Kingsway Financial Services' Plan for Kobex Capital Means a Plan for Long-term Value Creation and Liquidity

  • Kingsway will replace the self-interested, unqualified directors who have presided over years of value destruction and implement a plan to create long-term value for all shareholders including a share buyback.

  • Kingsway's five new independent Director nominees are aligned with shareholders and committed to reducing expenses and exploring strategic alternatives that will eliminate the discount between Kobex's share price and intrinsic value and return money to shareholders as quickly as possible. 

  • Once Kingsway's independent nominees are elected the nominees support providing shareholders with the opportunity to participate in a share repurchase program at a $0.65 per share 18% premium.  

  • Because Kingsway is confident in its plan to create value, and has heard from many shareholders who are frustrated by being held hostage in an underperforming investment, Kingsway is commencing a $0.65 per share 18% premium tender offer now, on an extremely limited basis, to provide the liquidity shareholders have been denied by the current board.  

TORONTO, Oct. 13, 2015 /CNW/ - Kingsway Financial Services Inc. ("Kingsway") launches its campaign to upgrade Kobex Capital Corp. ("Kobex") by releasing a compelling letter to shareholders outlining Kingsway's case for change and commencing a premium tender offer at $0.65 per share.

In connection with the Meeting that has been scheduled by Kobex to take place on Tuesday, November 17, 2015 (the "Meeting"), Kingsway filed a dissident proxy circular dated October 13, 2015 (the "Information Circular") and BLUE form of proxy that will be mailed to the shareholders of Kobex as of October 1, 2015 (the "Record Date"). The Information Circular and letter to shareholders provides detailed information about Kingsway's director nominees and shareholder-focused agenda for change at Kobex. The Information Circular and the shareholder letter set out below may be viewed at www.kobexupgrade.com.

Shareholders with questions about the premium tender offer, or who require assistance tendering their shares or voting their BLUE proxy for Kingsway's nominees are encouraged to call Kingsway's proxy solicitation agent and depositary Kingsdale Shareholder Services at 1-855-683-3113 (North American Toll Free Number) or 1-416-867-2272 (collect outside North America) or email at contactus@kingsdaleshareholder.com.

Below is the full text of Kingsway's letter to shareholders:

Dear Fellow Shareholder,

If you are anything like me, you are frustrated with the inability to create change in companies that put money in the hands of management and the board while you receive nothing in return.   In fact, you've lost money -- and if the current Kobex board remains in place we wouldn't expect anything to change!

We've decided to do something about it.  

We're going to replace the self-interested, unqualified directors who have presided over years of value destruction, implement a plan to create long-term value for all shareholders and initiate a strategy to provide you with an opportunity for the liquidity you have been denied.  

STEP 1: UPGRADE THE KOBEX BOARD

A better Kobex starts with better leadership.  As the desperate, shrill letter the Kobex board sent to you shows, the truth is never easy to handle, even if it is long overdue.   The truth is the current directors of Kobex have failed miserably at creating value for shareholders.  Instead of giving you pages and pages of irrelevant graphs and charts about how bad managers can destroy value before new leadership comes in, only one matters and tells the truth:

To view the graphic, please click http://files.newswire.ca/1437/kingsway.pdf

For far too long, Kobex's current management has taken fees from the company without any results.  This shouldn't come as a surprise since most of the directors don't actually own any shares of the company‎.  In August, we learned the current board approved stock options at over 20% below the per share value of cash and marketable securities held by Kobex.  Even if the company continues to lose our money, they could earn a return for themselves by just giving us our capital back. 

While they have used our capital to pay themselves, share price has languished because this board has no plan.  Their investment strategy consists of lurching from one-off investment to one-off investment with no plan to build long-term value.  This too shouldn't come as a surprise given the expertise of the current board is limited to investing in minerals.  While the business model for Kobex has changed, the qualifications of its directors have not.  

It is clear that the board that got Kobex to where it is today cannot get it to where it needs to go.  Kingsway's qualified, independent nominees have the experience and track record needed to create value for all shareholders.

It's time for a change. It's time to upgrade Kobex.

STEP 2: IMPLEMENT A PLAN TO CREATE REAL LONG-TERM VALUE FOR ALL SHAREHOLDERS  

Kobex is in a unique position to create value.  The significant cash position and the deferred tax asset (unfortunately created through the significant losses incurred by Kobex over many years) along with a TSXV listing could be utilized to provide value to all shareholders.  Unfortunately, the current management and board are equally unmotivated and unqualified to take advantage of this opportunity.  

Our philosophy for change starts by creating an alignment between the owners and managers of a business.  We believe our company should be managed for all shareholders, not a select few who have conflicts and other relationships outside of Kobex.  Here is our plan to upgrade Kobex and rapidly return cash to all shareholders:

  1. Replace the conflicted, self-interested incumbent directors with five highly-qualified, independent directors.
  2. Leverage the strong, proven track record of Kingsway's principals to create value for all shareholders.
  3. Reduce corporate expenses and ensure alignment with all shareholders by reducing director pay from current levels to $10,000 per director annually, and committing to vote against any compensation package that provides stock below intrinsic value.
  4. Explore strategic alternatives that will eliminate the discount between share price and intrinsic value.

You should know that the management team at Kingsway and our independent director nominees have a long proven track record of creating value for all shareholders. Below are a few examples: 

  • Atlas Financial Holdings (NASDAQ: AFH) was initiated as a merger with a capital pool company (CPC) that has created significant value for shareholders.
  • United Insurance Holdings (NASDAQ: UIHC) was a reverse merger organized by principals of Kingsway and has created significant value for shareholders.
  • Kingsway was involved in providing the capital to Concordia Healthcare (TSX: CXR) to help it prepare for a merger with a CPC and providing a 665.76% return for subscription right buyers.

In fact, even before we've had a chance to lend our management and leadership expertise to Kobex, we have already provided the catalyst for results.  Before we started investing in Kobex it was trading at $0.45 per share.  It is our purchases, not the decisions of management, that have moved the share price up to $0.55 per share.    

STEP 3: PROVIDE THE LIQUIDITY YOU HAVE BEEN DENIED

We understand the many shareholders who are frustrated by being held hostage in an underperforming investment.   Once the Kingsway nominees are elected and our plan for Kobex is underway, our plan is to provide you with a choice by initiating a share repurchase program.    

We plan to provide shareholders who want to leave their investment in Kobex with a future opportunity for liquidity at a $0.65 per share 18% premium.

We understand how important liquidity is to shareholders and believe in our plan to create value so much that we are providing shareholders who want to exit their Kobex investment now with an immediate $0.65 per share 18% premium tender offer.  Unfortunately, due to the oppressive Shareholder Rights Plan put in place by the entrenched Kobex board, we may only able to take up an extremely limited number of shares until the full board is replaced.  Once the board is replaced, our independent director nominees, acting in accordance with their fiduciary duties to Kobex, support providing shareholders with a more fulsome liquidity at the same 18% premium. 

BE PART OF THE KOBEX UPGRADE

Choosing to remain with me as a Kobex shareholder and voting to replace the current board means you will benefit from our plan to create value for all shareholders.  Kingsway's nominees are committed to reducing expenses, exploring all value creation opportunities and incentivizing proven managers that will work diligently to find us opportunities.

It is important you vote your BLUE proxy by 9:00 am (Toronto time) on November 13, 2015.    If you need help voting or want to participate in our $0.65 per share premium tender offer, please call our proxy solicitation agent and depositary Kingsdale Shareholder Services at 1-855-683-3113 (North American Toll Free Number) or 1-416-867-2272 (collect outside North America) or email at contactus@kingsdaleshareholder.com

Regards,

Larry G. Swets, Jr.
Kobex shareholder and President, CEO and Director of Kingsway Financial Services

ABOUT KINGSWAY'S INDEPENDENT AND EXPERIENCED BOARD NOMINEES

Kingsway believes that it is time for new independent leadership on the board of directors of Kobex (the "Board"). As set out in the Information Circular, Kingsway proposes to remove each of Michael J. Atkinson, E. Kenneth Paul, David M. Schmidt and Paul P. van Eeden (or their respective appointed successor(s)) (collectively, the "Current Kobex Directors") as Directors of Kobex and elect the following five (5) new directors to the Board (collectively, the "Kingsway Nominees"):

  • John T. Fitzgerald - Mr. Fitzgerald is founder and Managing Partner of Argo Management Partners and Managing Member of Argo Holdings Fund I, LLC.  He is the Chairman of Hunter MFG, LLP, and serves on the board of directors of each of Oak Patch Gifts, Progressive Bronze Products, Atlas Financial Holdings Inc. (NASDAQ: AFH) and 1347 Capital Corp (NASDAQ: TFSC);

  • Gregory P. Hannon - Mr. Hannon is Vice-President and Director of Oakmont Capital Inc., a Toronto-based private investment company. He previously was Founding Partner of Lonrisk, a Toronto-based specialty insurer and subsidiary of the London Insurance Group, where he was the Vice-President. He has been a member of the board of directors of Kingsway since 2009;

  • Joshua S. Horowitz - Mr. Horowitz is Managing Director at Palm Ventures where he is solely focused on investments in the public markets and helps oversee the Palm Global Small Cap Fund. Mr. Horowitz previously served as Director of Research for both Inverlochy Capital and Berggruen Holdings. He has been appointed to the board of directors of each of Lincoln General Insurance Company, 1347 Capital Corp. (NASDAQ: TFSC) and 1347 Property Insurance Holdings, Inc. (NASDAQ: PIH);

  • Andrew McIntyre - Mr. McIntyre is a Managing Director of Segwin Consulting Ltd., a consultancy specializing in M&A advisory, business valuation, strategy and business development. Previously, Mr. McIntyre was Vice President, Corporate Development at Vicwest Inc.; and

  • R. Michael Powell - Mr. Powell serves as Managing Director in the Investment Banking Department at EarlyBirdCapital, Inc., where he focuses primarily on Special Purpose Acquisition Company ("SPAC") IPOs and SPAC business combinations. Prior to joining EarlyBirdCapital, Mr. Powell served as Managing Director at Pali Capital, Inc.

If elected, each Kingsway Nominee would serve until the next annual general meeting of shareholders or until their successors are elected or appointed. In the event that the special resolution removing each of the Current Kobex Directors is not passed, the Information Circular proposes to fix the number of directors of Kobex at nine (9) and elect each of the Kingsway Nominees (in each case to hold office until the next annual general meeting of shareholders or until their successors are elected or appointed).

ABOUT THE PREMIUM TENDER OFFER

Kingsway is pleased to announce its premium tender offer to purchase from shareholders of Kobex, at a price of $0.65 per common share of Kobex (each, a "Share") up to the greater of: (i) the number of Shares (and associated SRP Rights (as defined in the Rights Plan)) that Kingsway will be permitted to take-up without triggering Kobex's shareholder rights plan dated October 8, 2015 (the "Rights Plan"); or (ii) in the event that the Rights Plan is cease-traded, waived, or otherwise not in effect at the time of take-up under the Premium Tender Offer (as defined below), the number of Shares (and associated SRP Rights) that will result in Kingsway owning not more than 19.9% of the issued and outstanding Shares (or such lesser number of Shares that will not otherwise trigger the formal take-over bid requirements of applicable securities laws) upon the terms and subject to the conditions set out below (the "Premium Tender Offer"). The Premium Tender Offer is open for acceptance until 5:00 p.m. (Toronto time) on Monday, November 2, 2015 (the "Expiry Time"), or until such later or earlier time that the Premium Tender Offer may be extended or varied, or until the Premium Tender Offer is withdrawn by Kingsway, subject to the terms of the Premium Tender Offer.

As of today's date, Kingsway owns 14.87% of the issued and outstanding Shares. If the Rights Plan remains in effect at the time of take up, Kingsway may only be entitled to acquire a very small number of Shares under the Premium Tender Offer.

The purchase price under the Premium Tender Offer of $0.65 is equal to a 18.2% premium to the $0.55 closing price of the Shares on the TSXV on October 9, 2015 (the last trading day prior to the announcement of the Premium Tender Offer) and on September 8, 2015 (being the day prior to Kingsway's early warning report dated September 9, 2015 related to the acquisition of Shares at $0.65).

In order to validly deposit Shares to the Premium Tender Offer, shareholders must deliver a proxy or otherwise provide evidence acceptable to Kingsway that such depositing shareholder shall have voted in favour of the election of Kingsway's director nominees for election to the board of Kobex, and the other resolutions proposed by Kingsway at the special meeting of Kobex shareholders to be held on November 17, 2015 or any adjournments or postponements thereof in respect of all Shares deposited to the Premium Tender Offer (the "Deposited Shares"), regardless of the number of Deposited Shares actually taken up and paid for by Kingsway under the Premium Tender Offer. Such proxy may be revoked as set out in the Premium Tender Offer.

Subject to the conditions to the Premium Tender Offer being satisfied or waived at the Expiry Time: (i) if the Rights Plan remains in place as of the Expiry Time of the Premium Tender Offer, Kingsway will take up all Shares deposited to the Premium Tender Offer up to the limit of which it is permitted to acquire under the Rights Plan; or (ii) in the alternative, if the Rights Plan has been cease-traded, waived, or is otherwise inapplicable to the Premium Tender Offer (as determined by Kingsway, acting reasonably), then Kingsway reserves the right to extend, vary or withdraw the Premium Tender Offer unless a minimum of 5% of the issued and outstanding Shares is tendered to the Premium Tender Offer, in which case Kingsway will take up to a maximum of 2,289,296 Shares or such lesser number of Shares that will not otherwise trigger the formal take-over bid requirements of applicable securities laws.

ADDITIONAL INFORMATION ON THE PREMIUM TENDER OFFER

Full details of the Premium Tender Offer are included in the offer document that will be mailed to all Kobex shareholders and the accompanying letter of transmittal, complete with instructions for the tendering and delivery of Shares. In order to deposit their Shares to the Premium Tender Offer, shareholders must complete the documentation and follow the instructions provided in the Premium Tender Offer or by their investment dealer, broker or other nominee. Investment dealers, brokers and other nominees may set a deadline for the delivery of deposit instructions that is earlier than the Expiry Time, and as such, shareholders should contact their investment dealer, broker or other nominee for assistance at their earliest convenience.

The Premium Tender Offer will be subject to certain conditions set out in the letter to shareholders which, unless waived, must be satisfied. Shareholders are directed to read the Premium Tender Offer in its entirety.

Pro Rata Take Up

If more than the maximum number of Shares for which the Premium Tender Offer is made are delivered in accordance with the Premium Tender Offer and not withdrawn at the time of take up of the Shares, the Shares to be purchased from each depositing shareholder will be determined on a pro rata basis according to the number of Shares delivered by each shareholder, disregarding fractions, by rounding down to the nearest whole number of Shares.

Withdrawal of Premium Tender Offer 

If the Premium Tender Offer is withdrawn by Kingsway, Kingsway shall immediately cause all Shares delivered pursuant to the Premium Tender Offer to be returned to shareholders and all proxies associated with such Shares will be deemed to be revoked.

Withdrawal of Deposited Shares

Unless otherwise required or permitted by applicable law, any Deposited Shares may be withdrawn by or on behalf of the depositing shareholder at any time before such Deposited Shares are taken up by Kingsway. If payment for Shares taken up by Kingsway is not made within three business days of take up, shareholders may withdraw the Shares they deposited to the Premium Tender Offer. In either circumstance, all proxies associated with such withdrawn Shares will be deemed to be revoked.

Revocation of Proxies

Any proxies solicited by Kingsway in connection with the Meeting, other than proxies in respect of Shares taken up and paid for by Kingsway under the Premium Tender Offer, may be revoked at any time before the start of the Meeting by following the instructions for revocation set out in Kingsway's Circular, providing instructions to the shareholder's investment dealer, broker or other nominee, or by simply subsequently submitting a vote in favour of management of Kobex. After take up, shareholders will also be provided with a toll free phone number to facilitate the immediate revocation of any proxies associated with Shares not taken up by Kingsway under the Premium Tender Offer, if they so choose.

Take Up and Payment for Shares

If any Shares are taken up pursuant to the Premium Tender Offer, Kingsway shall forthwith widely disseminate a press release that states the number of Shares taken up under the Premium Tender Offer on a pro-rated basis. Kingsway will pay for Shares not later than three business days after taking up the Shares.

Extension of Premium Tender Offer

If there is a further extension of the Premium Tender Offer past November 2, 2015, Kingsway will announce the number of Shares deposited under the Premium Tender Offer as at the date of extension.

Notices to Shareholders regarding the Premium Tender Offer

Kingsway will continue to provide the market with timely updates by way of press release, and any material updates to the terms of the Premium Tender Offer will be disseminated by way of notice mailed to each shareholder.

ABOUT KINGSWAY FINANCIAL SERVICES INC.

Kingsway is a holding company functioning as a merchant bank with a focus on long-term value-creation. Kingsway owns or controls stakes in several insurance industry assets and utilizes its subsidiaries, 1347 Advisors LLC and 1347 Capital LLC, to pursue opportunities acting as an advisor, an investor and a financier. The common shares of Kingsway are listed on the Toronto Stock Exchange and the New York Stock Exchange under the trading symbol "KFS".

KINGSWAY'S ADVISORS

Kingsway has engaged Norton Rose Fulbright Canada LLP as its legal advisor and Kingsdale Shareholder Services as its strategic advisor and proxy solicitor.

The information contained in this press release does not and is not meant to constitute a solicitation of a proxy within the meaning of applicable securities laws. In connection with the Meeting, Kingsway filed the Information Circular and BLUE form of proxy on October 13, 2015 in compliance with applicable securities laws. The Information Circular and BLUE form of proxy will be mailed to each shareholder of Kobex as of the Record Date.

Notwithstanding the foregoing, Kingsway is voluntarily providing the disclosure required under section 9.2(4) of National Instrument 51‐102 - Continuous Disclosure Obligations in accordance with securities laws applicable to public broadcast solicitations.

This press release and any solicitation made by Kingsway in advance of the Meeting is, or will be, as applicable, made by Kingsway, and not by or on behalf of the management of Kobex. All costs incurred for any solicitation will be borne by Kingsway, provided that, subject to applicable law, Kingsway may seek reimbursement from Kobex of Kingsway's out‐of‐pocket expenses, including proxy solicitation expenses and legal fees, incurred in connection with a successful reconstitution of the Board.

Any proxies solicited by Kingsway will be solicited pursuant to the Information Circular to be mailed to shareholders of Kobex as of the Record Date after which solicitations may be made by or on behalf of Kingsway, by mail, telephone, fax, email or other electronic means, and in person by directors, officers and employees of Kingsway or by the Kingsway Nominees, or by Kingsdale Shareholder Services, Kingsway's proxy solicitor, all as more fully described in the Information Circular. The cost of the solicitation services to be provided by Kingsdale Shareholder Services is approximately $50,000.

Any proxies solicited by Kingsway in connection with the Meeting may be revoked (a) by completing and signing a valid form of proxy bearing a later date and returning it in accordance with the instructions contained in the form of proxy, or as otherwise provided in the Information Circular; (b) by depositing an instrument in writing executed by a registered holder of shares of Kobex or by a registered holder's attorney authorized in writing (or, if the registered holder of shares of Kobex is a corporation, by a duly authorized officer or attorney) and deposited either at the principal business office of the Kobex (Suite 1703 - 595 Burrard Street, Vancouver, BC V7X 1J1) at any time up to and including the last business day preceding the day of the Meeting; (c) by attending the Meeting and reporting to the desk of Computershare Investor Services Inc. (the transfer agent and registrar of Kobex) to sign in and revoke any proxy previously given; or (d) in any other manner permitted by law.

None of Kingsway or, to its knowledge, any of its associates or affiliates, has any material interest, direct or indirect, by way of beneficial ownership of securities or otherwise, in any matter proposed to be acted on at the Meeting, other than the election of directors to the Board.

Kobex's principal business office is Suite 1703, Three Bentall Centre, 595 Burrard Street, PO Box 49131, Vancouver, British Columbia V7X 1J1. A copy of this press release may be obtained on Kobex's SEDAR profile at www.sedar.com.

SOURCE Kingsway Financial Services Inc.

PDF available at: http://stream1.newswire.ca/media/2015/10/13/20151013_C9987_DOC_EN_44310.pdf

For further information:

Shareholders of Kobex:
Hassan Baqar
Kingsway Financial Services Inc.
1.847.700.8064
hbaqar@kingswayfinancial.com

Media:
Ian Robertson
Kingsdale Shareholder Services
Vice President, Communications
Direct: 416.867.2333; Cell: 647.621.2646
irobertson@kingsdaleshareholder.com


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