The Shareholder Forum

supporting investor interests in long term enterprise value

 

Purpose & History of Services

The Shareholder Forum

The Shareholder Forum supports investor interests in corporate enterprise value with services that require independence – and that may benefit from the Forum’s network resources and recognition for advocacy of long term investor interests – to assure a definition of relevant issues and fair access to information that can be relied upon by both corporate and investor decision-makers.

The policies that provide a foundation for the Forum’s marketplace functions have been carefully developed and tested to allow any investor to participate in its communications, either anonymously or visibly, without acting in concert. Established originally to accommodate professional fund managers, this independent moderator function has proved to be consistently effective in managing orderly processes of issue definition for rational analysis by fiduciaries who are responsible for informed decisions.

Initiated in 1999 by the New York Society of Security Analysts with lead investor and former corporate investment banker Gary Lutin as guest chairman to address the professional interests of its members, and independently supported by Mr. Lutin since 2001, Forum programs have achieved wide recognition for their effective definition of important issues and orderly exchange of the information and views needed to resolve them. The Forum's ability to convene all key decision-making constituencies and influence leaders has been applied to subjects ranging from corporate control contests to the establishment of consensus marketplace standards for fair disclosure, and has been relied upon by virtually every major U.S. fund manager and the many other investors who have participated in programs that addressed their interests.

Currently important applications of the Forum’s independent position include the support of corporate managers who wish to provide the leadership expected of them by responding to activist challenges with orderly reviews of issues relevant to long term investor interests.

Requests for Shareholder Forum consideration of support may be initiated confidentially by any investor or by the subject company, or by the professional advisors to either.

 

Forum Report: Shareholder Views - Priorities for Negotiations

(July 18, 2001)

Shareholder Views: Priorities for Negotiations
 
Thanks to all of you who responded to the request for views on shareholder priorities, as presented in the July 16th report copied below.  Two days is a very short period for a survey, and those who took the time deserve the gratitude of all Lone Star shareholders.
 
Based on what was received by last night, the "Suggested Negotiating Conditions" have been ranked according to average score, and in some cases include comments offered by participants (with permission):
1. Board de-classification: +1.8
Received a majority of "High Priority" (+2) scores, nothing less than "Positive" (+1).
 
2. Board composition:  +1.5
Received a majority of "High Priority" (+2) scores, nothing less than "Neutral" (0).
    "...unless there is absolute control by independent directors -- which argues for going to 11, which STAR is unlikely to swallow -- the company is likely to play games and stall, and we lose whatever momentum.
    "I think the cleanest proposal therefore would be to let them expand the board to 6 or 7 if they want and have a prompt shareholder vote on declassification -- either that or take down the pill immediately.  (I wouldn't want to wait til next year for the board to present a declass proposal to shareholders, and presumably the board can redeem the pill at any time at nominal cost.)  The goal here is some kind of fast reform that leaves the board somewhat vulnerable next year if there is no dramatic improvement in performance."
3. Poison pill:  +1.5
Received a majority of "High Priority" (+2) scores, nothing less than "Neutral" (0).
 
4. Monitoring:  +1.3
Received a majority of "High Priority" (+2) scores, some less than "Neutral" (0).
"Real change in management would require an independent monitor, who would be paid by the company, but would be responsible for shareholder interest. Obviously this sounds like the job the Board of Directors should be doing, but they have proven over the last few years that this is not their priority."
5. Director rights:  +1.1
Received a majority of scores above "Neutral" (0).
 
6. Cost recovery:  +0.3
Received more scores above than below "Neutral" (0).
"Adams should continue with his election promises, and demand an accounting of all company expenses to keep him off the board, such as ads and legal fees. If Adams has to pay his way, perhaps Coulter should pay for his loosing battle."
7. Reimbursement of others:  +0.0
Received an almost even spread of scores.
"...it is insulting that they sued a shareholder, Calpers, in an attempt to distract people from the election issues."
8. Reward for "pro bono" attorneys:  - 0.3
Received more scores below than above "Neutral" (0).
Please let me know if you have any questions about the results of the survey, or about the negotiating conditions.
 
 
                    GL - 7/18/01
 
 

----- Original Message -----
From: Gary Lutin
To: Distribution: Lone Star Forum
Sent: Monday, July 16, 2001 10:21 AM
Subject: Report and request for shareholder views

 
Priorities of Lone Star Shareholders
 
This is my promised summary of issues to be considered by Lone Star’s shareholders, for your review and response. It should be understood that our communications will be considered confidential unless you tell me, specifically, that you want me to attribute a statement to you.
 
As indicated last week, the period between the voting and this Friday’s formal announcement of the results is the time during which negotiations would be expected between a winning challenger and the company’s management. This is how the real results of the shareholder vote will be defined. So, now is the time to express your views on how it should be done.
 
It’s likely that Lone Star’s management will want two things:
  • To end the litigation in a way that limits exposure to claims by Adams or by other shareholders, not only against the company but also against Coulter and the directors, personally, and against the law firm which has been representing the company as well as other Coulter affiliates.
  • To avoid vulnerability to an election next year which could upset current management’s control.
These management concerns should be exploited now to negotiate conditions reflecting shareholder interests. For example, unless Adams establishes an agreement preventing it, a majority of the board will be free to take actions a month or two from now to increase the size of the board and fill the vacancy with Coulter. You should understand that expanding Lone Star’s board from 5 to 6 directors will not only return Coulter to the board, and presumably also to the Chairman’s position, but will also prevent challengers from gaining a 3-to-2 majority by winning the two seats up for election next year. If you want to deal with this board composition issue, or any other shareholder interest, the time to do it is while there's still something to trade, before the litigation is settled, and before shareholder and media attention drifts away.
 
Addressing what is to be traded, Adams, personally, needs only the reimbursement of his proxy solicitation expenses. This shouldn’t require any trading with management since it’s virtually universal practice to reimburse a winning challenger’s reasonable costs. And in this case, the amount estimated by Adams in his SEC filings and litigation testimony is only about $50,000. (His litigation defense and other legal services were provided “pro bono” by the firm of Quinn Emanuel Urquhart Oliver & Hedges LLP and by S. Craig Tompkins, Esquire.) Adams is therefore in a position to focus virtually all of his trading on shareholder interests.
 
This brings us to the question of what shareholders want. Everyone, including shareholders as well as Adams and Lone Star management, will benefit from being well informed of the issues and priorities. I’ve therefore listed, below, various negotiating conditions suggested by shareholders during the past week. If you assign a score to each one based on the "Scoring Reference" scale and return it to me, with any comments, I’ll use your response as part of a survey report without identifying you as a participant.
 
                GL - 7/16/01
 

 
Scoring Reference
 
High priority                      +2
Positive                             +1
Neutral or no opinion          0
Negative                           - 1
Objectionable                   - 2
 
List of Suggested Negotiating Conditions
 
  1. Board composition: Allow Coulter to be returned to the board according to conditions which will preserve shareholders’ ability to elect a majority of challengers to the board next year. (If the board continues to have three classes, it will be necessary to define rules preventing entrenchment. One way would be to increase the size of the board by two or even three seats instead of just one for Coulter, providing for the additional positions to be given to new, independent directors selected by an acceptable process, such as the use of a search firm. Alternatively, the size of the board could be restricted to the existing five positions while management representation is restricted to only one, so that the other executive -- whose term doesn’t expire until 2003 -- would have to drop off the board to give the sole management position to Coulter.)
  2. Board de-classification: Provide for by-law amendments to make all directors stand for election each year, adopting the recommendation approved by shareholder vote last year.  (This is the cleanest way to prevent entrenchment, eliminating the need for the more complicated provisions suggested above in relation to board composition.)
  3. Poison pill: Eliminate the poison pill, or change it to a “chewable” form advocated by members of the Council of Institutional Investors.
  4. Monitoring: Provide for independent monitoring of the board using one of the available alternatives, such as a shareholder-approved advisory panel, a continuing shareholder forum, or the TIAA-CREF model for professional evaluation of board performance (see 4/29/01 NY Times, “Market Watch: Holding Executives Answerable to Owners”).
  5. Director rights: Assure the rights of independent directors to engage their own advisers (legal, investment banking, other experts), separately from those engaged by management.
  6. Reward for “pro bono” attorneys: As a gesture to encourage similar efforts by others, make some corporate payment on behalf of shareholders for the legal services provided “pro bono” for Adams’ litigation defense by Quinn Emanuel and Mr. Tompkins. (Although they did not win the motion to restrain “false and misleading“ statements, their support of Adams in court enabled his continued conduct of the proxy contest.)
  7. Reimbursement of others: Pay for the legal expenses incurred by CalPERS, Craig Corp. and any others for their compulsory responses to Lone Star litigation demands. (Cost reimbursement might also be offered for voluntarily submitted affidavits provided by Craig Corp and others, and for supporting letters presented by Amalgamated and the Council of Institutional Investors.)
  8. Cost recovery: Seek recovery by Lone Star of at least some portion of the costs incurred for litigation and extraordinary proxy solicitation expenses, including reimbursements of other parties, to the extent that responsibility should be borne by Coulter, other board members, or their law firm.

 

 

 

 

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Publicly open programs of the Shareholder Forum are conducted for free participation of all shareholders of a subject company and any fiduciaries or professionals concerned with their decisions, according to the Forum’s stated "Conditions of Participation." In all cases, each participant is expected to make independent use of information obtained through the Forum, and participation is considered private unless the party specifically authorizes identification.

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