| Small & micro cap project / Activism insight

Hurdles faced by activist: Private placement on the eve of AGM record date

 

by | Dec 24, 2019

In 2019, a group of three investors, J. Marvin Feigenbaum, Barinder Athwal and Brian Mirman, nominated a full slate of candidates for election to the Board of Directors at Document Security Systems, Inc. (“DSS”).

In December 2019, the three investors withdrew their proxy campaign citing a recent private placement of almost 20% of DSS stock in the hands of Chairman Fai Heng Chan. The activists argued that the private placement “irremediably tipped the scales in favor of the Board’s slate for the vote at the 2019 Annual Meeting”.

Here is what happened:

During the proxy campaign, the company issued 6 million shares to the chairman, who is also the largest single shareholder. This happened exactly on the eve of the record date for the 2019 AGM. Post-transaction, the chairman would hold approximately 1/3rd of the outstanding shares.

The activist group argued that they do not see any benefit in continuing the proxy campaign effort.

The private placement on November 1, 2019 of six million (6,000,000) shares of the DSS’ common stock to Mr. Chan, the Company’s largest single shareholder and Chairman, irremediably tipped the scales in favor of the Board’s slate for the vote at the 2019 Annual Meeting. As we previously noted, in our opinion this private placement to Mr. Chan on the eve of the record date for the 2019 Annual Meeting served no legitimate business purpose of DSS and had the unfortunate consequence of entrenching Mr. Chan as DSS’ largest shareholder with approximately one-third (1/3) of DSS’ outstanding voting stock post-transaction. Under these circumstances, we did not see any benefit to the DSS shareholders of our continuing efforts and investment of resources to promote our slate of directors.

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