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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
(Amendment No. 1)*
Forgent Networks, Inc.
-------------------------------------------------
(Name of Issuer)
Common Stock, par value $.01 per share
-------------------------------------------------
(Title of Class of Securities)
34629U103
---------------------------------------
(CUSIP Number)
RED OAK PARTNERS, LLC
145 Fourth Avenue, Suite 15A
New York, NY 10003
Attention: David Sandberg
Telephone: (212) 614-8952
(Name, Address and Telephone Number of Person
Authorized to Receive Notices and Communications)
May 4, 2009
-------------------------------------------------
(Date of Event Which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G
to report the acquisition that is the subject of this Schedule 13D, and is
filing this schedule because of Rule 13d-1(e), 13d-1(f) or 13d-1(g), check the
following box [X].
Note. Schedules filed in paper format shall include a signed original
and five copies of the schedule, including all exhibits. See Section 240.13d-7
for other parties to whom copies are to be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities,
and for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be
deemed to be "filed" for the purpose of Section 18 of the Securities Exchange
Act of 1934 or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes.)
Page 1 of 9 pages
CUSIP No.: 34629U103
1. NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Red Oak Partners, LLC
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM
2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
New York
NUMBER OF 7 SOLE VOTING POWER 0
SHARES
BENEFICIALLY 8 SHARED VOTING POWER - 2,285,796
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER 0
REPORTING
PERSON WITH 10 SHARED DISPOSITIVE POWER - 2,285,796
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,285,796
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.35%**
14 TYPE OF REPORTING PERSON
OO
_________________________________
** Based on 31,111,278 shares of common stock of Forgent Networks, Inc.
outstanding at March 11, 2009, as reported in Forgent Networks, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended January 31, 2009 filed with
the Securities and Exchange Commission on March 13, 2009.
Page 2 of 9 pages
CUSIP No.: 34629U103
1. NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
The Red Oak Fund, LP
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM
2(d) or 2(e) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
United States
NUMBER OF 7 SOLE VOTING POWER 0
SHARES
BENEFICIALLY 8 SHARED VOTING POWER - 812,177
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER 0
REPORTING
PERSON WITH 10 SHARED DISPOSITIVE POWER - 812,177
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
812,177
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
2.61%**
14 TYPE OF REPORTING PERSON
PN
Page 3 of 9 pages
CUSIP No.: 34629U103
1. NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Pinnacle Partners, LLC
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM
2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Colorado
NUMBER OF 7 SOLE VOTING POWER 0
SHARES
BENEFICIALLY 8 SHARED VOTING POWER - 946,950
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER 0
REPORTING
PERSON WITH 10 SHARED DISPOSITIVE POWER - 946,950
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
946,950
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
3.05%**
14 TYPE OF REPORTING PERSON
OO
Page 4 of 9 pages
CUSIP No.: 34629U103
1. NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Pinnacle Fund, LLLP
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM
2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Colorado
NUMBER OF 7 SOLE VOTING POWER 0
SHARES
BENEFICIALLY 8 SHARED VOTING POWER - 946,950
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER 0
REPORTING
PERSON WITH 10 SHARED DISPOSITIVE POWER - 946,950
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
946,950
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
3.05%**
14 TYPE OF REPORTING PERSON
PN
Page 5 of 9 pages
CUSIP No.: 34629U103
1. NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
Bear Market Opportunity Fund, L.P.
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
WC
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM
2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
NUMBER OF 7 SOLE VOTING POWER 0
SHARES
BENEFICIALLY 8 SHARED VOTING POWER - 526,669
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER 0
REPORTING
PERSON WITH 10 SHARED DISPOSITIVE POWER - 526,669
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
526,669
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
1.69%**
14 TYPE OF REPORTING PERSON
PN
Page 6 of 9 pages
CUSIP No.: 34629U103
1. NAME OF REPORTING PERSON
I.R.S. IDENTIFICATION NO. OF ABOVE PERSON (ENTITIES ONLY)
David Sandberg
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP
(a) [ ]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS
AF
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO ITEM
2(d) or 2(e) [ ]
6. CITIZENSHIP OR PLACE OF ORGANIZATION
United States
NUMBER OF 7 SOLE VOTING POWER
SHARES
BENEFICIALLY 8 SHARED VOTING POWER - 2,285,796
OWNED BY
EACH 9 SOLE DISPOSITIVE POWER
REPORTING
PERSON WITH 10 SHARED DISPOSITIVE POWER - 2,285,796
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
2,285,796
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES [ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
7.35%**
14 TYPE OF REPORTING PERSON
IN
Page 7 of 9 pages
ITEM 4. Purpose of Transaction.
Item 4 as previously filed is amended by adding the following
language:
On April 17th, Pinnacle Partners issued a letter, attached as Exhibit A, to
Asure Software's ("ASUR") Board of Directors through ASUR shareholder James
Gladney to ASUR Director Lou Mazzucchelli, with an intent for him to pass the
letter to the rest of ASUR's Board.
On Monday, April 27th David Sandberg met with ASUR's CEO, CFO, Directors Lou
Mazzucchelli and Ray Miles, Richard Davis of Southwest Securities and ASUR's
General Counsel from Winstead, Marc Johnson at the Grand Hyatt attached to the
Dallas/ Fort Worth Airport. Mr. Sandberg, on behalf of the Pinnacle Fund
(controlled by Pinnacle Partners), also invited ASUR's shareholders James
Gladney, Bob Graham, and Tony Tristani, for the purposes of discussing ASUR's
operating plan with management, the contents of Pinnacle Partner's letter dated
Apr. 17, and potential alternatives for ASUR. Mr. Sandberg shared the contents
of Pinnacle Partners' April 17h letter with Mr. Graham and Mr. Tristani the day
prior to the meeting.
On May 1st, Pinnacle Partners issued a letter to ASUR, attached as Exhibit
B, as well as a request for ASUR's stockholder list, attached as Exhibit C. In
the letter, Pinnacle Partners stated its belief that immediate change was
warranted to salvage remaining value at ASUR and that it intended to commence a
proxy fight to better inform shareholders of the risks involved with the
proposed go-private and to reject all of ASUR's proposals up for vote at the
June 2 election. Pinnacle Partners also stated its intent to seek to compel an
annual meeting and to nominate a slate to replace the current Board of
Directors in its entirety, as well as a list of measures it believed ASUR must
enact immediately and which it would seek to enact (with Board approval) in
order for ASUR to achieve financial stability as soon as possible.
ITEM 7. Material to be Filed as Exhibits.
Item 7 is hereby amended to add the following exhibits:
Exhibit A: Letter to ASUR's Board of Directors from the Reporting
Persons
Exhibit B: Letter to ASUR's Board of Directors from the Reporting
Persons
Exhibit C: Letter to ASUR from the Reporting Persons
Page 8 of 9 pages
SIGNATURES
After reasonable inquiry and to the best of its knowledge and belief,
each of the undersigned certifies that the information set forth in this
Statement is true, complete and correct.
Dated: May 4, 2009
/s/ David Sandberg
- -------------------------
David Sandberg
Red Oak Partners LLC
By: /s/ David Sandberg
-------------------------------
David Sandberg, Managing Member
Pinnacle Partners, LLP
By: Red Oak Partners LLC, its general partner
By: /s/ David Sandberg
-------------------------------
David Sandberg, Managing Member
The Red Oak Fund, L.P.
By: Red Oak Partners LLC, its general partner
By: /s/ David Sandberg
-------------------------------
David Sandberg, Managing Member
Pinnacle Fund, LLLP
By: Pinnacle Partners, LLC, its general partner
By: Red Oak Partners LLC, its general partner
By: /s/ David Sandberg
-------------------------------
David Sandberg, Managing Member
Bear Market Opportunity Fund, L.P.
By: Red Oak Partners, LLC, its investment advisor
By: /s/ David Sandberg
-------------------------------
David Sandberg, Managing Member
Page 9 of 9 pages
EXHIBIT A
PINNACLE PARTNERS, LLC
145 4th Avenue, Suite 15A | New York, New York 10003
Telephone (212) 614-8952 | Facsimile (646) 390-6784
April 17, 2009
Board of Directors
Forgent Networks
108 Wild Basin Road
Austin, TX 78746
cc: Corporate Secretary
Dear Board of Directors:
Red Oak Partners, LLC ("RO Partners") controls the Red Oak Fund, L.P. ("RO
Fund") which beneficially owns 812,177 shares of the common stock Forgent
Networks ("ASUR" or the "Company") and manages the Bear Market Opportunity Fund
("Bear Fund") which beneficially owns 526,669 shares of the common stock of
ASUR. RO Partners is also a controlling member of Pinnacle Partners, LLC which
controls The Pinnacle Fund, LLLP ("Pinnacle Fund"), which is the registered
holder at the above address of 500,000 shares of common stock of ASUR and
beneficially owns 946,950 shares of the common stock of ASUR. Altogether, RO
Partners may be deemed to beneficially own 2,285,796 shares of the common stock
of ASUR, representing 7.3% of the common stock outstanding as of March 11, 2009
as reported by ASUR. Based on the number of shares outstanding as of that
reporting date, RO Partners - through the RO Fund, Pinnacle Fund, and Bear Fund
- - is the Company's largest shareholder, led by its investment in the Pinnacle
Fund.
As the company's largest shareholder we are writing to share our concerns
related to the strategic direction of ASUR and the responsibility of the Board
of Directors to maximize shareholder value. We request that this letter be
addressed immediately given our sense of urgency and ASUR management's publicly
stated intent to take the company private in advance of holding its 2009 annual
meeting. If permitted, this action will disable shareholders' Delaware-granted
right to submit proposals and to nominate and vote on which Directors they wish
to elect to represent their best interests. We are concerned with this
oversight in corporate governance and wish to share other key concerns which we
believe must be addressed immediately in order to salvage remaining value
within the Company before this value is destroyed. For further clarity, these
concerns include:
Continued "growth" spend
Under Richard Snyder's tenure as CEO, ASUR has spent in excess of $70 million
in SG&A plus R&D since 2003 while reporting an aggregate net loss of $39
million during that same time period. This large negative ROI is across a
multi-year time span and recent results have fared no better, having already
come in below late 2008 forecasts. Despite this negative ROI and disappointing
recent results - and despite being in the midst of arguably the worst economy
of our lifetimes - the growth spend has continued unabated with $14.5 million
in SG&A plus R&D spent in the past twelve months, a full $4mm above the
Company's full reported revenues during that same time period. Though
management has repeatedly claimed and promised it is building a platform for a
$20, $40, and $50 million revenue company (please refer to notes in "Inability
of management to forecast its business" below), these claims have been made
repeatedly in the past with material failure in all instances and at this point
should be disregarded entirely. Current spending remains at similar levels,
with SG&A + R&D at a $14mm/yr run-rate based on the most recent quarterly
results and it is clear that the current management team has not been proactive
with respect to cost reductions and has instead opted for a growth and
spend-first strategy, the result of which has been significant
value-destruction and a continuation of its negative ROI. This is further
evidenced as ASUR's stock price is 90% lower today than when Mr. Snyder was
first named CEO in 2001 and 97% lower than when he joined the Board in 1997.
The recently proposed going-private and wage reductions which promise to save
approximately $2mm/year are unacceptably low and insufficient vs. the Company's
net loss and cash burn. As such, after 8+ years of negative ROI and with cash
running at its lowest levels since at least 2002, there are no options
available to the Company but to effect immediate and radical changes to the
cost structure in order to ensure ASUR's ability to survive, better service its
clients, and assure its customers that it remains a financially viable and
stable company. Otherwise, in as little as one year the Company's cash - net
of its legal liability - could be just a few million dollars and the Company
would have very real 2010 viability risk.
Compensation, structure, and accountability at the senior management level
- - With 13+ successful years dedicated to public small and micro
capitalization investing and having completed thorough due diligence on
hundreds of sub-$100 million companies, we are well-versed with management
structure and compensation at small companies. The vast majority of small
companies - and at well under $20 million in revenues, ASUR qualifies as a
small company - employ one dual role CEO/COO and one CFO/ Treasurer. Combined
compensation is typically $400,000 - $650,000 based on whether targets and
bonuses are achieved. However, ASUR employs three separate individuals for
these roles and paid in excess of $960,000 in FY '07 alone for these duties
(according to its 2008 14A filing with the SEC), representing approximately 2x
what we believe the market rate is for these functions in a similar-sized
company. Of special note is that the aggregate compensation paid to the CEO,
CFO, and COO since 2003 exceeds ASUR's current market capitalization. As such,
it's apparent that the Company continues to spend more than it should, is not
streamlined to maximize shareholder value, and does not maintain a corporate
culture where compensation is earned upon success instead of being granted
without accountability.
- - When we asked ASUR's CEO (Richard Snyder) and CFO (Jay Peterson) to
describe their roles to us during a March 5th, 2009 phone call, Mr. Snyder
replied (in order) "M&A activity, dealing with the lease sale, and investor
relations" and Mr. Peterson answered "SEC filings, reporting, and the audit."
For reference to the CEO's response:
o Just 18 months ago ASUR paid 3x its current market cap, or
$0.40/share, to acquire Iemployee. Each of the five quarters since the
acquisition has witnessed a larger EBIT and EBITDA loss than the
quarter prior to the acquisition, with no clear improvement in sight
and no reported growth. Spending $0.40/share to increase the company's
net loss is not a successful M&A result and given ASUR's historical
negative ROI and the results of this deal, we hope and expect that M&A
activity is not in ASUR's immediate future.
o According to our discussions with management, management was
unable to achieve a lease sale. Further, Jay Peterson informed us in
conference calls both in October and November '08 that he had been
handling most of the lease sale, which runs contrary to what Richard
Snyder informed us during our March 5th, 2009 call.
o Regarding investor relations, ASUR management refused to meet
with us for a requested one hour meeting at its offices in Austin and
at a date and time of its choosing in early December '08. This came
despite our open communication to Jay Peterson that we owned
approximately 3% of the Company and (we believed) were one of the
Company's largest shareholders. More recently, only via persistent
requests (we are happy to provide the email dialogue) between ourselves
and Jay Peterson were we able to schedule and hold a brief call with
ASUR's CEO, Richard Snyder, on March 5th, 2009. This came despite ASUR
knowing we were potentially its largest shareholder. Additionally,
virtually all of our prior investor interaction and dialogue has been
with Mr. Peterson, not Mr. Snyder, contrary to Mr. Snyder's assertion
that investor relations are a key part of his role as CEO. (Note: we
believe ASUR should spend zero time on investor relations until its
internal issues have been corrected and were thus dismayed from the
outset at the mention of investor relations by Mr. Snyder, given the
Company's unacceptable performance).
- - For reference to the CFO's response, we note that:
o Despite our significant experience in the public market micro
cap space, ASUR is the only company we know of which holds its annual
meeting 11-12 months after its fiscal year end. We believe this
represents an unacceptable delay subsequent to the fiscal year end,
more so if managing SEC filings, reporting, and the audit is a primary
function of Mr. Peterson. This delays shareholder's rights (per
Delaware law) to vote at annual meetings and is both unreasonable and
unacceptable on any comparative basis vs. other even remotely similarly
sized public companies, based on our experience.
o During a late 2008 conference call we questioned why ASUR's
2008 meeting had been held twelve months after the 2007 fiscal year
end. Mr. Peterson responded that the meeting was pushed back as ASUR
had to process the Iemployee acquisition made in calendar 2007. He
informed us that he expected the 2009 annual meeting to occur in March
or April of 2009. No such meeting has been announced and during our
March 5th, 2009 call with ASUR management, when asked why the annual
meeting was not being held in advance of or at the same time as the
annual meeting, Mr. Snyder responded that ASUR's attorney felt that the
going private was too complicated a transaction and that the Company
should only present one option to its investors. When we asked Mr.
Snyder whether ASUR's counsel was running the company or whether he
was, he replied that he was. When we asked Mr. Peterson when the 2009
annual meeting would then be held under a go-private scenario, he had
no response and instead indicated that there would be fewer SEC filings
under that scenario on an ongoing basis.
Shareholder representation on the board and management team
- - According the Company's 2008 Form 14A filed with the SEC, the entire
Board and senior management team have served with the Company since at least
2003, during which time ASUR's stock price has declined approximately 90%.
Despite this, nine insiders - who collectively have been with ASUR in excess of
45 years - own less than 3% of the common shares of ASUR stock. Further, we
can not find any evidence of transactions where insiders - after seeing ASUR's
shares materially collapse in value during their tenure - purchased any
meaningful amounts of stock. We believe that the Board and management must be
comprised of meaningful shareholders in order to assure vested interest among
insiders and that key decisions made by the Company are aligned with the best
interests of ASUR's equity (share) holders, specifically as it relates to
decisions on whether to spend to grow vs. to manage costs and be
ROI-accountable. When insiders are not vested partners with shareholders there
is greater risk of reduced accountability regarding ROI, compensation, and
spending as a whole. We believe this is the predicament we are presently in.
Inability of management to forecast its business
At this point, we do not believe that senior management is able to forecast its
business with any semblance of accuracy and this is costing shareholders via
negative ROI decisions being made based on these forecasts. Mr. Snyder and Mr.
Peterson have repeatedly stated to us that the Company is spending in order to
grow and that they believe ASUR can be a $30-40 million revenue company in just
a few years. As noted below, this is not the first time they have forecasted
large numbers and - based on numerous examples cited below - at this point any
discussion of such numbers is borderline reckless, irresponsible, and dangerous
to all spending decisions. Additionally, management's expense forecasts have
consistently been inaccurate, demonstrating management is unable to manage its
costs effectively. For fairness, we include examples across many year's
forecasts as opposed to just a few:
- - In ASUR's Q4, 2003 earnings conference call, Jay Peterson guided that
ASUR believed could achieve $40-50 million in annual software revenues in three
to four years "based on early optimism from large enterprise customers and
assuming just a little help from the economy." For reference, although the
economy offered significant help from late 2003 through the next three to four
years, ASUR's software revenues are and were well under even $20 million (let
alone $40-50 million) , inclusive of the acquired Iemployee revenues.
- - In ASUR's Q1, 2004 conference call, Richard Snyder reaffirmed "our
previous guidance of 6 to $7 million in software revenue for this current
fiscal year." For reference, ASUR generated just $3mm in software revenue in
fiscal 2004 despite help from a very strong economy. Additionally, in the same
call Mr. Snyder reaffirmed "between 40 to $50 million in annual software
revenues in the next three to four years." He also added that "we believe that
we can manage expenses to be flat, while also expending approximately $300,000
on Sarbanes Oxley related requirements over the next several quarters." For
reference, expenses increased from $16 million to $23 million from 2003 to
2004.
- - In ASUR's Q1, 2006 call, Jay Peterson claimed that "we have line of
site to EBITDA profitability this fiscal year." For reference, 2006 reported
EBITDA was negative $3.9 million, again despite a strong year in the economy.
In the same call, Richard Snyder claimed "we'll continue to look at a dividend
or perhaps a stock buyback, and after that, we'll continue to look at the
ability to invest some of that for the growth of our software business." For
reference, no share repurchases or cash dividend were ever effected after this
date yet the Company continued a substantial cash spend, followed by an
acquisition costing the Company 3x its current market capitalization.
- - In ASUR's Q2, 2006 call, Mr. Snyder stated "with regard to expenses as
we mentioned, this is the lowest, we've gotten the expenses down to the lowest
point, really, in the Company's history, minus depreciation, and we believe
that there is still room to continue to scrutinize those expenses and get them
down." For reference, expenses never went lower than that quarter.
- - In ASUR's Q4, 2007 call, Mr. Peterson claimed "our overall spending
excluding IEmployee will significantly decrease due to the conclusion of the
746 trial" and that "we believe we will generate $12 million in revenue this
year and will generate cash in the second half of this fiscal year." For
reference, Mr. Peterson was inaccurate on all accounts as operating expenses
declined for only one quarter before increasing materially every quarter
thereafter, the Company generated just $10 million in revenue (nearly 20% below
its forecast), and the Company burned $2.7 million in operating cash flow in
the second half of the fiscal year as opposed to generating cash.
- - In ASUR's Q1, 2008 call, Mr. Peterson confirmed:
o "We believe we will generate $12 million in revenue this
year." Again, ASUR generated just $10mm in revenues in 2008.
o "we have line of site to EBITDA profitability this fiscal
year." For reference, ASUR reported a $5 million EBITDA loss for fiscal
2008.
- - In the same Q1, 2008 call, Mr. Snyder stated "I think your $20 million
figure for 2009 is certainly one we have on the books." For reference, 2009
revenues are run-rating at approximately 50% of this estimate.
Mismanaged go-private process detrimental to majority of shareholders
- - Rather than mention consideration of a go-private transaction during
one of its public earnings conference calls and ask ASUR's equity holders for
feedback regarding such a transaction in advance of spending hundreds of
thousands of shareholder's dollars, ASUR management simply spent the money,
including a $100,000 payment for a valuation assessment alone which valued ASUR
at $0.36/share, well above the price at that time and nearly 3x today's share
price. Firstly, such a public announcement would have satisfied conditions
under Reg FD requiring Fair Disclosure and thus been legal and prudent.
Secondly, as we have demonstrated above, we believe ASUR's management has been
and is unable to accurately forecast its business over any extended period of
time, including recently. As such, we believe that the forecasts provided to
the firm which provided ASUR's valuation assessment were flawed - a belief that
is validated by ASUR's current forecasts already having been reduced from what
was provided in late 2008 to investors. Due to this, we rightfully question
the accuracy of the $0.36/share valuation and payment being offered only to
certain shareholders under the proposed go-private as we believe this is
excessive and to the detriment of remaining shareholders. We believe that all
shareholders should be treated equally, that costs and spends for this
go-private process should have been managed better (upon disclosed consult with
equity owners/ shareholders), and that the derivation of the $0.36/share value
is flawed and harms the majority of stockholders' value.
Despite our attempts to convey our feelings to management, we have largely met
deaf ears. Jay Peterson has informed us twice that we are the only
shareholders "out of twenty" he has spoken with who disagree with the
go-private in advance of the annual meeting. We absolutely do not believe this
is the case and instead ask that the Board hold its 2009 annual meeting in the
immediate near-term to allow shareholders to nominate Directors to be elected
and make stockholder proposals as per their right under Delaware law. Although
we are not opposed to a go-private in order to achieve cost savings, the annual
meeting must be held in advance of or coincident with the vote to go-private in
order to confirm that ASUR is not trying to cheat shareholders out of their
rights. Further, as we have detailed above, we request that immediate changes
be considered and implemented to ensure ASUR's viability and maximize
shareholder value, which we need not remind you is the Board's fiduciary duty.
We also remind you that all future costs must be monitored in the best
interests of shareholders and per the Board's fiduciary responsibility,
including drawing a hard line with respect to any potential severance,
termination, or golden parachute costs in the event any are proposed.
As we believe that financially and industry-experienced, vested owners of ASUR
should serve on the Board, we wish to notify you that we intend to nominate a
slate comprised solely of qualified direct shareholders and of individuals
directly referred by shareholders. RO Partners and its controlled entities do
not seek control of the ASUR Board and thus our direct investment partners,
employees, and investment affiliates will not represent a majority of our
proposed slate. We are currently forming this slate and intend to comply with
the conditions and date of the late May 2009 deadline for such nominations by
shareholders as specified in the Company's Articles of Incorporation. We are
open to working with the Board to expedite these necessary changes and ask that
a timely response be made no later than Monday, April 27, 2009 at the above
address and contact number in order to ensure timely and meaningful progress is
made for the benefit of all shareholders. We estimate that each month of delay
costs shareholders at a minimum hundreds of thousands of dollars and (per
recent burn rates) as much as $500,000 and thus timing is imperative at this
point.
Kind Regards,
THE PINNACLE FUND, LLLP
By: PINNACLE PARTNERS LLC,
its general partner
By: ______________________________
David Sandberg, Managing Member
EXHIBIT B
PINNACLE FUND, LLLP
654 Broadway, Suite 5 | New York, New York 10012
Telephone (212) 614-8952 | Facsimile (646) 390-6784
May 4, 2009
VIA OVERNIGHT DELIVERY AND FACSIMILE
Management and Board of Directors
Forgent Networks, Inc.
108 Wild Basin Road
Austin, TX 78746
Re: Recommendation to Officers and Directors to Abandon Going-Private
Proposal
Dear Management and the Board of Directors:
We appreciate that certain of you took the time to meet with us, the several
large investors in Forgent Networks, Inc. ("ASUR" or the "Company"), including
Pinnacle Fund, LLLP ("Pinnacle"), last Monday, April 27, 2009.
After having met with you and digested your positions, we remain more concerned
than ever with the Company's future. We believe the decisions being made by
the Company will destroy the remaining shareholder value.
We write now for three reasons: (i) to explain the imprudence of the
going-private proposal; (ii) strategic steps the Company can instead implement
to maximize shareholder value; and (iii) the next corporate governance steps we
intend to undertake, including a proxy fight, if the Company remains on its
current unwise course.
I. The Imprudence of Going Private Proposal
We urge the board to immediately abandon the go-private strategy.
First, the strategy is likely to be doomed in any event. It is our belief that
the plan will be rejected by the shareholders, based on the negative reaction
of the Company's major shareholders who attended the April 27 meeting.
Although management indicated at the meeting that it assumed most other
shareholders favored going private, it was clear at the meeting that
management's only basis was an absence of any express objection to date. We
believe the silent majority - when duly informed - will not endorse management
and the Board's proposal, and we will loudly voice our concerns to the other
shareholders, consistent with applicable law. We believe that the only
shareholders who support the current decisions of ASUR's board and management
team are, in fact, ASUR's board and management team, with their aggregate 2.3%
estimated common stock ownership (which we note was less than each of the four
shareholders present at the meeting last Monday).
Second, the going-private strategy is a substantively poor, imprudent decision.
The proposed- going private transaction hurts shareholder liquidity, wastes
corporate funds and will not provide sufficient savings to restore
profitability. A simple financial analysis demonstrates that the Company will
not be more profitable after going private.
A. Hurts Shareholder Liquidity - Reverse Stock Split Instead
Delisting from NASDAQ is a drastic and unnecessary step that hurts shareholder
value. Management's steps to reduce or eliminate a public market for ASUR
shares make the Company's securities illiquid, less attractive investments.
Shareholders currently benefit from the information that the Company provides
pursuant to Securities and Exchange Commission reporting obligations. Going
private would reduce the flow of information to shareholders and insulate the
board and management from accountability to shareholders. Rather than
willingly go private, the Company should make best efforts to avoid delisting
by effecting a reverse stock split to drive the Company's stock price back
above the $1.00 threshold required by NASDAQ regulations.
B. Wastes More Corporate Funds
The proposed going-private transaction is exorbitantly expensive given the
Company's current stock price. The Company intends to spend approximately
$500,000 to buyout the Company's small-lot shareholders at a price of $0.36 per
share. This is a gross premium to the Company's current stock price of less
than $0.18 per share. At our April 27 meeting, management indicated its
agreement that the premium was excessive, but contended that the cost to
re-price the transaction outweighed the appropriate price change. Management's
analysis is misguided. The correct solution is not re-pricing but abandoning
the entire going-private concept.
C. Many Other Opportunities To Realize Cost Savings
If management's goal is to cut overhead costs, we strongly concur. ASUR's
current corporate overhead, which apparently exceeds $4 million annually, is
inexplicable. The Company's out-of-touch management was unable to adequately
account for these wasteful expenses at our recent meeting (to which ASUR's
chief executive officer and chief financial officer arrived one to two hours
late). Unfortunately, management has overstated the cost savings attributable
to going private. The Company's proxy statement for the special meeting
suggest going private would save $1,069,000 annually, largely through
reductions in audit and legal fees, directors and officers insurance premiums
and internal staffing costs. In fact, these costs are more directly related to
mismanagement rather than being a NASDAQ-listed company. For example, ASUR, as
a $5 million microcap company simply should not be engaging the likes of Ernst
& Young LLP for auditing. Likewise, we believe the Company can obtain
effective legal counsel for significantly less than what it pays Winstead PC,
inclusive of the $150-180,000 ASUR's CFO indicated Winstead was paid annually
for confirming and advising on ASUR's SEC filings. ASUR's D&O policy (indicted
to be one third of the cost savings) expires in the near-term and can be
re-priced at a materially lower level while ASUR remains a public company.
Furthermore, much of the Company's listing and compliance fees could be easily
be offset by eliminating expensive, poorly performing managers. For example,
Richard Snyder, the Company's chairman, president and CEO who intends to step
down anyway if the going private transaction is completed, should be removed
effective immediately, at a savings of at least $125,000 in the next six
months.
D. Financial Analysis
Management has stated publicly that it believes going private will make the
Company profitable by the end of 2009. However, a simple analysis of the
Company's revenue and expenses shows this is highly improbable. At our recent
meeting, Jay Peterson, ASUR's chief financial officer indicated that by going
private the Company would reduce its quarterly operating costs to $3 million.
Mr. Peterson also expected 4% growth for the next three quarters, which -
assuming we begin with a stronger rebound to $2.7 million in this April quarter
(this is our assumption) - would mean ASUR would achieve $3.1 million in
revenues per quarter by the end of 2009. Assuming the Company could achieve an
80 percent gross margin, which is higher than its current rate, ASUR would
still report a $500,000 EBITDA loss per quarter [by the end of 2009]. To
achieve EBITDA profitability, the Company's quarterly revenues will need to
increase versus the Company's most recent quarterly revenue level by at least
56 percent to $3.75 million per quarter - 20 percent more than the trajectory
predicted by Mr. Peterson's math.
II. Alternative Strategic Steps To Maximize Shareholder Value
As an outline of a meaningful strategy that would set the Company on the right
track, please consider the following:
- Replacing the Company's CEO and CFO for cause;
- Terminating the engagement of Ernst & Young as the Company's
auditors and Winstead PC as outside counsel and hiring more cost
effective professional services;
- Realigning the Company's D&O policies with the Company's actual
needs;
- Reassessing the profitability of the Company's activities and
terminating those activities with low return on investment potential;
- Implementing a reverse stock split to establish a stock price
of at least $1.00 so that the Company can maintain NASDAQ compliance;
and
- Commencing a stock repurchase program to provide shareholder
liquidity while maximizing stockholder value.
III. Next Corporate Governance Steps By Pinnacle
Pinnacle is unwilling to let ASUR's stockholder value further deteriorate. The
Company must abandon its misguided go-private strategy and take substantive
action to achieve profitability. As you are aware, we have requested copies of
the Company's stockholder list in order to solicit proxies against each of the
items to be voted on at the upcoming special stockholder meeting. As you also
know, at the Company's overdue annual meeting, we plan to nominate directors
who will in good faith take all required actions to lead ASUR effectively. We
urge you to call this annual meeting immediately so that the Company's
shareholders can exercise their rights under Delaware law, without the need for
judicial intervention, inclusive of our compelling such meeting under Section
211 of Delaware law. As our efforts are focused solely towards enhancing
shareholder value before it is destroyed, you should know neither Pinnacle, Red
Oak, nor any of its affiliated funds will seek to represent a majority of the
board or of the nominated slate.
* * *
We would still like to work with the Company's current board and management to
address and resolve our concerns. But unless the board and management withdraw
from this go-private proposal and map out a workable strategy to restore
profitability, our ability to work together appears limited and a proxy fight
more inevitable.
We look forward to hearing your timely response to the above.
Sincerely,
PINNACLE FUND, LLLP
By: PINNACLE PARTNERS, LLC,
its general partner
By: RED OAK PARTNERS, L.P.,
its general partner
By: ______________________________
David Sandberg, Managing Member
cc: Corporate Secretary
EXHIBIT C
PINNACLE FUND, LLLP
654 Broadway, Suite 5 | New York, New York 10012
Telephone (212) 614-8952 | Facsimile (646) 390-6784
May 4, 2009
VIA OVERNIGHT DELIVERY AND FACSIMILE
Forgent Networks, Inc.
108 Wild Basin Road
Austin, TX 78746
Attn: Corporate Secretary
Dear Corporate Secretary:
Pinnacle Fund, LLLP ("Pinnacle") is the owner of record of 500,000 shares of
common stock, par value $.01 per share ("Common Stock"), of Forgent Networks,
Inc., a Delaware corporation (the "Company"). Pinnacle is also the beneficial
owner of [946,950] shares of Common Stock.
As the owner of shares of Common Stock, Pinnacle hereby requests, under oath,
pursuant to Section 220 of the Delaware General Corporation Law, during the
usual hours for business, to inspect the following books, records and documents
of the Company and to make copies or extracts therefrom:
(a) A complete record or list of the holders of the Common Stock,
certified by its transfer agent(s) and/or registrar(s), showing the
name, address and number of shares registered in the name of each such
holder, as of the close of business on April 13, 2009, the record date
for stockholder eligibility to vote at the Company's June 2, 2009
special meeting (the "Special Meeting"). Pinnacle will bear the
reasonable costs incurred by the Company including those of its
transfer agent(s) or registrar(s) in connection with the production of
the information demanded.
The purpose of this demand is to enable Pinnacle to solicit proxies against
each of the items to be voted on at the Special Meeting, consistent with the
applicable law.
We make the statements in this letter under penalty of perjury under the laws
of the State of California.
Pinnacle hereby designates and authorizes Peter Tennyson of Paul, Hastings,
Janofsky & Walker LLP and any other persons designated by him, acting singly or
in any combination, to conduct the inspection and copying herein requested. It
is requested that the information identified above be made available to the
designated parties by May 8, 2009.
Sincerely,
PINNACLE FUND, LLLP
By: PINNACLE PARTNERS, LLC,
its general partner
By: RED OAK PARTNERS, L.P.,
its general partner
By: ______________________________
David Sandberg, Managing Member