Equus Total Return, Inc. (NYSE: EQS) (“Equus” or the “Fund”) has
sent a letter to shareholders noting that Sam Douglass, the founder
of the “Committee to Enhance Equus,” has received a “Wells Notice”
from the staff of the SEC for possible violations of federal
securities laws. The letter also notes conflicts of interest and
other problems with the Douglass Committee nominees and urges Equus
shareholders to support a new start by voting the WHITE proxy card today. To ensure that
each shareholder’s vote is received in time, Equus is encouraging
all shareholders to cast their votes using the internet or
telephone by following the instructions provided on the
WHITE proxy card or voting
instruction form that they have received from Georgeson, Inc., the
Fund’s proxy solicitation firm. Shareholders requiring
assistance in voting the WHITE proxy card, or seeking additional
copies of the Fund’s proxy materials, may call Georgeson toll-free
at 866-821-2606 (banks and brokerage firms should call
212-440-9800), or email equus@georgeson.com. Shareholders also can
find additional materials on the annual meeting and how to vote on
the Fund’s website at www.equuscap.com.
Presented below is the text of the letter:
VOTE THE WHITE PROXY CARD TODAY
NO MATTER HOW MANY SHARES YOU
OWN,YOUR VOTE IS ESSENTIAL FOR CHANGE AT EQUUS
Dear Equus Shareholder,
With the May 12th Annual Meeting of Equus Total Return (“Equus”
or the “Fund”) shareholders rapidly approaching, now is the time
for you to cast your vote for a new start at Equus. The so-called
“Committee to Enhance Equus” (the “Douglass Committee”) is running
a proxy contest to regain control of the Fund so that Sam and Paula
Douglass can maintain the status quo and continue to benefit
themselves personally at the expense of Equus’ shareholders. If you
want change at Equus, it is critical that you vote the enclosed
WHITE proxy card today.
No matter how many shares you own,
please make sure they are represented at the meeting.Submit
your vote on the attached WHITE proxy card today.
You should consider the backgrounds and experience of the
Fund’s director nominees at the end of this letter versus the
Douglass Committee and its nominees.
1.
SAM DOUGLASS, FOUNDER OF THE
“COMMITTEE TO ENHANCE EQUUS” AND THE HUSBAND OF PAULA DOUGLASS, IS
CURRENTLY SUBJECT TO A “WELLS NOTICE” FROM THE STAFF OF THE SEC FOR
POSSIBLE SECURITIES LAWS VIOLATIONS
In June 2009, Sam Douglass received a “Wells Notice” from the
staff of SEC. A Wells Notice is an official communication from the
staff of the SEC that it intends to recommend enforcement
proceedings be brought for violations of U.S. Federal securities
laws. Unlike a confidential fact-finding subpoena where the SEC
affirms that no negative inference should be drawn from the
inquiry, a Wells Notice is considered a material and disclosable
event because the staff of the SEC has conducted an investigation
and has concluded that it believes wrongdoing has occurred.
2.
THE DOUGLASSES HAVE MADE
MILLIONS IN MANAGEMENT FEES, SALARIES, BONUSES, AND INSTALLMENT
PAYMENTS IN CONNECTION WITH MANAGING THE FUND DURING THE PAST 5
YEARS
The Douglasses, as founders of Equus, have attempted to
disassociate themselves with the Fund’s poor historical performance
and their management of Moore, Clayton Capital Advisors, Inc.
(“MCCA”), the Fund’s previous investment advisor. The facts,
however, tell a different story. During the past 5 years, Sam and
Paula Douglass supported MCCA and its relationship with Equus
because they stood to personally benefit from its management
contract with the Fund:
- MCCA was appointed as the Fund’s
investment adviser in June 2005 in connection with the sale by Sam
Douglass of the Fund’s previous investment advisor, Equus Capital
Management Company (“ECMC”), to MCCA’s parent company.
- Two trusts controlled by Sam
Douglass were entitled to receive $6 million from the sale of ECMC,
a large portion of which was a continuing earn-out contingent on
MCCA remaining as advisor to the Fund.
- At the time it was sold, ECMC was beneficially
owned and controlled by Sam Douglass.
- Mr. and Mrs. Douglass became
officers, directors, and employees of MCCA, collectively drawing
over $1.6 million in salary and bonus.
- When MCCA’s investment
management agreement with the Fund was terminated in June 2009, Mr.
and Mrs. Douglass were no longer entitled to receive income from
MCCA as employees or as installment payments for the purchase of
ECMC.
ASK YOURSELF WHY THE DOUGLASSES
ARE NOW UNDERTAKING THIS PROXY CONTEST TO GET CONTROL OF THE FUND’S
MANAGEMENT
3. LANCE FUNSTON ALREADY HAS A HISTORY OF LOSING THE
FUND’S MONEY
Lance Funston previously managed an investment of the Fund’s
predecessor (Equus Investments I) that went bankrupt less than
two years after the investment. Funston orchestrated a $2.25
million investment by Equus Investments in O’Day Corporation, a
sailboat manufacturer in Fall River, Massachusetts. As part of the
transaction, Funston’s consulting firm L.T. Funston & Co.
received approximately $182,179 in fees and expenses and received
15% of the equity. Funston assumed the position of Chairman of
O’Day and a monthly fee of $10,000 and, within 11 months from the
date the transaction closed, O’Day’s net income swung from a gain
of $790,000 to a loss of $346,000. Funston even facilitated a
$650,000 rescue loan to O’Day in which Equus participated, less
than 16 months later even though, according to the O’Day bankruptcy
judge:
Notwithstanding the loan, O’Day’s
financial health [at the time of the rescue loan] was not good. The
company’s earnings before interest and taxes and net earnings were
negative
Six months after the rescue loan (and less than 2 years
following the initial investment), O’Day was forced into
involuntary bankruptcy – a Chapter 7 liquidation. Despite being
charged with and paid for overseeing O’Day, Forbes magazine quoted
Funston as saying:
In the course of the two years
that we were involved with O’Day, I spent only 20 days at the Fall
River facility.
Funston’s actions were described in the same article as an
example of “[w]hat happens when a buyout artist doesn't understand
the business….”
Additionally, Funston served as a director of Regent Bancshares
Corp., a once public bank holding company, where he failed to
attend at least 75% of the meetings of the Board during at least
one year of his tenure despite the bank’s being located in his city
of residence. Further, while on the Board of Bancshares, Mr.
Funston became delinquent on a $705,000 loan from the bank and
forced the bank to institute foreclosure procedures against
him.
4.
THE FUND HAS COMMENCED A
LAWSUIT TO RECOVER $2.3 MILLION OWED BY TRULITE, INC. – AND THREE
OF TRULITE’S DIRECTORS ARE NOMINEES OF THE DOUGLASS
COMMITTEE
Jonathan H. Godshall and John D. White serve as the CEO and
Chairman, respectively, of Trulite, Inc., a portfolio company of
Equus that is now being sued by Equus to collect on a $2.3 million
loan which was originated by Paula Douglass on behalf of the Fund.
Each of Messrs. Godshall and White and Paula Douglass are directors
of Trulite. Consider the conflicts created and the track record of
these persons who have been nominated by the Douglass Committee to
the Equus board:
- Instead of pressing for
collection and recovery of the Trulite Loan, the Douglasses,
through the Douglass Committee, have instead sought to appoint
Godshall, White, and Paula Douglass to your Fund’s Board of
Directors,
- Godshall, White, and Douglass
have a fiduciary duty to protect the assets of Trulite – a direct
conflict of interest with the duties of Equus directors to protect
the interests of Equus shareholders and collect on the defaulted
Trulite loan.
- In early 2007, Trulite commenced
trading on the OTC Bulletin Board and on March 31, 2008 had a
market capitalization in excess of $14 million. In July 2008, Paula
Douglass was appointed to the Board of Trulite. By June 2009,
Trulite’s stock price declined and last traded at a penny per share
in July 2009 with a market capitalization of approximately
$200,000.
- During 2009, Trulite’s net
shareholder deficit increased from approximately $2.2 million to
approximately $5.0 million.
DO EQUUS SHAREHOLDERS REALLY WANT
THE LEGACY OF THE DOUGLASSES AND THEIR FRIENDS TO CONTINUE AS
STEWARDS OF THE FUND’S ASSETS?
CONSIDER THE BACKGROUNDS AND TRACK
RECORDS OF THE DOUGLASS COMMITTEE AND ITS NOMINEES AND ASK YOURSELF
IF RETURNING THE DOUGLASSES TO CONTROL OF THE FUND WOULD BE
BENEFICIAL TO ITS SHAREHOLDERS
While the Board is in the process of bringing in new, talented,
and experienced directors with no previous connections with Equus
or the Douglasses, Sam and Paula Douglass have chosen to launch
this costly and disruptive proxy contest, seeking to replace your
entire board with their Houston friends and associates. Do not be
misled. Please discard any gold proxy card you may receive from the
Douglass Committee. The Douglasses'
own proxy materials state that Mrs. Douglass intends to seek
reimbursement from the Fund for her proxy solicitation expenses,
which could total up to $800,000 -- without a vote of the Fund's
shareholders. Ask yourself if the Douglass Committee
nominees' interests are the same as yours. Support real change by
voting the enclosed WHITE proxy card.
THE
WHITE PROXY CARD NOMINESS HAVE A PLANFOR IMPROVING EQUUS’ PERFORMANCE AND BUILDING
SHAREHOLDER VALUE
The Fund’s director nominees – including the four new
directors – will focus immediately on:
• Identifying and naming a talented and experienced CEO to lead
the Fund forward.
• Reducing costs and maximizing investments in portfolio
companies through active management.
• Effectively communicating fund strategy and growth
opportunities to investors to improve the value of Equus’ stock,
which is currently trading at a deep discount to the value of the
Fund’s assets.
Mid- to longer-term objectives include:
• Transforming Equus from a small Houston-based fund into a much
larger, internationally focused and dynamic investment vehicle.
• Capitalizing on attractive investment opportunities around the
world.
• Getting Equus firmly back on the track of receiving regular
income and capital appreciation from its portfolio investments.
• Ultimately seeking to resume the Fund’s quarterly dividend
that was discontinued in early 2009.
Unlike the WHITE proxy card nominees of your Board, the
Douglass slate does not have any plan for improving Equus and is
riddled with conflicts of interest. In fact, here’s what a
leading proxy advisory firm has said about the Douglass
slate:
“The Dissident [Douglass Committee] does not, to our knowledge,
codify a specific plan for the Company [Equus] going forward.”
- Glass Lewis & Co., April 28, 2010 (Bracketed language
added)
“With respect to the Dissident’s [Douglass Committee’s]
non-incumbent nominees, Messrs. Godshall and White serve as the
vice chairman and chairman, respectively, of Trulite, Inc.
(“Trulite”), one of Equus’ portfolio companies. Paula Douglass
originated a $2.3 million loan to Trulite, on which Trulite
defaulted and upon which the Company [Equus] took action to collect
on April 23, 2010. We believe these
issues raise questions about whether certain of the [Douglass
Committee’s] non-incumbent nominees may take actions or have
interests that are not aligned with, or may, in fact, be inimical
to, the interests of shareholders.”
- Glass Lewis & Co., April 28, 2010 (Bracketed language and
underline emphasis added)
MAKE SURE YOUR VOICE IS
HEARD;VOTE THE WHITE PROXY
CARD TODAY
Please sign, date and return the WHITE proxy card in the
postage paid envelope provided. Even if you have previously voted
on the gold proxy card supplied by the Douglass Committee, you can
still support your Board by voting the enclosed WHITE proxy
card today. YOUR RESPONSE TODAY WILL HELP PUT THE FUND BACK ON THE
RIGHT TRACK.
If you have any questions, require assistance in voting your
WHITE proxy card, or need additional copies of the Fund’s
proxy materials, please call our proxy solicitation firm,
Georgeson, Inc., toll-free at 866-821-2606 (banks and brokerage
firms should call 212-440-9800), or email equus@georgeson.com.
Shareholders also can find additional materials on the annual
meeting and how to vote on our website at www.equuscap.com.
As always, we thank you for your consideration and support.
Sincerely,
THE NOMINEES OF EQUUS TOTAL RETURN, INC.
Equus Total Return, Inc.
Nominees for Director:
Alessandro Benedetti
Mr. Benedetti, 48, is currently the CEO of SAE Capital Ltd.,
which he founded in January 2007. Prior to that, he was the CEO of
SAE Capital SPA, based in Rome, Italy. Over the last 20 years Mr.
Benedetti has been involved in the structuring and financing of
complex transactions, acting on behalf of companies and governments
in North America, Europe, Central Asia and the Middle East. In
2005, he structured and led the acquisition of Wind
Telecomunicazioni SpA, based in Italy, which had 16 million
wireless subscribers, 1.6 million fixed line customers and 28
million registered internet users. At that time, the transaction
was the largest leveraged buyout in European history, in a deal
valued at over 12 billion Euros.
Bertrand des Pallieres
Mr. Pallieres, 43, has been the CEO of SPQR Capital LLP, based
in London, UK since May 2007. He previously served as Global Head
of Principal Finance and member of the Global Market Leadership
Group of Deutsche Bank from 2005 to 2007. From 1992 to 2005, he
held various positions at JP Morgan, including Global Head of
Structured Credit, European Head of Derivatives Structuring and
Marketing and Co-head of sales for Europe Middle East and
Africa.
John A. Hardy
Mr. Hardy, 58, is Chairman and Chief Executive Officer of
Versatile Systems Inc. (“Versatile”), a technology consulting
company, since January 1997. Mr. Hardy has had extensive experience
in the insurance, finance and banking sectors, as well as mergers,
acquisitions and litigation and resolution of multi-jurisdictional
disputes practicing as a Barrister from 1978-1997. Mr. Hardy was
also an adjunct Professor lecturing in insurance law at the
University of British Columbia from 1984-2000.
Fraser Atkinson
Mr. Atkinson, 52, has been CFO of Versatile, a technology
consulting company, since February 2003, Corporate Secretary of
Versatile since October 2003 and Director since November 2003. Mr.
Atkinson was involved in both the technology and corporate finance
sectors as a partner at KPMG, LLP for over 14 years, having left
the firm in September 2002.
Richard F. Bergner
Mr. Bergner, 79, has been a practicing attorney in Houston, TX
for 50 years. Mr. Bergner’s practice includes corporate, investment
and real estate matters; he has litigated cases in federal and
state court.
Gregory J. Flanagan
Mr. Flanagan, 64, was Chairman of the Board, CEO and President
of the Fund from July 2009 to February 2010. He previously served
as COO of Gallagher Healthcare, Inc. – Houston Branch, an insurance
brokerage company, from 2003 to 2008. Mr. Flanagan also has more
than 20 years of commercial banking experience.
Henry W. Hankinson
Mr. Hankinson, 68, is Managing Partner and co-founder of Global
Business Associates, LLC, a boutique M&A consulting firm in
Atlanta, GA. Mr. Hankinson is a former military officer with
engineering and MBA degrees. He has held domestic and international
senior executive management positions for over 30 years. In 1993,
he moved to Moscow as the senior regional executive for Halliburton
/ Brown & Root (“HBR”) to establish the oil and gas
construction market in the Former Soviet Union. In 1997, he moved
to Riyadh, Saudi Arabia to serve as the senior HBR regional
Managing Director of Saudi Arabia. In 1999, he was recruited to
become the COO and senior American for a large multi-national
conglomerate for the Saudi Royal Family. Based in Riyadh, he was
responsible for investment acquisitions and portfolio management.
During his career, Mr. Hankinson has served as Chairman, CEO, COO,
and Director for both small and multinational private and public
companies.
Robert L. Knauss
Mr. Knauss, 79, was Chairman of the Board of Philip Services
Corp., an industrial services company, from 1998 to 2003, and
Chairman of the Board and CEO of Baltic International USA, Inc.
from 1995 to 2003. During the past twenty years, Mr. Knauss has
served on the Boards of Directors of eight public companies. Mr.
Knauss was the former Dean and Distinguished University Professor
of the University of Houston Law School and was also Dean of
Vanderbilt Law School.
Kenneth I. Denos
Mr. Denos, 42, has served as a director and principal of many
small public and private companies throughout the world. Since
August 2009, he has been Deputy Executive Chairman of London
Pacific & Partners, Inc., a healthcare and hospitality
corporate finance advisory and investment firm. Previously he was
President of the Fund from December 2007 to June 2009; CEO of the
Fund from August 2007 to June 2009; Executive Vice President and
Secretary of the Fund from June 2005 until August 2007; Executive
Vice President of Equus Capital Administration Company, Inc. from
June 2005 to May 2008; CEO and President of Equus Capital
Administration Company, Inc. from May 2008 to June 2009; Executive
Vice President of Moore Clayton Capital Advisors, Inc from June
2005 to May 2008; CEO and President of Moore Clayton Capital
Advisors, Inc from May 2008 to June 2009. Mr. Denos has served as
CEO of MCC Global NV since May 2006 and as a director and Executive
Vice President of Moore, Clayton & Co., Inc. since January
2001. From November 2005 until May 2006, Mr. Denos served as the
Non-Executive Chairman of Ridgecrest Healthcare Group, Inc. From
February 2005 to February 2006, he served as a director and General
Counsel of MCC Energy plc (now Tersus Energy plc). From April 1999
until August 2007, he has also served as Chairman and CEO of
SportsNuts, Inc. (a sports marketing company). Since March 2007,
Mr. Denos has served as a non-executive director of Secure
Netwerks, Inc., an information technology hardware and software
reseller. Since January 2000, he has served as President of Kenneth
I. Denos, P.C. Since March 2009, he has served as CEO and Chairman
of Acadia Group, Inc.
Cautionary Note Regarding Forward-Looking Statements
This press release may contain certain forward-looking
statements regarding future circumstances. These forward-looking
statements are based upon the Fund’s current expectations and
assumptions and are subject to various risks and uncertainties that
could cause actual results to differ materially from those
contemplated in such forward-looking statements, including, in
particular, the risks and uncertainties described in the Fund’s
filings with the Securities and Exchange Commission. Actual
results, events, and performance may differ. Readers are cautioned
not to place undue reliance on these forward-looking statements,
which speak only as to the date hereof. The Fund undertakes no
obligation to release publicly any revisions to these
forward-looking statements that may be made to reflect events or
circumstances after the date hereof or to reflect the occurrence of
unanticipated events. The inclusion of any statement in this letter
does not constitute an admission by the Fund or any other person
that the events or circumstances described in such statements are
material.
Important Information
The Fund filed a definitive proxy statement concerning the 2010
Annual Meeting of Stockholders with the United States Securities
and Exchange Commission (“SEC”) on April 12, 2010. The Fund has
also filed other relevant documents with the SEC. The Fund advises
stockholders to read the definitive proxy statement, as well as the
other relevant documents filed with the SEC, because they contain
important information about the election of directors and any other
matters to be presented at the 2010 Annual Meeting of Stockholders.
Stockholders may obtain free copies of the definitive proxy
statement and the other documents the Fund files with the SEC at
the SEC’s website at www.sec.gov. They may also access a copy of
the Fund’s definitive proxy statement by accessing
www.equuscap.com. In addition, stockholders may obtain a free copy
of the definitive proxy statement and other related documents by
contacting Georgeson Inc. by telephone toll-free at 866-821-2606
(banks and brokerage firms should call 212-440-9800), or by email
at equus@georgeson.com.
The Fund, its directors, some of its executive officers and
certain other of its employees are participants in the solicitation
of proxies in respect of the matters to be considered at the 2010
Annual Meeting of Stockholders. Information about the participants
is set forth in the definitive proxy statement. Information about
the participants’ direct or indirect interests in the matters to be
considered at the annual meeting is also contained in the proxy
statement referred to above.
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