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June 4, 2001 Inc. Announces
Contested Proxy Solicitation to Elect
Dissident Slate of Directors at Goldfield Corp.
Internet Shareholder Activism Inc. filed a definitive proxy statement with the
Securities and Exchange Commission on June 1, 2001,
nominating Aaron Brown, Deborah Pastor and Sam Rebotsky for
the Board of Directors of Goldfield Corp. Unlike traditional
dissident slates, eRaider's candidates are not backed by a
takeover group trying to buy, sell, break up or downsize the
company. Instead, this Internet-organized group of shareholders
is running as the Shareholder Value Slate, pledged to improve
board oversight of corporate expenses, subject management
strategies to rigorous scrutiny, act as ambassadors for the
Company to potential partners and customers and improve
shareholder communication. eRaider believes that board
deficiencies in these areas have led to Goldfield stock selling for
much less than the value of its assets and businesses justify.
Groups of shareholders on Internet message boards have been
gaining increasing power in corporate affairs. In March 1999,
eRaider's founders led the first Internet-organized group to gain
official recognition by the US Bankruptcy Trustee and eventually
win the exclusive right to present a reorganization plan for United
Companies Financial (NYSE: UC). In 2000, Luby's (NYSE: LUB)
shareholders became the first Internet-organized group to run a
dissident board slate, but their candidates were defeated. eRaider
expects Goldfield shareholders will be the first Internet-organized
group to actually elect some directors at Goldfield's June 19
annual meeting.
Another break with the past is eRaider is working entirely with
individual shareholders contacted through the Internet. Goldfield
has no large institutional shareholders. Individual shareholders
are notoriously expensive and difficult for dissidents to reach.
eRaider is based on the idea that the Internet changes that
conventional wisdom. Management starts with huge advantages,
including the fact that many shareholders automatically side with
them and they can spend shareholder money to elect their
favored candidates (Goldfield predicts it will spend 1.6 percent of
the market capitalization of the Company, above and beyond the
costs of a normal proxy solicitation, to fight eRaider, while
eRaider's CEO is personally underwriting all its expenses and has
pledged not to seek reimbursement from the Company). But the
Internet is a level playing field in which argument backed by links
to authoritative sources wins over money and incumbency.
The Election
One important advantage for eRaider is that Goldfield currently
has cumulative voting for directors. That means each shareholder
gets six votes (there are six director slots) per share. Those votes
can be allocated all to one director, or to six different directors, or
to any combination in between. There are 27,694,154 shares
eligible to vote in this election. eRaider estimates that between 15
and 18 million will actually vote (this estimate is subject to large
uncertainty). Using a middle figure for the turnout, that means
eRaider can name one director for each 2.4 million shares voted
in its favor. On the other hand, if management gets more than
13,847,077 votes (half the shares eligible to vote) it has
announced that it plans to adjourn the meeting, amend the articles
of incorporation to eliminate cumulative voting, and reconvene to
elect the directors under the new rules.
eRaider believes it is unfair for a board to change the rules for its
own re-election. If cumulative voting is eliminated this year, it
should apply to next year's election. Also, management should not
use its power to control the annual meeting to affect the results of
elections. When chairing the annual meeting, the CEO should act
impartially, not use complex and expensive maneuvers to help
favored candidates get elected.
History of the eRaid
eRaider's companion fund began buying shares of Goldfield on
March 10, 2000. On November 17, 2000, Goldfield was targeted
on the website. eRaider CEO Aaron Brown then
went to Melbourne, Florida to meet Goldfield CEO John Sottile.
Two days of talks and tour were friendly but did not reassure Mr.
Brown about the adequacy of Goldfield's board of directors.
One major concern was the four directors other than Mr. Sottile
held less than $2,000 worth of Goldfield stock between them
(although two of them had been directors for over 15 years) and
none had professional qualifications in either mining or electrical
constructions (two were real estate developers and two were city
government officials). Although Mr. Sottile was a large
shareholder, his family had been net sellers of Goldfield stock
since it acquired 25 percent of the Company in 1973 (the total
stake of the Sottile and Leitner families had shrunk to less than 5
percent by the 2000 proxy statement).
Since eRaider announced its interest in Goldfield, both directors
and officers have been buying stock. The total holdings by director
candidates and top officers has ballooned to $1.24 million, plus
$1.55 million held by the father of a director candidate. Although
the Company has complained about the expense and disruption
of eRaider's activities, officers and directors who passed up the
chance to buy the stock at $0.1875 before eRaider have
purchased it almost triple the price afterward.
Another complaint was that the Company understated executive
compensation and corporate overhead, and generally had opaque
financial statements. On April 30, 2001, the Company filed an
amended 10-K (annual report) increasing reported management
compensation for 1998, 1999 and 2000 (the only years covered).
eRaider believes that the numbers should be restated all the way
back to 1989, and has serious questions about a transaction in
June 2000 in which four top managers were paid $510,000. The
account given of this transaction was also changed in the
amended 10-K, but even the revised account fails to justify the
$510,000 (eRaider calculates that about $75,000 is appropriate,
this number is subject to large uncertainty) or explain why an
additional $498,311 of shareholder assets was removed from the
balance sheet.
Finally, eRaider felt that the Company drifted from business to
business without ever devoting the attention and resources
necessary to make any one of them a success. Goldfield has
never paid any dividends and the stock has gone steadily down
since the Sottile family got involved with Goldfield in 1969 (the
board Chairmanship and CEO position were held by John Sottile's
older brother and father before him; Sottile and Leitner family
members have often represented the majority of the board of
directors, although currently they are only 2 of the 5 directors). Of
course the stock has gone up from time to time, but the market
capitalization declined from over $100 million in 1969 to a low of
$5 million in 1998, without any significant, sustained rallies. Even
this overstates the performance because shareholders injected
additional capital in the late 1970's. Had Goldfield performed like
the average stock in the S&P 500, it should be a $2 billion
company today, with the shares worth over 100 times their current
price (and 300 times the price before eRaider got involved). Even
when Goldfield still mined gold, and the price per ounce of that
metal soared from $35 to $800, Goldfield's stock price fell.
All of this adds up to a rut in which managers are given long-term
contracts (John Sottile has a ten-year contract that pays him even
if he is fired) and bonuses for performance that is not good
enough to lift the stock price. eRaider thinks shareholders
bonuses and other extra compensation should only be paid if
shareholders also receive gains. eRaider blames this rut, and the
attendant obscurity of the stock, for driving away institutional and
many individual investors. But the Company has valuable assets,
strong businesses and good management. eRaider thinks it needs
only a more aggressive board of directors to achieve greatness.
eRaider is soliciting proxies for Goldfield's annual meeting on
June 19, 2001. eRaider strongly advises all shareholders to read
the proxy statement at
D=647 or by emailing, or a free copy is
available from:
Privateer Asset Management
POB 20170
Park West Station
NY, NY 10025
About Inc.
eRaider was founded in March 1999 by business school
professors Aaron Brown and Martin Stoller. It united a public
mutual fund, Allied Owners Action Fund (now operating only as a
private fund) with a set of Internet message boards devoted to
organizing shareholders of the companies the Fund bought. The
Fund buys 5 percent stakes in undervalued public companies,
then announces the targets at the site. Discussions
among eRaider's expert moderators (business school professors
and experienced takeover professionals) and target company
shareholders lead to actions to improve shareholder value.
Goldfield Corp. is eRaider's fifth announced target company and
the first to result in a full-fledged proxy fight. In four previous
eRaids, eRaider won a place at the restructuring table (Employee
Solutions, NASDAQ: ESOL), engaged in a constructive dialog
with management (Comshare, NASDAQ: CSRE), has failed so far
(Jameson Inns, NASDAQ: JAMS) and detoxified a company's
capital structure on the most favorable terms ever (Transmedia
Asia Pacific, NASDAQ: MBTA). One eRaider target put itself up
for sale immediately after eRaider announced an interest, another
was taken over before eRaider had a chance to announce.
Comshare may be the object of a takeover attempt in that another
company has bought 5 percent of its stock and filed a 13-D, but
that is not conclusive evidence.
About Goldfield Corp.
Goldfield Corp. was founded in 1906 by George Wingfield and U.
S. Senator George Nixon as a Goldfield Consolidated Mines, a
Wyoming gold mining company. Both men became
multimillionaires as a result of this mine. Bernard Baruch and
Herbert Hoover were later involved in it. Wingfield was known as
the "owner and operator of Nevada" because he owned every
bank in the state and was boss of both the Republican and
Democratic state parties. In 1921 Goldfield became one of the
founding members of the American Stock Exchange. Today it has
two main businesses: it is the largest producer of natural zeolites
in North American (zeolites are minerals useful for filtration, toxic
chemical clean-up, mine reclaimation, fertilizer and animal feed
additives among other things) and electric transmission and fiber
optic cable line construction.
Deborah Pastor, Portfolio Manager, Allied Owners Action Fund,
(646) 505-0215,