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CONSOLIDATED-TOMOKA
LAND CO.
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(Name
of Registrant as Specified in Its Charter)
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WINTERGREEN
FUND, INC.
WINTERGREEN
PARTNERS FUND, LP
WINTERGREEN
PARTNERS OFFSHORE MASTER FUND, LTD.
RENAISSANCE
GLOBAL MARKETS FUND
WINTERGREEN
ADVISERS, LLC
WINTERGREEN
GP, LLC
DAVID
J. WINTERS
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(Name
of Persons(s) Filing Proxy Statement, if Other Than the
Registrant)
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CATEGORY
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EXCERPT
FROM WINTERGREENS PRESENTATION
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CTO’S
“FACT”
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ACTUAL
FACT
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Income
Property Returns
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Wintergreen
states that the pre-tax return on CTO’s income properties is
7.7%. (Slide 3)
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Wintergreen’s
calculation leaves out the 1031 tax benefit which, when included, provides
for an effective pre-tax return of 12.5%.
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Our
numbers are pulled directly from CTO’s own “Important Shareholder
Information” filing dated April 8. 2009 which states that the
company owns a $120 million portfolio of income properties which generates
$9.2 million in pre-tax revenues annually. This is a 7.7%
return on investment, before CTO pays taxes on that revenue.
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Independence
of Wintergreen nominees
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Wintergreen
has nominated three director candidates, all completely independent from
both CTO and Wintergreen.
(Slides
4, 29 & 30)
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Despite
the fact that Wintergreen claims its nominees are all “entirely
independent,” the director candidates that Wintergreen has nominated now
and in the past have relationships with each other and/or with
Wintergreen. Of the eight nominees to the Board by Wintergreen
over the last three years, three of the nominees served together on the
Board of Florida East Coast Industries, a company in which Franklin Mutual
Advisers, LLC, was the largest shareholder while David Winters was the CEO
and CIO. Apparently these “overlapping connections” are not a
problem for Wintergreen nominees.
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Over
the years, Wintergreen has proposed eight director candidates to
CTO. Not one of those
candidates currently has a seat on the CTO board.
One
of the three directors being proposed by Wintergreen, Allen Harper, served
on the board of Florida East Coast (“FEC”).
No
one at Wintergreen served on that board or worked for FEC.
The
other two candidates proposed by Wintergreen for this shareholder
election, Dianne Neal and Frank O’Connor, have never had any relationship
to FEC.
None
of the candidates nominated by Wintergreen pursuant to our proxy statement
has any relationship with, or obligation to,
Wintergreen.
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CTO
Director Independence
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Wintergreen
has pointed out past and present business connections between CTO’s
current Board members. (Slide 7 and Pages 2 and 3 of
Wintergreen’s fight letter )
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The
attached memo dated April 24, 2009, includes a point-by-point response to
each connection, most of which had been previously provided to Wintergreen
in correspondence that was filed with the SEC. CTO directors
have at all times acted in the best interest of the Company and all of its
shareholders and any potential conflicts are handled accordingly through
the Code of Business Conduct and Ethics.
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In
isolation, none of these numerous overlapping connections appears
significant, but when taken as a whole, they paint a clear picture of an
insular and clubby Board. A healthy working relationship among
people of diverse business experience and background leads to healthy
board room discussion. We believe CTO will benefit from
blending Wintergreens candidates with some of the local talent already on
the Board.
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CTO
Executive Committee
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Wintergreen
states that CTO’s Executive Committee is “empowered to enter into land
sales and income property transactions without the approval of the rest of
the Board of Directors,” and that “there is “no upper limit to the size of
land sales or income property transactions McMunn and the Executive
Committee can approve” and that “every acre of land and every income
property could be sold without the approval of the full Board of
Directors,” and that Wintergreen believes “that the other Board members
have abdicated their fiduciary duty to McMunn, Voges and Adams” (the
members of the Executive Committee).
(Slide
12)
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The
Executive Committee Charter specifically states that “the Committee
generally will have all of the authority of the Board in the transaction
of such routine, non-material business of the Company as, in the judgment
of the Committee, may require action before the next regular meeting of
the Board.” The Executive Committee has never taken action on a
land sale or income property purchase without the specific authorization
from the full Board.
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The
CTO Executive Committee is empowered to authorize land sales in excess of
$10 million, income property purchases above $20 million, and incur
non-recourse debt over $15 million. We do not consider
transactions of these sizes to be either “routine” or
“non-material”. In our view this delegation of board authority
to a committee is a prime example of CTO’s corporate governance practices
which are in need of improvement.
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CTO
Executive Bonus Program
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Wintergreen
states that the Board “approved a revised annual executive bonus criteria,
which uses hypothetical earnings as the basis for executive bonuses.”
(Slide 17)
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Wintergreen’s
statement is false. The CTO executive bonus plan is based upon
actual Earnings Per Share (the metric most closely related to shareholder
value) in a given year plus a one-time credit equal to market value in
excess of cost for the raw land component of any Board-approved self
development projects.
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CTO’s
own February 3, 2008 8-K filing states “the Company will
include a one-time per project equivalency calculation representing the
hypothetical
after-tax net income that would have been recognized on the land
portion of any land lease, self-development project or build-to-suite
lease during the fiscal year had the property been sold to a third party;
the fair market value of the property used to calculate the lease payment
for land leases, or the value approved by the Board in the pro-forma
calculations for self-development projects or build-to-suite leases, will
then be used to adjust the EPS calculation for the Cash Bonus
Plan.”
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Wintergreen
points out that CTO’s new bonus plan was approved in 2009, but made
retroactive to 2008. (Slide 17)
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The
Compensation Committee did not award any cash bonuses to CTO’s three
senior officers for 2008 performance.
The
formula for the cash bonus plan, which was approved in early 2009, was
developed in direct response to a request from Wintergreen in its letter
dated January 21, 2008 and James Jordan, former CTO Board member who was
proposed by Wintergreen. In January 2008, the Compensation
Committee elected to develop a modified cash compensation plan that when
completed and adopted would be effective for year 2008
forward.
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Wintergreen’s
January 21, 2008 letter to CTO encouraged CTO’s Board to “align management
compensation to the success of the company.” We have never
advocated for the use of “hypothetical after-tax net income” as a basis to
award bonuses to executives.
We
have encouraged the company to take a long term look at its objectives and
to reward executives for meeting objectives that are aligned with the long
term interests of shareholders.
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Wintergreen
states “The review of the Criteria by the Board, of which McMunn serves as
Chairperson, means that, in effect, McMunn is reviewing his own
compensation.” (Slide 17)
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The
Compensation Committee of the Board, which consists entirely of
independent directors, has responsibility for the review and approval
of compensation decisions. Mr. McMunn has no role in the
approval of his compensation.
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Chairman/CEO
McMunn clearly had a role in developing this executive bonus plan, which
he now stands to benefit from.
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Board
Size
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Wintergreen
proposes to cap the size of the CTO Board at a maximum of eleven members.
(Slide 19)
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We
find this proposal to be very self-serving since in early 2008,
Wintergreen specifically requested that CTO increase the size of its Board
to twelve members to accommodate Wintergreen nominees.
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During
discussions with the company, Wintergreen suggested the expansion of the
Board in 2008 as a temporary measure to allow for the inclusion of
Wintergreen nominees on the 2008 proxy. It was our understanding that some
CTO directors were nearing retirement, which would allow the Board to
return to its original 9 member size.
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With
regard to CTO increasing the size of its Board from 9 to 11 in response to
a potential Wintergreen slate of candidates, Wintergreen ask “To what
lengths will this Board go to further entrench themselves and ensure that
shareholders have as little truly independent representation as
possible?” (Slide 19)
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This
was not an act of entrenchment. The two newly nominated
candidates to the Board were proposed by Wintergreen and were included on
the Board-endorsed slate in direct response to Wintergreen’s
request.
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When
faced with an alternate slate of director candidates, CTO chose to expand
the size of its Board and entrench existing directors rather than let
outside candidates run against the incumbent slate. This has
diluted any potential voice of truly independent, shareholder nominated
directors. As CTO is well aware, the two new directors on the
CTO slate have no relationship with Wintergreen. We have spoken
with these candidates on the phone and have researched their
backgrounds. We believe they are good candidates for
directors. They have no connection to Wintergreen, in point of
fact, we have never met them face to face.
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Compensation
Review
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Wintergreen
states that shareholders will never know the outcome of a Towers Perrin
compensation study because according to their (CTO’s) 2009 proxy, CTO
chose to ignore the recommendations of Towers Perrin and design their own,
as of yet undisclosed, plan.” (Slide 20)
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The
Compensation Committee spent $44,000 on the Towers Perrin study, an amount
that would not typically be disclosed because it is not material. Towers
Perrin was retained to provide a series of services to the Compensation
Committee. The Compensation Committee accepted those recommendations that
were appropriate and chose not to act on certain recommendations that it
deemed to be inappropriate.
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The
Board approved the bonus plan which rewards executives for “hypothetical
after-tax net income,” which we find very troubling.
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Stock
Option Plan
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Wintergreen
points out the fact that CTO’s current stock option plan includes a
“gross-up to cover executives personal tax bills for gains realized on
their stock option grants...in effect shareholders are covering
executives’ personal tax bills” (slide 21).
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There
are no shares remaining for grants under the current 2001 Stock Option
Plan. The plans were approved by an overwhelming number of the
voting shareholders each time they were submitted for approval in 1990 and
2001. Any new equity compensation plan will be presented
to shareholders for approval in the future.
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We
continue to believe that shareholders are best served by having management
which thinks and acts like owners. Granting free stock options
with accompanying gross-ups to cover executives’ personal tax bills puts
the interests of management ahead of those of outside
shareholders. We absolutely believe this practice is harmful to
shareholders.
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Wintergreen
Nominees
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Wintergreen
believes that its nominees possess the experience and backgrounds that
will benefit the Company. (Slides 22-24)
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In
its current proxy statement and other solicitation materials, Wintergreen
has omitted any reference to Dianne Neal’s service on the Board of
Directors and the Audit Committee of LandAmerica Financial Group (this
information was included in Wintergreen’s initial
nomination). In December of 2008, LandAmerica filed for
bankruptcy. LandAmerica and its Board has since been the subject of
shareholder lawsuits.
Wintergreen
states that Francis O’Connor’s “in-depth knowledge of finance and risk
management will aid CTO’s Board,” yet Mr. O’Connor has apparently never
held a senior management position, never served on a public board and has
no experience in the real estate industry.
Wintergreen
states that Allen Harper’s experience will provide the Board and
management with “invaluable input,” but Mr. Harper’s experience includes
being an officer or member of entities that have filed for bankruptcy,
only one of which is indicated in Wintergreen’s proxy
statement.
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We
believe Ms. Neal’s extensive record of success as a high-level executive
at Reynolds American, Inc. and as an engaged Board member of a $3 billion
public company, Metavante Technologies, speaks for
itself. She is rightfully held in high regard by the
business community and is not involved in any shareholder
lawsuit.
Mr.
O’Connor has worked in the Bank Supervision Group of the Federal Reserve
Bank of New York. He was an executive at JP Morgan Chase Bank
and has established his own successful bank consulting firm. We
believe he is of high moral character and that his track record compares
favorably with any of CTO’s incumbent candidates. He will bring
a fresh outside perspective to CTO’s Boardroom.
Mr.
Harper was a passive investor in an entertainment company which filed for
bankruptcy. More importantly, Mr. Harper was an independent
director of Florida East Coast Industries for 12 years and helped turn
their undeveloped real estate holdings into a source of great value for
all shareholders. He too has a stellar
reputation.
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CTO
Business Strategy
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Wintergreen
has never received a lucid explanation of the underlying logic of CTO’s
current business strategy, which calls for liquidating their Daytona land
holdings and purchasing a portfolio of income properties, most of which
are either retail or banking properties.
(Slide
27)
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CTO
has clearly and consistently articulated its strategy and the rationale
for that strategy in every single annual report since the strategy was
adopted in 1999 and explained further in conversations and communications
with Wintergreen.
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Wintergreen
has never seen an explanation as to why CTO has consistently purchased a
scattered portfolio of retail and banking properties (two areas
particularly hard hit by the current economic downturn) with low rates of
return.
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LPGA
Golf Operations
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Wintergreen
states that “the board’s seeming lack of concern for the oversight of this
money-losing operation is a dereliction of its fiduciary duty.” (Slide
28)
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The
development of the golf course and clubhouse was essential to the
long-term marketability of CTO’s agricultural land holdings on the west
side of Daytona Beach. Following development of the golf course
and clubhouse, the value of CTO’s surrounding real estate significantly
rose in value, and has accelerated the development of residential
communities, retail, and other commercial projects. The Company
is working diligently to make golf operations profitable on a stand-alone
basis as the residential housing grows, but the fact is that the Company’s
investment in its LPGA golf operations has paid for itself many times over
through the increased value and sale of the
nearby land.
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The
fact is CTO has lost approximately $12 million dollars of shareholders
money on the golf course operations in the past decade, and these losses
have grown in each of the past 5 years. CTO has repeatedly
hired the same third party company to run the LPGA operations during this
period of large losses, and although we have repeatedly requested a
turnaround plan for LPGA from CTO, we have yet to see
one.
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