares: On Jan. 27, 2026, Zefiro issued 13,214,494 common shares to interim CEO Catherine Flax, David McGrath, and Michael McGavick to settle debt.
  • Lack of Oversight: The transaction was negotiated by the CFO with minimal board oversight; the CFO negotiated against his superior (Flax) and McGrath. No independent legal or financial advice was sought.
  • MI 61-101 Violations: The material change report failed to disclose McGrath’s negative control over the company, the conflicted nature of the lenders, the board’s review process, and Dr. Debs’ opposition. It also failed to disclose that cash proceeds would pay a loan made in the interim CEO’s spouse’s name.
  • Late Filings: The material change report for the May 2025 loan was filed four days late. The loan agreement itself was not filed on SEDAR+ until Feb. 6, 2026, over eight months after the agreement was signed.
• Financial Impact of Proxy Contest:
  • The shareholder advocacy and proxy contest drove conflicted management and controlling lenders to equitize and/or refinance over $3 million (U.S.) of the company’s near-term debt maturities.
• XMST Rights Enforcement:
  • XMST intends to enforce its investor rights agreement (dated June 6, 2023) to acquire its pro rata share of securities issued by Zefiro.
  • Shares to Acquire: 1,386,184 common shares.
  • Options/Warrants to Acquire: Rights to acquire 6,096,481 common shares.
  • Total Dilution Impact: Approximately 7.63% of the issued and outstanding common shares on a partially diluted basis.
  • Zefiro had previously claimed the agreement was void, but XMST intends to take all necessary steps to protect these rights.
• Upcoming Events:
  • Zefiro’s Annual General and Special Meeting is scheduled for March 20, 2026.
  • A requisition made by concerned shareholders will be dealt with at this meeting.
  • Shareholders are urged to vote using the "blue proxy" and oppose incumbent board transactions.

Notable Quotes

• Dr. Talal Debs: "In my view, the great benefit of public markets is that they provide an avenue for genuine transparency and the ability to hold incumbent management to account. XMC intends to demand this of Zefiro's management, board and related party investors like the controlling lender David McGrath, whether this relates to disclosures, decisions on financing or strategic transactions, and combinations. We are thankful that the BCSC took the time to hear our application which has led to greater transparency for Zefiro's shareholders."