Kobex recommends voting against Kingsway dissidents
2015-10-08 11:22 ET - News Release
Mr. Paul van Eeden reports
KOBEX CAPITAL CORP. FILES MANAGEMENT INFORMATION CIRCULAR FOR SPECIAL MEETING; BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT KOBEX SHAREHOLDERS VOTE THE WHITE FORM OF PROXY AGAINST, AND WITHHOLD THEIR VOTES FROM, ALL OF THE KINGSWAY RESOLUTIONS
Kobex Capital Corp. has filed and is mailing a management information circular dated Oct. 6, 2015, in connection with the special meeting of shareholders of the company, scheduled to be held at noon (Toronto time) on Tuesday, Nov. 17, 2015. The special meeting was called as a result of the requisition received by the company on Sept. 17, 2015, from Kingsway Financial Services Inc. to consider the resolutions put forth by Kingsway providing, among other things, for the removal from office of all of the existing directors of the company and their replacement by five Kingsway nominees or, alternatively, the increase in the size of the board of directors of Kobex to nine and the election of all five of the Kingsway nominees.
The board unanimously recommends that Kobex shareholders reject changes to the current board and vote the white form of proxy against, and withhold their votes from, all of the Kingsway resolutions, as applicable. The reasons for this recommendation are set out in the management information circular.
The board urges Kobex shareholders to review in detail the letter to Kobex shareholders (reproduced below) and the company's management information circular, which is being mailed to shareholders of record as of Oct. 1, 2015. The management information circular has been filed on SEDAR, and will be available under the company's profile on SEDAR and on the company's website.
Kobex shareholders are urged to vote only the white form of proxy or voting information form in favour of Kobex's current board, well in advance of the proxy cut-off at noon (Toronto time) on Friday, Nov. 13, 2015, pursuant to the instructions set out in the management information circular.
D.F. King is acting as Kobex's proxy solicitation agent in connection with the special meeting. Kobex shareholders who have any questions, require information with regard to the special meeting, or require any assistance in executing and submitting their white form of proxy or voting instruction form can contact D.F. King at:
North American toll-free number: 1-800-301-3998
Outside North America, banks, brokers and collect calls: 1-201-806-7301
North American toll-free fax number: 1-888-509-5907
Fax number: 1-647-351-3176
The full text of the letter to Kobex shareholders is as follows:
"My dear fellow shareholders:
"Your company is under assault!
"Kingsway Financial Services Inc., a holding company for businesses selling car insurance to risky drivers, which has spent its own way to financial distress, is seeking to replace the board of directors of Kobex Capital Corp., and thereby gain control of your company and its cash assets.
"A meeting of the shareholders of Kobex has been called for noon (Toronto time) on Tuesday, Nov. 17, 2015, in response to the requisition of Kingsway to consider a hostile dissident proposal from Kingsway to remove your current board and replace them entirely with five of Kingsway's nominees or, alternatively, to increase the board's size to nine and elect each of the five Kingsway nominees. Either way, Kingsway wants to take control over your company and your investment.
"You have a very clear choice to make at the meeting that will determine the value and security of your investment in Kobex.
"You can choose to stay the course with your recently re-elected and fully independent directors, who have been working to create and enhance long-term shareholder value for all Kobex shareholders or you can choose to believe the hollow and misleading promises of Kingsway, with its history of shareholder value destruction and related-party transactions, and its conflicted non-independent Kingsway nominees, who have no identified strategy for Kobex other than to spend your money to pay for Kingsway's unnecessary proxy contest and to buy back Kobex shares to increase Kingsway's proportionate interest.
"What you need to know about Kingsway
"Since Kingsway came under the effective control of Joseph Stilwell in 2009, Kingsway has lost a staggering $287,478,000 (U.S.) (annual periods ending Dec. 31, 2010, to Dec. 31, 2014). Kingsway's shares have lost approximately 77 per cent of their value since Stilwell achieved board representation. From 2009 to 2014, Kingsway's book value deteriorated from $348,073,000 (U.S.) (Dec. 31, 2009) to $41,866,000 (U.S.) (Dec. 31, 2014) -- that's $306,207,000 (U.S.) in shareholder equity or 88 per cent of the company gone!
"During this time, the president and CEO of Kingsway appointed by Stilwell, Larry Swets, has earned over $5.3-million (U.S.) in direct compensation. In its public disclosures, Kingsway has stated that it owed approximately $22.7-million (U.S.) in deferred interest payments prior to March 4, 2016, and that it, at the time, it did '... not have the cash resources necessary to satisfy completely the deferred interest payment obligations.' In its public disclosures, Kingsway has stated that it has been subject to intense review and supervision by insurance regulators, which have also requested additional capital contributions from Kingsway to its insurance subsidiaries.
"On all metrics, the Kingsway management team has not delivered and appears desperate for cash. Kobex shareholders should not trust these people, their non-independent nominees or their motives. Your investment depends on it!
"A midnight raid
"The board believes that this proxy contest is simply a cash grab aimed at promoting Kingsway's self-interested agenda at the expense of all other Kobex shareholders. A mere eight days after Kingsway publicly announced the increase in its stake in Kobex from 3.62 per cent to 13.07 per cent, it launched the requisition and proxy contest without any attempt at approaching the board or management of Kobex or engaging in any discussions, either formally or informally. This is a complete departure from Kingsway's own public statement made on Sept. 9, 2015, that it expected to seek to engage with management and/or the board in dialogue and actions related to maximizing shareholder value and exploring strategic alternatives. Now they claim an intention to pursue an agenda for the benefit of all shareholders. We don't believe them, and neither should you.
"Don't be fooled by their 'concerned shareholder' charade. They think their very recently acquired stake entitles them to complete control over your company. Kingsway is only interested in getting its hands on Kobex and your cash. As recently as in its 2014 10-K report filed with the U.S. Securities and Exchange Commission, Kingsway stated that it did not have the cash resources necessary to satisfy its interest payment obligations. Following the delivery of the requisition, Kingsway has been engaged in a creeping acquisition of Kobex shares. If Kingsway wants to control your cash, they should make a proper takeover bid to all Kobex shareholders at an appropriate premium price.
"Your board unanimously recommends that you submit the enclosed white form of proxy to send a message, loud and clear, that you are against the Kingsway proposal and that you reject Kingsway's proposed changes to the board.
"Who is Kingsway?
"The board, in the exercise of its fiduciary duties, has carried out an investigation of Kingsway based upon publicly available information, which is ongoing and as a result of which it has determined the following. Kingsway is a holding company for car insurance businesses. In 2009, it came under the effective control of funds managed by Joseph Stilwell. When the Stilwell group arrived, the Kingsway share price was $27.20, and it had a market capitalization of $374,465,990. Today, and notwithstanding a 1-for-4 share consolidation, the Kingsway share price is $6.15, and its market capitalization is $133,344,614. In between these times, Kingsway and its management have been unable to turn around its performance. Kingsway management and its board have squandered approximately $320-million (U.S.) in the past five years. Kingsway has approximately $22.7-million (U.S.) in imminent interest payments coming due. In light of its losses incurred in recent years, by their own admission, Kingsway and its regulated insurance subsidiaries have become subject to intense review and supervision by insurance regulators.
"In addition, Kingsway and its management have engaged in a number of related-party and other inappropriate transactions against the interests of Kingsway shareholders. As an example, Kingsway tried to dispose of the shares of a troubled subsidiary to 20 charities without disclosing to them the nature of the toxic 'gift' which almost immediately resulted in Kingsway being sued by the Commonwealth of Pennsylvania Insurance Department. As another example, the president and CEO of Kingsway sold an insurance company to Kingsway for in excess of $2-million (U.S.), which company was subsequently judged to be worthless. That same CEO currently enjoys the benefit of the grant by Kingsway of restricted shares which in 10 years will result in his ownership of 10 per cent of Kingsway. And finally, as recently as March of 2015, Joseph Stilwell was sanctioned by an order of the U.S. Securities and Exchange Commission for inappropriate management of his investment funds. His funds are also being sued by the former chairman of Kingsway who Mr. Stilwell himself had appointed. Details of the foregoing, as well as additional cautionary information regarding Kingsway, are provided under the heading, 'reasons for rejecting Kingsway resolutions.'
"Are these the people you want to control your investment?
"Non-independent nominees without Kobex's best interests in mind
"Kingsway claims that its Kingsway nominees are independent. We know otherwise. Of the five nominees, four are directly associated with Kingsway. These four nominees are either members of the board of Kingsway, members of the boards of affiliates of Kingsway or service providers to Kingsway or its affiliates who have been or may currently be beholden to Kingsway for their work and compensation. Even before they have been elected, the Kingsway nominees have already expressly determined that they will follow Kingsway's so-called plan. Their relationships and apparent bias in favour of Kingsway should be of significant concern to all other Kobex shareholders. If elected, whose interests do you think they will serve -- yours or Kingsway's?
"The way forward
"Do not be fooled. Kingsway's campaign is not about corporate governance or about strategic vision. If Kingsway really cared about the reduction of expenses, it would never have launched an expensive proxy contest, which virtually guarantees the unnecessary expenditure of your cash. Kingsway has disclosed no specific plans other than arranging to have Kobex pay for its expenses related to this proxy contest and to have Kobex commence a share buyback program to use your cash to effectively increase its proportionate interest in Kobex -- this at the very same time that Kingsway has contrarily delivered a letter, proposing to finance Kobex in another endeavour to increase Kingsway's interest. We are, and you should be, very suspicious that this very lack of an announced plan on Kingsway's part demonstrates its designs on utilizing Kobex's cash for its own purposes and to help alleviate its own serious problems. Supporting Kingsway risks putting the fate and future of Kobex in the hands of individuals with questionable motives. It also risks disruption of your current board's progress in the reduction of expenses, the marshalling and conservation of Kobex's cash reserves, and the consideration of appropriate transactions to unlock value for all Kobex shareholders. In the midst of the current challenging global economic situation and depressed commodity price environment, with the attractive opportunities that this implies, Kobex's cash reserves represent a precious asset that cannot be replicated and should not be squandered.
"The board's recommendation
"As you prepare to cast your vote, the board asks you to consider the very real concerns regarding Kingsway and the Kingsway nominees identified in this letter and further described in the accompanying management information circular, including, among others, Kingsway's and its management's past history and performance, as well as the non-independence of, and irreconcilable conflicts of interest facing, the Kingsway nominees, should they be elected to your board. I would ask you to read the circular carefully, as it provides compelling and essential information regarding the challenge facing your company today.
"Do not turn Kobex over to Kingsway and its hand-picked Kingsway nominees. We urge you to stop Kingsway in its hostile and self-serving attempt to take control of Kobex and your assets and investment.
"The board unanimously recommends that you vote the white form of proxy against and withhold your votes from the Kingsway resolutions, as applicable.
"Regardless of the number of shares you own, you should take immediate action and cast your vote today by completing and returning only the white form of proxy.
"If you have any questions or need assistance in casting your vote or completing the white form of proxy, please call D.F. King & Co. Inc. at toll-free 1-800-301-3998, and they will be happy to help. Additionally, for up-to-date information and ease of voting, we strongly encourage shareholders to please continue to visit [the company's website].
"Regards,
"Paul van Eeden
"Chairman"
We seek Safe Harbor.