Part I. Cruttenden-Roth and a multipost series on the TMSR Board and CFO.
On October 22, 1996, Cruttenden Roth rated TMSR a BUY. The stock was trading at $6.50 on the day of the report. A price target of $10 was derived by applying a multiple of 20 to 1997 estimated EPS of $0.50.
TMSR's trailing 4 quarter eps (q2-q4 '96, q1 '97) is $.52 (with 3 quarters remaining in '97). C-R downgraded TMSR to NEUTRAL from BUY on January 28, 1997. What's wrong with this picture?
TMSR has a maximum revolving line of credit of $1 million with United States National Bank of Oregon, which expires in June 1997. What's wrong with this picture?
April 15, 1997 Shareholder Proxy.
Classified Board of Directors.
"...Classification of the Board of Directors is intended to decrease the likelihood of precipitous changes in the composition of the Board of Directors and its powers, and thereby to moderate changes in the Company's policies and direction that the Board of Directors does not deem to be in the best interests of the shareholders...
On February 16, 1996 the Board of Directors granted replacement options, whereby 71,585 share options were repriced from $8.62 to $4.73 (of which 10,300 belonged to Stephen Aanderud, CEO) This move was not voted upon by the shareholders, furthermore, the Company cited the following as its reason:
During the fourth quarter of 1995, a fundamental change occured in the market in which the company competes due to the entrance of a significant competitor, resulting in a substantial decline in the market value of the Company's shares. As a result, in the opinion of the Board of Directors (including Stephen Aanderud), the underlying value of the options granted on March 23, 1995 and May 25, 1995 no longer provided the financial incentive originally intended...".
In our opinion, the Board's reasonings' outrageousness is superceded only by its preposterousness. Our response is simply 1) was this repricing, without shareholder approval, done in the best interests of all shareholders and 2) the shareholders who purchased shares on the open market on March 23, 1995 and May 25, 1995, also were victims of a substantial price decline. The same price decline. Said non-employee/director shareholders were not offered the same share repricings. The Board of Directors of TMSR have made it very clear their apparent prejudice and preferential treatment for insider shareholders versus non-employee/director shareholders.
The Director declared stock option repricing contemporaneous with a Director conceived classified board, which controls 52% of the outstanding shares, makes us uncomfortable, at this point in time,
which takes us to the composition of the Board of Directors. (to appear in a successive Part II post).
The Cruttenden Roth downgrade issue, TMSR's insignificant bank line of credit, in light of now successively superior financial results, are two of several issues which are confounding and which we will be pursuing, again, in successive posts. |
