TO:Shareholders-I received inquiries and made calls-Here's my idea
BACKGROUND
During the past few days, I have been the recipient of e-mail and telephone calls from shareholders of CCEE who have expressed disgust, chagrin, and a sense of betrayal as a result of the requests management of CCEE has made in the proxy solicitation. In general, the
shareholders who have contacted me indicated that as a result of my postings on the CCEE, the ECO2 and other threads here on Silicon Investor, they know I am a lawyer who practices in Philadelphia (the site of the Shareholder's Meeting) and that my practice includes the
representation of shareholders and class actions.
To summarize, the CCEE shareholders asked me if there was any remedy that could be sought in court to stop CCEE's management from going forward with the Shareholders' Meeting, and especially, from enacting the provisions providing for a classified board, enlarging the float and causing a reverse split. Others asked me if I were planning to attend the meeting in Philadelphia, and if so, if they could send their proxy to me, instead of sending it back to management.
MY POSITION AS A SHAREHOLDER
Before responding to those who took the trouble to write to me, I decided to make some preliminary investigation of what non-lawsuit remedy or strategy might be available. Let me clarify my own position at the outset, to explain why I am interested in a lawsuit as a final,
instead as a preliminary strategy:
(1) My own personal view on the proxy solicitation is that management made a drastic public relations mistake by seeking to classify (and thus insulate) a board of directors that did not yet do anything to earn the confidence and loyalty of the shareholders. To compound matters, management took an arguably defendable step, a reverse split and in the most clumsy way imaginable, coupled it with a ridiculous proposal to double the size of the float. To make it even worse, management created the possibility that the existing shareholders would have the number of their shares reduced through the reverse split, and if that reverse split happened before the new shares were issued, the new shares would not be affected by the reverse split.
(2) I am interested in CCEE purely as a shareholder who expects to see the company grow, and the price of the shares appreciate. I am not looking for litigation or clients, nor did I buy my shares in CCEE with the expectation that I would ever sue it as a shareholder or as a
lawyer representing shareholders.
(3) Based on what is in the e-mails, the phone calls and the messages on this thread, I believe that the only thing standing in the way of a price appreciation (and I mean right now - in October/Novemeber), is the unwise proxy solicitation that is outstanding, and what agreement
to what is requested in that proxy might mean in terms of shareholder dilution. Let me give one example. The news about the new contract obtained by Softworks and the earned but deferred income it has accumulated (which means Softworks already has the cash, but it
cannot yet book it because it agreed that some of the proceeds would be used to pay for a maintenance contract Softworks delivered with its product) should have bumped up the price. But as we all saw, the price stayed the same, and I attribute that to the outstanding proxy.
(4) A lawsuit may work to stop the Shareholders' Meeting, but in my view, it would produce a result that would contradict my own investing goals. This is because a lawsuit probably would be viewed throughout the investment community as just another negative event in the
company's history. I have therefore harbor no illusions that a lawsuit, regardless of the court's ruling, would result in an appreciation of the price of the stock. Moreover the defense of the
action, not only would be a drain on an already cash-strapped company, but it would cause management to adopt a siege mentality, might scare away potential customers and project partners, and in the end, could embolden management if (God forbid) they won the lawsuit.
(5) While I am surely not shy about bringing a lawsuit (that's how I earn my living), as I noted, I see it as an option, but only if we are forced into that corner. (I do not see selling my shares at a loss because of this proxy solicitation as an option, and if all else failed, I would pick the lawsuit route before giving up.)
(6) For these reasons, I started a search for an alternative. My suggestion is set forth below:
A MODEST PROPOSAL AS AN ALTERNATIVE TO MANAGEMENT'S
I concluded that the following was a viable plan for CCEE to adopt:
*CCEE would cancel and withdraw the proposal to classify the board.
[There is no reason why this has to be done or voted on now. A classified board is a tactic used to fend off take-overs by hostile suitors--something we, unfortunately, need not worry about. However, the concept smacks of over-reaching by the directors. Even if it was
proposed innocently, under the circumstances, it should be withdrawn or tabled until the board has earned the right to ask for this protection.]
*CCEE would allow a vote on a reverse split, but offer only the alternative of a 1:2 or a 1:5 split (or NO SPLIT at all).
[Clearly, no shareholder will benefit if as a result of the new NASDAQ requirement, CCEE was thrown into the bulletin board/pink sheets because it did not trade at greater than $1. A reverse split does have (sometimes-but not always) a negative psychological impact on a stock's trading price, but since there will be hundreds of companies in the same boat, at the same time, the psychological impact will surely be mitigated. Moreover, if there is a 1:5 split, and if Softworks continues to perform (to say nothing about dbExpress and other products) CCEE could become attractive to institutional owners which would mean more stability, better supervision of management, more trading volume and higher prices. In my view, management not only is entitled to a vote authorizing a reverse split, I would not want
to own CCEE, regardless of its financial merit if it ended up in the pink sheets and not traded on NASDAQ.]
*CCEE would cancel and withdraw the proposal to expand the float of stock.
[Lets assume CCEE needs some extra stock to raise money to roll out new products, to attract key personnel or to make an acquisition that is key to one of its products. There is nothing wrong with a company using its stock legitimately to accomplish worthy goals. If there was a reverse split, as I mentioned above, the original float of 150 million shares would still be in effect. The reverse split would then free up plenty of stock to accomplish the "worthy goals". Lets do the arithmetic- If there is a 1:2 split, the shareholder base would be
reduced to about 65 million shares, leaving 85 million shares vailable to finance "worthy goals". In other words, a YES to a 1:2 split will insure NASDAQ listing and at the same time accomplish what the unwise proposal to increase the float apparently sought to accomplish.]
*CCEE should appoint/elect a new, outside and totally independent director IMMEDIATELY.
[As a shareholder talking to other shareholders I need say nothing to defend this proposition, other than to articulate it. However this act would serve to inform the investment community that things have hanged and that CCEE is now poised to become the growing money-maker it should already have been.]
MY EFFORTS TO SOUND OUT SHAREHOLDERS AND MANAGEMENT
As I stated above, before I responded to those who contacted me, I needed to determine if my alternative to litigation strategy was something that I could convince management to accept amicably, and then I intended to present it to the SI thread for discussion and to raise it also personally with those who contacted me. I read about Mr. West of Gaines Berland, and was familiar with his interest in CCEE. I did not know if he had control of any stock. I called him and raised some of the issues mentioned above. Mr. West was understandably guarded in talking to me in a cold call. He was not unsupportive though, and he arranged for me to talk to Joe Marcus, the person who apparently has much to say about operations at CCEE. I then
spoke with Mr. Marcus. In our conversation, I reiterated my points and the history of my involvement. I told him a lawsuit was an option, but not my first choice. He listened and said he saw some merit to what I had to say, but thought that SEC rules concerning the timing of
proxies and notices to shareholders was locking in the company to a fixed position, even if it was willing to make accommodations. I replied that in my view, the withdrawal of the classified directors proposal and the proposal to increase the float was allowed, without the need for new notice. This, of course would leave on the table only the reverse split.
Mr. Marcus said that he has heard an outcry of objection from shareholders concerning the reverse split, and did not think it would help CCEE's investor relations if it withdrew the other proposals, and left the reverse split. I mentioned in reply that perhaps if CCEE explained the benefits of doing a reverse split, and the consequences (NASDAQ removal), the shareholders might see things differently. Mr. Marcus said he would raise my issues with the board. I did
not in any way get the feeling I was being brushed off, nor did I feel as if I was being given a false hope. In fact, as set forth below, I have no hope YET.
LET ME HEAR FROM YOU
I am interested in hearing your views (RICK's excluded) on what I have said above. I am willing to collect proxies from shareholders and to attend the meeting for the purpose of offering an alternative plan. The one I suggest above is not written in granite, and many of you
shareholders have more experience with CCEE than I. Frankly, my plan is based solely on logic.
If enough shareholders are interested in having me vote their proxies for a consensus plan (assuming we can arrive at one), I will try to locate the large block holders that are not affiliated with management, and seek their support. In fact, I have a hunch that they or their representatives read this thread, and I invite their responses as well.
I am keenly interested in any other proposal, plan or strategy that you may have thought of.
Respond here or contact me personally:
Gary Green
SIDKOFF, PINCUS & GREEN, P.C.
Attorneys at Law
2700 ARAMARK Tower
1101 Market Street
Philadelphia, Pa. 19107
phone (215) 574-0600
fax (215) 574-0310
law firm e-mail: S.P.G@worldnet.att.net
personal e-mail: vilan@aol.com |
