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Corporate Governance Highlights
Two
of the Summer’s Hottest Proxy Fights Continue to Sizzle
DISSIDENTS CONTINUE TO FAN THE
FLAMES. The plots continue to thicken in two high profile proxy
fights. In the battle between Lone Star Steakhouse & Saloon
and dissident Guy Adams, the U.S. District Court for the District of
Kansas ruled June 25 that Adams could continue his proxy fight as along as
he made two corrections to his SEC filings. The company had sued the
dissident over disclosures he made to shareholders. The company claimed in
its suit that Adams’ proxy solicitation materials violated federal
securities laws (1) by failing to disclose the existence of participants
that Lone Star says are “unlawfully financing and supporting his efforts”;
(2) by falsely stating the financial consequences to Lone Star of certain
employment agreements between Lone Star and members of its management; and
(3) by making misleading statements regarding alleged support that he has
received from shareholders of Lone Star.
Adams said the ruling represented a victory
because the court did not decide that he was part of larger group of
shareholders. If this had been the case, he would have had to refile his
disclosures before the July 6 shareholder vote. The company also expressed
satisfaction with the ruling. “We are very pleased that the federal court
moved to protect Lone Star’s stockholders by ordering Guy Adams to correct
his false and misleading statements. The finding vindicates our decision
to seek legal recourse against Guy Adams for attempting to mislead our
stockholders through the use of false and illegal proxy activities and
impugn the integrity of our board,” said a news release issued by Lone
Star.
On June 28, Adams submitted definitive
additional materials to the SEC clarifying the statements that were ruled
to be incorrect by the court. n his original proxy filing he said that
the holders of more than 13 percent of the shares outstanding had advised
him that they intended to vote for him instead of voting for Lone Start
CEO Jamie Coulter. Adams also said he had commitments from a number of
individual shareholders. “These statements are incorrect,” says the new
filing. “At the time the statements were made, I had approximately 12.65
support. I subsequently learned that one of the large shareholders to
which I was referring sold off some of its stock which downwardly affected
the percentage estimate of oral support that I gave in that statement.
Additionally, I did not have support from a ‘number of indivdual stockholders,’”
it goes on to say.
Adams’ new filing also clarifies statements
that he made about the golden parachute contracts that Lone Star
executives were eligible to receive. “I read the golden parachute contract
that had been granted to Mr. Coulter, and assumed—in error—that the same
basic contract had been given to each of the seven senior executives. I
have subsequently learned that the contracts are different,” he explains.
INSTITUTIONAL INVESTORS VOICE OBJECTIONS
TO LITIGATION. Before the court ruling, Sarah Teslik, executive
director of the Council of Institutional Investors, and Con Hitchcock,
attorney for the LongView Collective Investment Fund, each sent letters to
Lone Star executives and board members objecting to the company’s
litigation against Adams. “Though litigation can be a legitimate
alternative, the council believes that directors have a duty to ensure
that the courts are being used to settle actual and substantial legal
disputes but not to impede the efforts of opposing shareholders,” Teslik
writes. Her letter takes issue with the fact that the company sought
“extensive and intrusive” discovery from Adams and delved into his
divorce. “That kind of tactic can deter shareholders from voicing
important issues through the proxy solicitation system,” she says. Teslik
urges Lone Star directors to “ensure that the company’s legal responses to
Mr. Adams’ proxy contest are proportionate and appropriate,” to monitor
the litigation and to ensure that shareholders are given the opportunity
to select their choice for a representative to the board.
Hitchcock’s letter also questions some of
Lone Star’s legal manuevers. His fund is concerned about “some of the
tactics used in the litigation, notably the decision to subpoena and take
discovery from an institutional investor (Calpers) that had indicated
support of Mr. Adams,” he writes. “Harassing your shareholders in this
fashion is not a good way to instill investor confidence in the management
team or in the judgement of the board,” the letter warns. “For Lone Star
to go after an institutional investor for having the temerity to question
the company’s performance is unacceptable, and we encourage the board to
repudiate these tactics. Your shareholders, particularly institutional
shareholders, are not the enemy, and they should not be treated as such,”
Hitchcock adds.
THE OTHER FIERCE PROXY BATTLE, this
one being waged by Sam Wyly against the management at Computer
Associates International, continues to draw a great deal of media
attention. Computer Associates’ largest shareholder, Walter Haefner, sent
a letter to Wyly on June 22 saying he would support the company’s
management in the fight for control of the board, reports The New York
Times. “I have complete confidence in the existing C.A. management
team and intend to support them fully,” The Times reports Haefner
said in the letter. Haefner, a Swiss billionaire owns 21 percent of
Computer Associates’ shares.
In other news related to this fight, on June
25, the company added two directors, raising the total number of board
seats to 10. Linus Cheung, chairman of Pacific Century CyberWorks, and
Lewis Ranieri, of Salomon Brothers are the additions.
***
Investor Responsibility Research Center
1350 Connecticut Avenue, NW, Suite
700
Washington, DC 20036
Tel: (202) 833-0700
Fax: (202) 833-3555 cgs@irrc.org
Contributors: Timothy Hunt and Cristina Yen
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