Pennsauken-based RCM Technologies in Heated Board of Directors Proxy Fight
On Nov. 8, 2013, RCM Technologies filed a complaint against the Legion Partners in the U.S. District Court, District of New Jersey, claiming it is attempting to influence the results of the 2013 Annual Meeting by advancing false and misleading statements in violation of Sections 13(d), 14(a) and 20(a) of the Securities Exchange Act of 1934, as amended.
RCM is a business and technology solutions provider whose goal is to enhance and maximize the operational performance of its customers through the adaptation and deployment of advanced information technology and engineering services.
The company’s headquarters is in Pennsauken and its operations office is in Parsippany. It has satellite offices throughout the United States. The company reported $145 million in revenue for the year ending December 31, 2013.
Specifically, RCM claimed that Legion had failed to fully disclose its intent to eventually obtain control of RCM, seek to terminate the company’s stockholder rights plan, and seek to initiate a review of strategic alternatives, including a sale of the company or other business combination.
Legion issued a statement saying it believes “there is no merit to the RCM’s complaint,” adding specifically that it does not plan to take over RCM.
Nevertheless, Legion Stockholder Group, which RCM called a dissident stockholder group, is pursuing a proxy contest to elect its two handpicked nominees to the RCM board at the annual meeting to take place Dec. 5, 2013.
In a letter to stockholders, RCM emphatically recommended that they support experienced director nominees Robert B. Kerr and Michael E.S. Frankel. The company said it was being advised in connection with the proxy contest by Morgan, Lewis & Bockius LLP.
RCM’s board called the Legion Group nominees “problematic.” Discussing Bradley S. Vizi, the board attacked his alleged lack of experience on a public company board or in management experience and claimed he had no experience overseeing management, directly developing or implementing strategies to enhance long-term stockholder value, or fulfilling the important fiduciary duties owed to stockholders by the directors of a public company.
The letter also alleged he has no experience in the information technology, engineering or health care industries.
The letter further attacked Vizi, saying “Mr. Vizi solicited our interest in discussing the sale of RCM to one or more members of the Legion Group and then shortly thereafter disavowed such interest – Earlier this year, Mr. Vizi indicated to RCM’s CEO, Leon Kopyt, that the Legion Group may be interested in exploring a transaction with RCM but shortly thereafter sought to disavow his comments and now falsely claims that such conversation never took place.”
The company tells shareholders that “Mr. Vizi recently engaged in a ‘fishing expedition’ looking for ‘leverage’ to use over your board — Mr. Vizi recently sought to pressure your board by unearthing a 15-year-old immaterial disclosure error that he thought he could use to unduly impugn the integrity of an individual who has led RCM with steadfast dedication and commitment for over two decades and is largely responsible for our share price having increased by approximately 587 percent during the five years ended October 30, 2013, dramatically outperforming the S&P 500 during that same period.”
In the letter, RCM similarly attacked proposed board member Roger H. Ballou, who it said destroyed stockholder value as he led publicly traded Global Vacation group. “Ballou is also the former President and Chief Executive Officer of CDI Corporation, a publicly-traded company that is one of our major competitors” and previously made an attempt “to take control of RCM through a hostile takeover and at an inadequate price.”
It also said that “During Mr. Ballou’s tenure as CDI’s President and CEO, CDI was the target of a number of governmental investigations that caused CDI to pay millions of dollars in settlements and fines.”
For its part, the Legion Group, a California-based organization, said that the group, representing 13.3 percent of the outstanding shares of RCM, is the company’s largest shareholder.
In a press release, the group said it had serious concerns with the “continued financial deterioration of the company over the past decade, the board’s ineffectiveness in producing returns for stockholders and the company’s long maintained poor compensation and corporate governance practices.”
The real issues, according to the dissident group, are that the board claims it has returned over 587 percent in total stockholder return over the past five years but fails to reveal that its starting point for this measurement was the peak of the financial crisis, when the company’s stock was a mere 23 cents shy of its lowest closing price in the past 20 years.
“If one were to run that same five year return for RCM as of the date ending December 31, 2012 (the date corresponding to the company’s proxy statement and the most relevant date for judging RCM’s performance), RCM only returned 3.8 percent to stockholders, significantly underperforming the Russell 2000 and its Peer Set at 19.1 percent and 40.1 percent, respectively,” the Legion Group said in a press release.
Legion also alleges that the RCM board has approved “outrageous compensation arrangements” for its three top executives — over $8 million ($6.1 million for the chairman and CEO alone) despite the company’s under-performance. “Mr. Kopyt’s $6.1 million parachute payment can be triggered if even one of our nominees is elected to the board,” the press release said.
The group also said in a statement that it wanted “to set the record straight” about Ballou. “CDI’s annual revenue was approximately $1 billion in 2011 and the fines highlighted by the company totaled just $4.9 million. Mr. Ballou was never implicated in the government investigations that led to the fines,” the release said.
Speaking about Vizi, the Legion statement said, “We believe Mr. Vizi, a founder of Legion Partners, will bring relevant experience as an investor with regard to capital allocation, corporate governance and executive compensation.”
“As a member of the stockholder group led by Legion Partners, with a combined ownership of approximately 13.3 percent of the outstanding shares of RCM, Mr. Vizi has a vested interest in creating long-term value for all RCM’s stockholders. We believe his interests are clearly aligned with all other stockholders to promote greater accountability and maximize stockholder value.”
For the press releases in this matter:
Legion Partners: RCMT Board Squanders Stockholder Money On Frivolous Lawsuit
RCM Calls on Legion Group to Stop Misleading Stockholders
RCM Issues Letter to Stockholders on Why the Legion Group’s Nominees Would Be Wrong for RCM
Legion Partners: RCMT Board Culture Puts Director Preservation Above Stockholder Stewardship
