Excerpts from the independent INSTITUTIONAL SHAREHOLDER SERVICES (ISS)
Report on the 2002 proxy filed with the SEC – link to full report below
Not much has changed in 13 years – what an eye opening report
BACKGROUND
BUSINESS SUMMARY
Europa Cruises Corp. is the sole shareholder of Mississippi Gaming Corp., which company's primary asset is 404.5 acres of unimproved land in Diamondhead Mississippi on the Bay of St. Louis in Hancock County. Europa is also the sole shareholder of Casino World, Inc., a company through which Europa plans to develop its Diamondhead property.
Until August 2000, when Europa sold the last of its cruise ship vessels, the
company operated cruises-to-nowhere out of ports located in Florida. In 2001,
the company did not operate any vessels. During 2000, the company operated
only one vessel. During 2000, the company also subleased the Madeira Beach
dock, ticket booth, and parking facilities to the purchaser of the one of its
vessels, and the company assigned its dock lease in Ft. Myers Beach to an
unrelated third party. Since that time and in addition to interest earned on
its invested cash (from the sale of its cruise ship vessels), Europa's only
sources of income are its dock leases.
Europa Cruises Corp. has three types of voting stock: common stock, Series S
preferred stock, and Series S-NR preferred stock. Each share of common, Series S preferred, and Series S-NR preferred stock entitles the holder to one vote. As of April 1, 2002, the Williams/Vitale Group beneficially owned approximately 9.7 percent of the company's outstanding common stock, inclusive of stock options exercisable for an aggregate 2.5 million shares. As of April 12, 2002, the Committee beneficially owned approximately 21.4 percent of the company's outstanding common stock. These amounts do not include approximately 3.4 million unallocated ESOP shares voted by the plan's trustees, Deborah Vitale and John Duber.
PREVIOUS CONTESTS
This is the fourth proxy contest at this company in nine years (three in the
past five years - during Deborah Vitale's tenure). The first came in October
1993, when a group of dissident shareholders concerned with the company's
performance and management's lack of experience in the company's main line of
business sought to unseat the incumbent board. The dissident group was
unsuccessful in its attempt to gain control of the company.
QUALIFICATIONS AND EXPERIENCE
…. Ms. Vitale has no experience in developing, building, designing, or operating a deluxe casino entertainment complex, which is indeed the primary goal for the Diamondhead property. Nor is she (or has she ever been) licensed or permitted to operate a casino in any state. She has practiced law for 23 years and has acted as Europa's primary counsel for the last several years, leading the company through the conclusion of multiple lawsuits and the sale of the company's cruise-to-nowhere business.
To her credit, Ms. Vitale did successfully dispose of the company's cruise
ships, which left the company with approximately $3 million in cash. And, in her capacity as the company's corporate counsel, she has successfully disposed of a number of lawsuits and/or legal disputes, which Ms. Vitale claims has saved the company millions. Ms. Vitale also readily admitted to ISS that there is very little that she hasn't done to get what she wants.
Still, it is undeniable that Europa's long-term shareholders have suffered
considerable losses. Over the last ten years, the company's stock has declined significantly. Currently, the company's shares are trading at $1.02 a share,down from a high of $5.69 in October 1992.
CORPORATE GOVERNANCE
As a fundamental tenet of corporate governance, a company's board must be an
independent body capable of providing objective oversight of management.
Without question, insiders have conflicts of interest that obstruct them in
their role as fiduciaries. Arguably, sufficient conflicts also exist among
affiliated directors that could diminish the quality and impartiality of the
decision-making process. Therefore, directors wholly independent of management are in the best position to act in the best interests of shareholders. At a minimum, a board should include a majority of independent directors, and key Committees should comprise independent directors. Europa's board has neither a standing nominating committee nor compensation committee, and its audit committee includes two insiders; the full board comprises two insiders and two independent directors. (Although a former employee, Mr. Duber has certainly demonstrated his independence of the company's current management).
During her tenure, Ms. Vitale has made some very aggressive management
decisions such as unilaterally and selectively cutting employee benefits
(including health care coverage, major holidays such as New Year's Day,
Memorial Day, July 4th, and Labor Day, and sick leave without a doctor's note), with little or no warning, and capriciously cutting the pay and/or hours of employees. Ms. Vitale would also routinely act without the board's knowledge or consent, believing that "the president of a public company does not need board approval to take actions relating to the company's primary asset." In a letter to Messrs. Duber and Illius, dated April 24, 2002, Ms. Vitale also admitted that she has taken "hundreds of actions relating to the Diamondhead property in the last five years without consulting either
[Messrs. Duber or Illius] or the board." Most recently, Ms. Vitale
commissioned a $50,000 market study without consulting her fellow board
members. Moreover, when asked by Messrs. Duber and Illius to see the study,
she refused.
THE DIAMONDHEAD PROPERTY
The Diamondhead property is debt-free, and there are no liens on the property. According to the company's most recent 10-K, the site was appraised at $8,000,000 in March 1996 and at $41,700,000 in August 1999. The appraisals were predicated on the site being fully permitted and zoned as a legally permissible, water-based casino site. Unfortunately, year after year
assurances of progress have been made, but never demonstrated, and "deals" to
develop the property have never really materialized.
Instead, nearly ten years after having exercised its option on
the Diamondhead property, the company has little or no operating income, no
master plan to develop the property, and no management team (or team of any
kind) with a demonstrable focus on creating long-term value for shareholders.
Instead, management has been embroiled in protracted litigation over the past
several years.
Ms. Vitale claims that the company is ready to retain an engineering firm to
draft an environmental impact statement for its Diamondhead property.
According to Ms. Vitale, the cost of the study will range from $600,000 to
$1,000,000. Troubling, however, is the fact that Ms. Vitale plans to proceed
with such a costly study without first preparing a project plan of any kind
clearly establishing the scope of the project itself. What's more, Ms. Vitale
selected a firm to conduct the study without seeking any input from the board. Because such an undertaking at this time (without first establishing the proper framework and scope of such a significant undertaking - one with substantial long-term implications) would be premature and potentially detrimental to the company's ultimate development of the property and operation of the businesses thereon, Messrs. Duber and Illius have withheld support from Ms. Vitale's plan to proceed with the preparation of an environmental impact statement.
Conversely, the Committee has demonstrated a thorough understanding of the
value and potential for development of the Diamondhead property as well as the economic and financial requirements of such an endeavor. The Committee has also demonstrated a thoughtful and unique understanding of the public policy issues that will surely arise and must be considered to achieve long-term success.
CONCLUSION
Notwithstanding any positive affects of certain of management's legal
strategies, we ultimately asked and answered three questions:
1) Has this board functioned independently of management?
2) Has management had sufficient opportunity to realize its goals?
3) Could Mr. Rafferty's membership on the board enhance shareholders' long-term interests?
To the first question, we answered no. Not in terms of its composition, not in terms of its governance practices, and certainly not in terms of fully
appreciating its fiduciary role. Indeed, we believe that Ms. Vitale's
over-the-top response to any attempt to initiate change, or to exercise
independence, appears to justify the Committee's concerns about Ms. Vitale's
judgment and commitment to an impartial and high-quality decision-making
process.
It is quite clear from our review of SEC filings (past and present) as well as our telephone meetings with the parties that this board has functioned for
several years under a cloud of manipulation and fear of retribution. What's
more, our research suggests that this fear is not misplaced. It seems that Ms. Vitale has, to a great extent, preserved her position and control over Europa's assets and affairs through repeated and increasing fierce threats of legal action against anyone perceived to be an obstacle. Not only did Ms. Vitale readily and unapologetically admit to her propensity to threaten and to take legal action, but also her past actions bare this out. For example, in January 1998, when four members of the then five-member board voted to remove Ms. Vitale from the board and to terminate her employment, she responded immediately (and before public announcement of the decision) by sending a letter to the company's primary lender (ostensibly `fulfilling her
responsibility to report a material development to the bank') insinuating that because of the board's decision to remove her, the company would not be able
to meet its financial obligations to the bank. In her letter dated Jan. 19, 1998,Ms. Vitale promised to embroil the company, its officers, and/or its directors in lawsuits resulting in legal fees of "no less than $1.5 million" in the first year (exclusive of judgments that might be entered against the company, its officers, and/or its directors). Ms. Vitale also vowed that "numerous shareholders" of Europa would do the same. As she put it, the company's expenses would "skyrocket" in response to the promised lawsuits. Ms. Vitale also stated that she believed that the company's insurer would neither defend the lawsuits nor pay any judgments arising out of them.
To the second and third questions, we answered yes. Ms. Vitale has served as a director since 1992, when, according to Ms. Vitale, Victor Gersh, the company's corporate counsel, appointed her to the board. (Mr. Gersh was also her first law partner). In March 1995, she was appointed chairman. In September 1997, she was appointed president of Casino World and Mississippi Gaming, and in February 1998, she was appointed president and CEO of Europa. We conclude that Ms. Vitale has had ample time and opportunity to achieve the company's financial and operational goals.
Messrs. Duber and Rafferty are not seeking to push an agenda that is different from other shareholders. Quite simply, the Committee is seeking to ameliorate shareholders' rights on a rather basic level -- by respecting proper governance practices and by restoring accountability.
We agree that Mr. Rafferty brings to the company the experience and
impartiality necessary to develop the Diamondhead property and to assist in
implementing a business plan that offers a superior opportunity for enhancing
and sustaining long-term shareholder value. What's more, we are confident that Mr. Rafferty's expertise, credibility, and contacts in the casino gaming
industry and financial markets will greatly facilitate the long-overdue
creation of shareholder wealth.
We also strongly support the removal of Ms. Vitale from the board and as CEO so that a board of fiduciaries cognizant of its duty to represent and protect the interests of all public shareholders' may be selected and allowed to function properly.
We recommend that shareholders DISCARD the GOLD proxy card and vote to REMOVE
Deborah Vitale from the board using the WHITE proxy card.
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