As you know, on August 22nd, Marcato submitted a standard and routine request for shareholder list materials so that we may communicate with our fellow shareholders of Buffalo Wild Wings, Inc. (the "Company or "BWW") (NASDAQ:BWLD). Unfortunately, the Company has still not complied with its obligations under Minnesota law, as the vast majority of the requested information - and virtually all useful requested information - remains outstanding. We are hopeful that management will agree to provide the remaining information promptly and without any further waste of Company resources.
We are troubled by the lengths to which management has gone in an apparent attempt to thwart our communications with other shareholders, and have no doubt that our fellow shareholders will find management's behavior as disconcerting as we do. We were further troubled to hear of your decision on October 6th to appoint three new directors to the Company's board, a decision made unilaterally and without consultation with the Company's shareholders. These new appointments were clearly intended to create the false impression of meaningful change, but without actual engagement in constructive dialogue with shareholders. These actions are an unfortunate continuation of the Company's pattern of entrenchment, obfuscation and poor decision-making. Accordingly, we are writing this letter to alert you and our fellow shareholders of the Company's obstructionist behavior in the hope that you will instruct management to immediately put an end to it.
It has now been more than seven weeks since Marcato - a 5.2% stakeholder in BWW - requested a limited amount of information for the purpose of communicating with fellow shareholders. As I'm sure you know, Marcato has an unassailable right under Minn. Stat. § 302A.461 to receive this information. Other public companies routinely provide such information to shareholders without question or delay when presented with similar requests. This is, in fact, the very same information that BWW is already using itself - we are merely seeking to have a "level playing field" with the Company. It should not take nearly two months to produce.
The Company initially refused to acknowledge that Marcato owned any BWW shares. Specifically, Company counsel stated that the Schedule 13D, which we filed with the U.S. Securities and Exchange Commission on August 17, 2016, a copy of which was enclosed with our request, was "insufficient to demonstrate that any particular entity was a shareholder of BWW as of [August 22, 2016]." Company counsel insisted that we provide a brokerage account statement evidencing Marcato's ownership. When asked to explain, our attorneys were told by your counsel that Marcato "could have sold all of its shares" since the 13D filing. To put it another way: management appears to have envisioned a scenario in which Marcato submitted a shareholder list request after it sold all of its BWW holdings, without disclosing the sale in a subsequent 13D amendment. It's a scenario that defies logic. Company counsel then conditioned providing any information on Marcato entering into an onerous confidentiality agreement that went well beyond what was required by law. Surely, management must have understood that providing a draft agreement with such terms served no purpose other than to further delay our communications with other shareholders.
Nevertheless, we reached out in good faith with a draft confidentiality agreement reflecting an accommodating approach. We also provided the account statement, as requested. In return, Company counsel asserted that Marcato Capital Management LP ("Marcato Capital") was not a proper party to the shareholder list request, "[g]iven that the applicable statute requires the shareholder to own stock as of the dated [sic] of a demand." We were surprised by this response, given that Minn. Stat. § 302A.461 explicitly states that a "beneficial owner" has an "absolute right" to demand shareholder list materials, and that Marcato Capital was clearly a beneficial owner. Your counsel then demanded that Marcato Capital provide copies of its confidential investment advisory agreements to prove that it was a beneficial owner of common stock.
After multiple rounds of back and forth with counsel, management backed off its unsupported demands and conceded that we were shareholders and entitled to receive materials. We were optimistic we were putting this episode behind us. Unfortunately, when the materials we were promised finally arrived by email, the information we were given was incomplete, outdated and virtually useless. These materials included:
- Transfer agent-level shareholder lists of the holders of record of the Company's common stock dated as of September 13, 2016 and March 17, 2016. These lists did not provide any information regarding the identities or holdings of the actual beneficial owners of the common shares - information necessary to communicate with them, which is not only customarily provided but legally required to be provided; and
- A list of holders of Company shares held through employee benefit plans, dated March 14, 2016. This list is over six months old and only provides information with respect to approximately 1% of the Company's outstanding shares.
In other words, management chose to disclose only the holders known to the Company's transfer agent. You undoubtedly are aware that, as with every other public company, virtually all BWW shareholders hold their shares in "street name" through accounts with banks, brokers and other financial intermediaries. The distinction between the two is critical and widely understood. The information we were provided contains no relevant or useful information about the actual shareholder base. That the Company would respond to our request in such a perfunctory manner is deeply disappointing.
It is clear that, in providing this information, management's intent was to inhibit or delay our communications with other shareholders. In this regard, it does not appear to be a mere coincidence that the information that management is refusing to provide us is also that which would facilitate such communications. In particular, the Company's response included neither a list of Non Objecting Beneficial Owners ("NOBO") nor any information obtained from the Depository Trust Company ("DTC"). This is information that is easy to generate on a rolling basis as we have requested. It's not much harder than pushing a button. And doing so would cost the Company nothing, as we have committed to cover the expense.
If management's true intent was to allow Marcato to communicate with other BWW shareholders, it would have provided all of the information requested in our August 22nd letter, including:
- Contact information that was omitted in the Company's response (e.g., telephone numbers) with respect to each record holder and employee plan (a "Plan") participant;
- Dates on which each record holder became a holder of record of shares;
- Name, business address and telephone number of the Plan's trustee or administrator;
- Detailed explanation of the voting treatment of (A) shares of Company stock ("Stock") for which a trustee or administrator receives instructions from Plan participants and (B) shares of Stock for which either the trustee or administrator does not receive instructions, or shares of Stock which are outstanding in any such Plan but are unallocated to any participant;
- A complete record or list of the holders of Stock and respondent banks (and their email addresses) who have elected to receive electronic copies of proxy materials with respect to meetings of stockholders of the Company pursuant to Rule 14a-16(j)(2) of the Securities Exchange Act of 1934 (the "Exchange Act");
- All information in possession or control of the Company or any of its transfer agents, registrars or proxy solicitors, or which can reasonably be obtained from DTC, brokers, dealers, banks, clearing agencies, voting trustees or their respective nominee, concerning the names, addresses, telephone numbers and number of shares of Stock held by the participating brokers and banks named in the individual nominee names of Cede & Co., specifically with respect to Cede & Co., the daily DTC Security Position Reports or other similar depositories or nominees, including respondent bank lists, all omnibus proxies and related respondent bank proxies and listings issued pursuant to Rule 14b-2 under the Exchange Act;
- All information in or that comes into the Company's or its transfer agents', registrars' or proxy solicitors' possession or control, or that can reasonably be obtained from brokers, dealers, banks, clearing agencies, voting trustees or their respective nominee (including Broadridge Financial Services and Mediant Communications), relating to the names, addresses and number of shares of the beneficial owners of Stock pursuant to Rule 14b-1(c) or Rule 14b-2(c) under the Exchange Act, including a NOBO list; and
- Updates to all of the information described above on a rolling basis going forward.
These materials should be provided to us promptly. We have no desire to engage in litigation as a means to resolve the issues outlined in this letter. However, we are quickly approaching a point where management's obstinate resistance will leave us with no other choice, and your recent actions have only exacerbated our concerns that shareholders' interests are not being served by the board as currently composed. Accordingly, we reserve all rights and remedies.