Board and management track record of nearly 2,000% appreciation in share
price, including 48% in the last 12 months before Smoothwater's
Origination of $50 million in high quality and profitable new loans in
the fourth quarter to date, representing at least a 20% increase over
last year's fourth quarter
Terminated Executives acting jointly with Smoothwater fired because of
loss of confidence by the Board
Smoothwater CEO has no apparent record creating value for shareholders
and lacks OSFI-regulated financial institutions experience
TORONTO, Dec. 10, 2013 /CNW/ - Equity Financial Holdings Inc. (TSX: EQI)
("Equity" or the "Corporation") responded to statements made by
Smoothwater Capital Corporation ("Smoothwater") in correspondence and
discussions with the board and shareholders and in its recent press
releases. Smoothwater is acting jointly with Nick Kyprianou and Darryl
Ivan (the "Terminated Employees"), ex-employees of the Corporation's
subsidiary, Equity Financial Trust Company ("Equity Trust"). The
Terminated Employees were fired in October 2013 upon a unanimous
decision of Equity's board of directors (the "Board"). In addition to
demanding their old jobs back in the place of current senior
management, the Terminated Employees and Smoothwater are demanding to
replace a majority of the Board.
Equity shareholders should consider some important facts:
The only question for shareholders is whether Equity's current
leadership team or that proposed by the dissidents will create more
value for shareholders.
Paul G. Smith, CEO and a founder of Equity, and his team have produced a
total return for shareholders of 1,941% since the Corporation's Qualifying Transaction in December 2004 to the
last trading day before Smoothwater's shareholder action. In the last
12 months of that period alone, shareholders have benefited from share
price appreciation of 48%.
It was Mr. Smith and the Board who built Equity's business, recruited
operations management, and had the vision to leverage Equity Trust's
federal trust charter by obtaining a deposit taking license and
entering the field of alternative mortgage lending.
It is the Board and Mr. Smith and his team who continue to lead and
operate Equity's business with demonstrable success. Since the firing
of the Terminated Employees at the start of the fourth quarter, Equity
Trust has originated $50 million in high quality and profitable new
loans, representing at least a 20% increase compared to the fourth
quarter last year. We remain highly confident that by year end, Equity
Trust's loan book will have grown by at least 90% compared to the
ending balance last year.
The dissidents are asking shareholders to put Equity's future in the
hands of the Terminated Employees who were recently fired because of a
loss of confidence by the Board.
Mr. Kyprianou was fired because the Board lost confidence in his ability
to effectively lead the alternative mortgage business. This was a
unanimous decision of the Board. Contributing factors included the
Board's conclusion that Mr. Kyprianou's leadership created a negative
work environment which was adversely affecting the business.
As Chief Risk Officer, Mr. Ivan's role was to be independent of Mr.
Kyprianou in overseeing risk. The Board concluded that he was not.
Mr. Ivan was fired because the Board lost confidence in his ability to
effectively perform the CRO function required by a regulated financial
institution. This was a unanimous decision of the Board. The Special
Committee is also of the view that Mr. Ivan was not acting in
compliance with the full requirements of the risk management policy.
Smoothwater lacks relevant experience and understanding of
OSFI-regulated financial institutions.
Equity Trust is a federally regulated trust company subject to oversight
by the Office of the Superintendent of Financial Institutions
("OSFI"). Smoothwater insists that it need not disclose its nominees
for the board of directors of Equity Trust. In our view the
suitability and integrity of directors are critical inputs to the risk
based approach taken by OSFI in regulating financial institutions and,
if OSFI was concerned, we expect that it would impose business
We understand that Smoothwater is saying Equity Trust's platform is
under-utilized and that only Mr. Kyprianou can grow the loan book.
This is not true. Since Mr. Kyprianou's termination, the loan book has
been grown as fast as prudently possible. We believe that seeking to
further accelerate growth will cause OSFI to impose constraints that
will hurt shareholder value.
Stephen Griggs, Smoothwater's CEO and nominee for Chair of the Board,
has a resume which lacks any experience with OSFI-regulated financial
institutions. Furthermore, any track record he has creating value for
shareholders is not apparent and we invite him to elaborate on his past
The dissidents initiated a costly and unnecessary proxy fight prior to
any meaningful conversation with management or the Board.
The dissidents' first action was to demand that the Terminated Employees
be given their old jobs back in the place of current senior management
and that a majority of the Board be replaced. Smoothwater has had no
interest in any constructive dialogue, including diligence inquiry with
the Board on the reasons for firing the Terminated Employees.
Smoothwater disclosed that it will pay its proxy solicitation firm up to
$500,000 for its services plus disbursements, and that they have hired
a law firm and a communications firm. They have demanded that Equity
reimburse these costs.
Equity's directors are discharging their fiduciary duty in taking the
time to consider alternate proposals, business plans and value
maximization for the benefit of all shareholders.
From the outset the dissidents have demanded that the Board should
simply stand aside and allow their nominees to take control of Equity,
including reinstating the Terminated Employees in whom the Board had
lost confidence. We consider this an irresponsible demand.
The Board is acting in the interests of all shareholders by conducting a
proper process to evaluate all realistic alternatives for enhancing
shareholder value. The date of the Annual and Special Meeting of
Shareholders was set with that process in mind and to save shareholders
the cost of running two separate meetings.
The Board will continue to engage with shareholders and consider their
views. In connection with the Annual and Special Meeting of
Shareholders, the Corporation will provide a management information
circular that will be mailed to shareholders and posted on the
Corporation's website and SEDAR.
About Equity Financial Holdings Inc.
Equity is a Canadian financial services company serving the alternative
retail mortgage market through its federally regulated and wholly-owned
subsidiary, Equity Financial Trust Company. Learn more at www.equityfinancialholdings.com.
Forward Looking Information
Certain portions of this press release as well as other public
statements by the Corporation contain "forward-looking information"
within the meaning of applicable Canadian securities legislation, which
is also referred to as "forward-looking statements", which may not be
based on historical fact. Wherever possible, words such as "will",
"plans," "expects," "targets," "continue", "estimates," "scheduled,"
"anticipates," "believes," "intends," "may," and similar expressions or
statements that certain actions, events or results "may," "could,"
"would," "might" or "will" be taken, occur or be achieved, have been
used to identify forward-looking information. Such forward-looking
statements include, without limitation, the Corporation's expectations
in respect of earnings, fee income, expense levels, general economic,
political and market factors in North America and internationally,
interest rates, global equity and capital markets, activities, the
Corporation's expected need for equity on debt financing, business
competition, technological change, changes in government regulations,
unexpected judicial or regulatory proceedings, catastrophic events, and
the Corporation's ability to complete strategic transactions and
integrate acquisitions and other factors.
All material assumptions used in making forward-looking statements are
based on management's knowledge of current business conditions and
expectations of future business conditions and trends, including their
knowledge of the current credit, interest rate and liquidity conditions
affecting the Corporation and the Canadian economy. Certain material
factors or assumptions are applied by the Corporation in making
forward-looking statements, including without limitation, factors and
assumptions regarding interest rates, availability of key personnel,
the effect of competition on the Corporation's business, government
regulation of its business, computer failure or security breaches,
future capital requirements, its ability to fund its mortgage business,
the value of mortgage originations, the competitive nature of the
alternative mortgage market, the expected margin between the interest
earned on its mortgage portfolio and the interest to be paid on its
deposits, the relative continued health of real estate markets,
acceptance of its products in the marketplace, as well as its operating
cost structure and the current tax regime.
Forward-looking statements reflect the Corporation's current views with
respect to future events and are subject to a number of risks and
uncertainties. Actual results may differ materially from results
contemplated by the forward-looking statements. Readers should not
place undue reliance on such forward-looking statements, as they
reflect the Corporation's current views with respect to future events
and are subject to risks and uncertainties and are necessarily based
upon a number of estimates and assumptions that, while considered
reasonable by the Corporation, are inherently subject to significant
uncertainties and contingencies. Many factors could cause the
Corporation's actual results, performance or achievements to be
materially different from any future results, performance, or
achievements that may be expressed or implied by such forward-looking
statements, including a significant downturn in capital markets or the
economy as a whole, significant increases in the cost of complying with
applicable regulatory requirements, civil unrest, economic recession,
pandemics, war and acts of terrorism which may adversely impact the
North American and global economic and financial markets, inability to
raise funds through public or private financing significant changes in
interest rates, failure by Equity Financial Trust Company ("EFT") to
meet ongoing regulatory requirements, the failure of borrowers or
counterparties to honour their financial or contractual obligations to
EFT, failure by EFT to adequately monitor and/or adjust its mortgage
portfolio management practices for changing circumstances, failure by
the Corporation to attract and to retain the necessary employees to
meet its needs, failure by EFT to adequately monitor the services
provided by third party service providers or to establish alternative
arrangements if required, failure by EFT to secure sufficient deposits
from securities dealers or a sufficient level of mortgage origination
from its mortgage broker network, a failure of the computer systems of
the Corporation or one or more of its service providers or the risks
detailed from time-to-time in the Corporation's quarterly filings,
annual information forms, annual reports and annual filings with
securities regulators. The preceding list is not exhaustive of possible
factors. The Corporation disclaims any intent or obligation to update
or revise publicly any forward-looking statements whether as a result
of new information, estimates, future events or results, or otherwise,
unless required to do so by applicable laws.
SOURCE: Equity Financial Holdings Inc.
For further information:
Equity Financial Holdings Inc.
Paul G. Smith President & CEO
(416) 361-0152 Ext 270
Bayfield Strategy, Inc.