Star Equity Fund, LP (“Star Equity Fund” or “we”), a 5.4%
shareholder of Gyrodyne, LLC (Nasdaq: GYRO) (“Gyrodyne” or the
“Company”), announced today its nomination of two highly qualified
director candidates for election to the Gyrodyne board of directors
(the “Board”) at the Company’s 2023 annual meeting of shareholders
(the “Annual Meeting”). We believe significant change to the Board
is needed
NOW to create value for all shareholders
and our nominees will act in the best interests of
ALL shareholders.
Following the Company’s class action settlement
with shareholders in August 2015, Gyrodyne agreed to liquidate its
then four-property real estate portfolio, return the proceeds to
shareholders, and dissolve the Company. Almost eight years
have passed, and the Company has sold only two of those properties,
with the completion of the second sale occurring in August 2018 –
almost five years ago -- while management and the Board have been
receiving compensation the entire time. With the Company’s
Flowerfield and Cortlandt Manor properties yet to be sold, we have
little confidence Gyrodyne will complete its liquidation by its
stated YE2024 deadline, which was already delayed two years from
the previous deadline. Meanwhile, Gyrodyne shareholders have
suffered value destruction during the incumbent Board’s tenure —
Gyrodyne’s stock price has declined approximately 32% over the last
year and almost 60% over the last five years.
We believe the Company effectively has become a
compensation vehicle for the incumbent Board at the expense of
shareholders. Our main concern is with the Board’s
compensation plan tied to the Company’s dissolution process (the
“Bonus Plan”). The Bonus Plan provides that upon
liquidation of Gyrodyne’s properties, 5% of the gross sale proceeds
are allocated to Board members and management as long as the
proceeds exceed the properties’ appraised values, with 65% of the
bonus pool percentage going to the Board. In addition, Board
members and management earn a fee on any incremental gross proceeds
in excess of the 2013 appraised values – appraisals which are now
10 years old! The Bonus Plan appears to be the main driver of the
Board’s and management’s incentives, with Gyrodyne directors
collectively owning only a small amount of Company shares despite
an average director tenure of approximately 20 years and the
management team collectively owning zero
shares.
We believe that the Bonus Plan has warped the
incentives of the Board and management, a situation for which we
fault the Board. Instead of relying on the Bonus Plan, we believe
the Board and management should be incentivized mainly with stock
so they can be properly aligned with shareholder interests. Doing
so would have the additional benefit of requiring shareholder
approval for stock-based grants and changes to these grants.
Disappointingly, the Board has made changes to the Bonus Plan
several times — never with shareholder approval— something they
could not do with a stock-based plan. Our nominees, if
elected, intend to push the Board to terminate the Bonus Plan and
replace it with a standard stock-based plan approved by
shareholders.
As another example that we believe shows the
Board’s lack of alignment with shareholders, in Gyrodyne’s 10-Q
filed with the Securities and Exchange Commission on May 11, 2022,
the Company amended the Bonus Plan (once again) such that it cannot
be (a) suspended or terminated, or (b) amended in a manner that
would reduce, eliminate or otherwise materially impair the manner
in which (i) the bonus pool is to be determined, calculated or
funded, or (ii) bonus payments are to be made to participants. The
amendment also clarified that a director nominated for reelection
but failing to be reelected would be treated as if he or she was
terminated without cause (and thus eligible for modified benefits
post-termination). We believe these changes are entrenchment and
incumbent protection mechanisms prompted by our March 2022 press
release regarding our intent to nominate directors. These
changes to the Bonus Plan further reinforce our view that the Board
is running this Company principally for its own benefit rather than
for the benefit of shareholders. We believe the
Board is incentivized to prolong the dissolution of the Company
because they receive compensation in the interim and are more
concerned with maximizing their bonus payout under the Bonus Plan
rather than maximizing net present value for
shareholders.
In addition to having a classified board, the
Company’s advance notice provisions include the following
requirements in order to nominate directors and challenge the
Board, which we believe are shareholder unfriendly and designed to
insulate the incumbent board from accountability to
shareholders:
- a nominating shareholder, to be
eligible to nominate directors, must (i) hold at least $2,000
worth, or 1%, of the Company’s Common Shares for at least one year,
or (ii) be entitled to cast votes with respect to at least 5% of
the Company’s outstanding shares to nominate directors, and
- a nominating shareholder must
satisfy burdensome advance notice requirements, including having
its director nominees complete extremely long and invasive
questionnaires.
On August 1, 2022, we issued a press release
announcing our intention to vote WITHHOLD on the re-election of
incumbent board members Paul Lamb and Richard Smith due to their
track record of poor corporate governance at Gyrodyne. We also
announced our intention to vote AGAINST the Company’s executive
compensation as a signal to Gyrodyne’s Board on the poor structure
of its Bonus Plan. On August 24, 2022, the Company held its 2022
annual meeting of shareholders and a staggering
56% of votes cast voted WITHHOLD on the reelection
of both Lamb and Smith. We believe this WITHHOLD percentage
evidences a continuation of a high level of shareholder
frustration, having increased from 34% in 2020 and 40% in 2021. In
fact, many companies with good corporate governance practices have
mandatory-resignation provisions in their bylaws requiring a
director to submit their resignation if the WITHHOLD vote is
greater than 50%. In addition, at the 2022 annual meeting of
shareholders, 57% of votes cast voted against the
approval of the Company’s executive compensation in a non-binding
advisory vote - another sign of significant shareholder
frustration.
It is abundantly clear to us that Gyrodyne’s
Board lacks shareholder support. For years, shareholders have
endured value destruction and neglect at the hands of a misaligned
Board, who receives an egregious 65% of the payout under the Bonus
Plan. Gyrodyne’s long-suffering shareholders deserve better, and we
aim to give them an opportunity for much-needed change on the Board
at the Annual Meeting.
About Star Equity Fund, LPStar
Equity Fund, LP is an investment fund managed by Star Equity
Holdings, Inc. Star Equity Fund seeks to unlock shareholder value
and improve corporate governance at its portfolio companies.
About Star Equity Holdings,
Inc.Star Equity Holdings, Inc. is a diversified
holding company with three divisions: Healthcare, Construction, and
Investments.
For more information contact: |
|
Star Equity Fund, LP |
The Equity
Group |
Jeffrey E. Eberwein |
Lena Cati |
Portfolio Manager |
Senior Vice President |
203-489-9501 |
212-836-9611 |
jeff.eberwein@starequity.com |
lcati@equityny.com |
CERTAIN INFORMATION CONCERNING THE
PARTICIPANTS
Star Equity Fund, LP (“Star Equity Fund”),
together with the other participants named herein (collectively,
“Star Equity”), intends to file a preliminary proxy statement and
accompanying WHITE proxy card with the Securities
and Exchange Commission (“SEC”) to be used to solicit votes for the
election of its slate of highly-qualified director nominees at the
2023 annual meeting of shareholders of Gyrodyne, LLC a New York
limited liability company (the “Company”).
STAR EQUITY STRONGLY ADVISES ALL SHAREHOLDERS OF
THE COMPANY TO READ THE PROXY STATEMENT AND OTHER PROXY MATERIALS
AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. SUCH PROXY MATERIALS WILL BE AVAILABLE AT NO CHARGE ON
THE SEC'S WEB SITE AT HTTP://WWW.SEC.GOV. IN ADDITION, THE
PARTICIPANTS IN THIS PROXY SOLICITATION WILL PROVIDE COPIES OF THE
PROXY STATEMENT WITHOUT CHARGE, WHEN AVAILABLE, UPON REQUEST.
The participants in the proxy solicitation are
anticipated to be Star Equity Fund, Star Equity Fund GP, LLC (“Star
Equity Fund GP”), Star Value, LLC (“Star Value”), Star Equity
Holdings, Inc. (“Star Equity Holdings”), Star Investment
Management, LLC (“Star Investment Management”), Jeffrey E.
Eberwein, Hannah M. Bible, and Matthew R. Sullivan.
As of the date hereof, Star Equity Fund
beneficially owns directly 79,734 common shares of LLC interests,
par value $1.00 per share, of the Company (the “Common Shares”).
Star Equity Fund GP, as the general partner of Star Equity Fund,
may be deemed to beneficially own the 79,734 Common Shares owned
directly by Star Equity Fund. Star Value, as the sole member of
Star Equity Fund GP, may be deemed to beneficially own the 79,734
Common Shares owned directly by Star Equity Fund. Star Equity
Holdings, as the parent company of Star Equity Fund, may be deemed
to beneficially own the 79,734 Common Shares owned directly by Star
Equity Fund. Star Investment Management, as the investment manager
of Star Equity Fund, may be deemed to beneficially own the 79,734
Common Shares owned directly by Star Equity Fund. Mr. Eberwein, as
the Portfolio Manager of Star Equity Fund, may be deemed to
beneficially own the 79,734 Common Shares owned directly by Star
Equity Fund. As of the date hereof, neither Ms. Bible nor Mr.
Sullivan beneficially owns any Common Shares.
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