in the company from about 5% to 3.6%.

Class B shareholders have indicated that it is their intention to vote their shares in favour of the recapitalization proposal and, surprise, surprise, that they will all make pro rata elections. A majority of the votes represented by Common and Class B stock voting together as a single class as well as by the holders of a majority of the outstanding Class B stock voting separately is required to approve the proposal.
Given that this proposal, if implemented, will have a result that the company’s Certificate of Incorporation was drafted to prohibit, Fairvest recommended a vote against it. And now onto the soapbox: shareholders are treated unfairly when provisions put in place to protect their interests are avoided by stealth.

The company’s board should have requested an amendment to the Certificate reducing the number of Class B shares the Fords are required to own to maintain their 40% voting power. Perhaps they could have appealed to shareholders, describing the Ford family’s need for ready cash. Such a proposal might have been difficult to swallow, but at least it would have met the transparency test for good corporate governance.

Dual-Class Déjà Vu

On July 27, 2000, SFX Entertainment Inc., a U.S. company listed on the New York Stock Exchange held its annual general meeting of shareholders. Among the more routine items, shareholders were asked to approve a by-law amendment and merger agreement with Clear Channel Communications Inc. On the surface there is nothing extraordinarily noteworthy about this meeting. However on a closer look, we find that SFX has more than 64.3 million Class A shares, entitled to one vote per share and 2.5 Class B shares, entitled to ten votes per share, outstanding as of the record date. Under the terms of the merger agreement, Class A shareholders will receive 0.6 shares of Clear Channel stock for each Class A share

held while Class B shareholders will receive 1.0 shares of Clear Channel stock for each Class B share held. Sound familiar?

As of the date of the proxy circular, SFX stated that the price per unit of the transaction for Class A shares was $40.0625 while the Class B shares price of the transaction was $66.7708 each. Even more telling, is the by-law amendment. Section 5.1 of the Charter provides that “all shares of common stock must be identical and entitled the holders thereof to the same rights and privileges”, while Section 5.7 provides that “consideration to be received per share by the holders of the Class A and Class B common stock must be identical”. As such, the board is proposing to amend these sections to make way for the merger agreement. The board has noted that the amendment is as narrow as possible and of no permanent effect if the Clear Channel merger does not go through. Failure to amend the Charter will prevent the consummation of the merger and result in termination fees of $100 million plus up to $20 million in expenses, if SFX pursues an alternative transaction in the next ten months. It’s not surprising that eleven lawsuits have been filed against SFX’s directors for breach of fiduciary duty, and against Clear Channel for aiding and abetting the actions of SFX’s directors. Forgoing the lawsuits, Class A shareholders do have another legitimate source of power left to them. The merger and by-law amendments both require a majority of A and B shares, voting separately as two classes, to become effective.

Gaming - Improving the Odds

In the April/May 2000 edition of the Corporate Governance Review, we reported that the CEO of International Thunderbird Gaming Corporation held stock options representing 6.3% of the Company’s outstanding shares despite a Toronto Stock Exchange rule that limits the number of shares reserved for issuance through options to any one person to not more than five percent of a listed company’s outstanding issue at any one time.