Smoothwater Capital Corporation



Smoothwater Capital Corporation

December 10, 2013 15:15 ET

Smoothwater Capital Delivers Shareholder Proposal on Future of Equity Financial Holdings Inc.

Retainer of investment bank by Equity, following Smoothwater's requisition, has shareholders concerned about potential dilutive transactions

TORONTO, ONTARIO--(Marketwired - Dec. 10, 2013) - Smoothwater Capital Partners LP I ("Smoothwater"), announced today that it has submitted a shareholder proposal to Equity Financial Holdings Inc. ("Equity" or the "Company") that would allow Equity's owners - its shareholders - to vote on whether their Company should remain a pure play alternative mortgage lender, or pursue an alternative transaction. Smoothwater has significant concerns with respect to any transaction that would alter the shareholder base in the midst of a shareholder confidence vote. Smoothwater and other shareholders believe that with the right board and management, the pure play alternative mortgage lending strategy will create sustainable value for all shareholders.

"While we previously suspected that Equity's Board was considering changes to its business strategy, Equity's December 5 announcement that it had engaged investment bankers suggests that the Board is prepared to make significant changes to the business, that could be structured to avoid shareholder approval," said Stephen Griggs, CEO of Smoothwater Capital Partners Inc., the general partner of Smoothwater. "The resolutions we have proposed protect the interests of shareholders and should dissuade a responsible Board from entrenching themselves under the guise of enhancing shareholder value."

Griggs continued: "Shareholders may be surprised to learn that as part of a transaction, a company could dilute shareholders by up to 24.9% without shareholder approval. A purely tactical move of this sort by Equity's Board, in the face of a pending requisitioned meeting and vote on the suitability of the Board itself, would be questionable ethically in the short term, and potentially value destructive over the longer term."

The resolutions and shareholder supporting statement submitted to Equity are as follows:

Resolution #1 - Strategic Direction as a Pure Play Alternative Mortgage and Deposit-taking Business

"Be it resolved, on an advisory basis, that shareholders affirm EQI's previous strategic direction as a pure play alternative mortgage and deposit-taking business."

Resolution #2 - Shareholder Approval Required for a Transaction Changing the Strategic Direction

"Be it resolved that By-Law No. 3 be amended by adding the following provision as section 2.7 (under "Business of the Corporation"):

Shareholder Approval for Any Transaction Impacting the Corporation's Strategic Direction as a Pure Play Alternative Mortgage and Deposit-taking Business. The Board shall obtain shareholder approval before entering into any transaction which would change the Corporation's strategic direction as a pure play alternative mortgage and deposit-taking business."

Resolution #3 - Shareholder Approval Required for Issuance of 10% or More of Securities

"Be it resolved that By-Law No. 3 be amended by:

(a) adding the following provision as section 7.1.1 (under "Shares"):

Shareholder Approval for Share Issuances. The Board shall obtain shareholder approval before issuing shares or securities exercisable, exchangeable or convertible into shares, in excess of 10% of the Corporation's then outstanding voting securities.

and (b) adding the following phrase at the beginning of section 7.1:

Subject to section 7.1.1

Supporting Statement:

"As publicly disclosed by EQI, the sale of its transfer agent and corporate trust services business in April 2013 was part of its strategic plan to focus exclusively on the mortgage and deposit-taking business, which was unanimously concluded by the incumbent board as being in the best interest of EQI. The sale transaction which resulted in EQI becoming a pure play alternative mortgage and deposit-taking business was also approved by 100% of the votes cast at EQI's April 2, 2013 meeting of shareholders.

Smoothwater recommends shareholders vote FOR the foregoing resolutions to affirm and protect their investment in EQI, and to require shareholder approval for any proposed change to EQI's strategic direction, as a pure play alternative mortgage business or the significant dilution of their ownership interests without their approval."

About Smoothwater

Smoothwater Capital focuses on investing in small to midcap Canadian public companies where there is an identifiable path to significantly improve shareholder value. Smoothwater Capital Corporation works to effect change in targeted companies, often collaboratively with institutional and other like-minded investors who hold material positions but are not able to take on the time consuming and costly activist role.

Contact Information

  • Smoothwater Capital Partners LP I
    c/o Smoothwater Capital Corporation
    Suite 2500, 120 Adelaide Street West
    Toronto, Ontario M5H 1T1

    Smoothwater Capital Corporation
    Stephen J. Griggs
    Chief Executive Officer
    416.644.6582
    sgriggs@smoothwatercapital.com
    www.smoothwatercapital.ca

    Longview Communications Inc.
    Joel Shaffer
    (416) 649-8006