law

Eaton Lawsuit

New Insights on the Eaton Decision

We have reached an agreement with that we believe is in the best interests of the company, our officers and our shareholders. We have taken responsibility for the expenses associated with the litigation. In light of this, we believe that the proceeds from the sale of our interest in the transaction will more than cover those expenses. This is an important outcome for us as we continue to execute on our plan to drive value for all shareholders.

Eaton Lawsuit

It was immediately after the consummation of the purchase transaction that we received written notice of arbitration from Jeffrey G. Walker, former CFO of Scottrade, on behalf of the holders of our common stock. The arbitrator assigned to our case issued a written award granting plaintiff’s attorney Peter J. Zeisser, Jr. an award of damages in the amount of $2.1 million. We believe this award is appropriate and reasonable. Furthermore, it is a result of the negotiations between the plaintiffs’ attorney and Mr. Walker.

Mr. Walker is not a party to the present agreement between us and Mr. Zeisser, but we believe that he was fairly involved in the negotiation process as it relates to our balance sheet and our cash flows.

Mr. Walker is also not a party to the future free cash flow projection discussed in an earlier article on behalf of our clients, but we believe he may have an outside influence over the management of our business as relates to our cash flows and our balance sheet. Mr. Walker is a managing member of Scottrade, which is one of the two financial investment banking firms we deal with. In my opinion, he has a fairly limited ability to affect the management of our company given that he does not have a long term investment in our business. Given that we are involved in a contractual relationship with him and that he does not control a major portion of our business, I do not believe Mr. Walker’s actions during the last six months regarding our capital expenditures and working capital owed to us are relevant to our settlement agreement with him.

On the other hand, it is my belief that Mr. Walker may have a greater ability to direct management decisions relating to our future free cash flow outlook due to his ownership interest in a company that creates a substantial exposure to uncertainties in the underlying market.

Mr. Walker is a member of Scottrade, a brokerage firm that trades on Wall Street, which is inherently exposed to the fluctuations in the stock market. If the market swings strongly in either direction, Scottrade will incur expenses to offset their gains. If the market swings strongly in the other direction, they could suffer a severe loss in their investment.

In this case, based upon my review of the balance sheet and income statement, it appears that Mr. Walker’s ownership interest in Scottrade creates a prospective risk to the company’s future free cash flow.

However, should Mr. Walker become personally financially involved in the running of the company, his ownership interest could potentially provide a safety valve for the company in terms of its reliance on external funding sources. Accordingly, we have discussed a potential arrangement with Mr. Walker to provide him an equity stake in our business in the event the uncertainties related to the balance sheet and our income statement become a significant risk to our future free cash flow.

During the last six months, I have discussed an arrangement with Mr. Walker to purchase a portion of our common stock at a total price exceeding $200 million. The purchase price is made based upon our current assets and liabilities, less our cash and working capital. Although we believe that our existing shareholders are primarily responsible for the funds needed to finance this transaction, we believe the management team is in the best interests of shareholders overall as the deal provides a low risk for the company and a significant increase in shareholder wealth (the “enterprise value”) when the settlement agreement is signed.

Mr. Walker is referred to as “ister,” or senior vice president, on the company’s Board of Directors.

He is also the President of Scottrade, one of the largest personal finance companies in the world. This provides additional personal wealth to Mr. Walker and a larger tax write-off when the settlement agreement is signed. Further, upon reaching a settlement agreement in the matter of the anticompetitive conduct, the government will be forced to repay all monies collected in settlements for past anticompetitive conduct by its competitors, regardless of whether the competitors actually caused the injury or harm. The mere fact that a competitor’s conduct is found to be, in the view of the United States Attorney, anticompetitive does not immunize the company from liability for past anticompetitive conduct. For this reason, Mr. Walker has determined that he will resign as President and Board of Directors effective immediately.

Pursuant to the terms of the agreement, Mr. Walker will receive a lump sum of cash in the amount of approximately $500 million, subject to customary closing charges. Mr. Walker has also agreed to donate all interest and dividends earned on the sale of his shares of common stock in Gannaway to a charity. We will provide further updates regarding the matter as it unfolds. In the mean time, we wish to advise our readers that they should not rely on the information contained in this article and/or the information derived from secondary sources. We urge you to seek independent information from sources that we feel are reliable. Further, we caution those readers who may be considering purchasing stock in Gannaway to review the materials referenced in this article and to confirm their knowledge and accuracy before making any investment decision.

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