The Curious Case of Proxy Access Continues


Boardroom

In November 2016, GAMCO Investors, Inc., an investment firm headed by billionaire investor Mario Gabelli, filed a Schedule 13D announcing the first use of a proxy access bylaw to nominate a director candidate. That attempt was short-lived, as Gabelli abandoned the claim shortly after the issuer, National Fuel Gas Co., rejected the nomination because GAMCO violated the bylaw requirement that the investor must acquire the shares in "the ordinary course of business and not with the intent to change or influence control of the Corporation."

Round two of the proxy access bylaw drama began with a filing that was curious for several different reasons. The issuer, Paragon Offshore, is a Texas-based U.K. penny stock company whose stock is currently hovering around seven cents a share in the over-the-counter market, with a total market capitalization of only $6.4 million. The company is currently engaged in Chapter 11 bankruptcy proceedings, and replaced its CEO and CFO in November 2016 after a net third-quarter loss of $64 million. Unlike in the GAMCO case, there is no billionaire asset manager. Rather, one of the two proponents is a North Carolina-based paralegal and recently-registered investment adviser representative.

In another interesting twist, two of the three director candidates nominated by the proponents are no strangers to Paragon’s business. The first is Randall D. Stilley, the former CEO who departed Paragon after the dramatic third quarter losses mentioned above, while the second, Mark B. Slaughter, was the former CEO of RigNet, Inc. RigNet develops remote communications systems for the oil and gas industry, and counted Paragon among its "premier clients."

The most interesting aspects of the filing come from the conflicts of interest disclosures. The filing states that the former CEO, Randall D. Stilley, and the adviser representative proponent, Michael R. Hammersley, are currently seeking the naming of an Equity Committee to protect stockholder interests in paragon's bankruptcy proceedings. More dramatically, though, Hammersley and his fellow proponent, Marcel de Groot, claim to have filed an $11.1 billion lawsuit against Paragon, its subsidiaries and directors, and its audit firm.

All of these factors, from the issuer’s U.K. domicile to the company’s small market capitalization to the unique and contentious relationship between the proponents, the nominees and the company, indicate that this filing will be nothing more than a one-off rather than any kind of precedent-setting transaction. It is a fascinating read, particularly the notion of an $11 billion suit against a six-million dollar company (with the possible deep pockets of the audit firm in the background) but the Paragon case will likely contribute little to the development of proxy access as a realistic tool for shareholder activism.