One of PHI, Inc.'s [Nasdaq: PHIIK, PHII] largest shareholders,
Timothy Stabosz, who owns roughly 11% of the company's non-voting
(PHIIK) shares, today released an "open letter to management,"
calling on the company to address, and refute, a story published by
Debtwire on February 11th. Such letter is provided below in
its entirety. Separately, Stabosz announces the publishing of
an article analyzing PHI on the Seeking Alpha website on February
1st. The article can be accessed through Stabosz's profile
page on Seeking Alpha at the following link: Timothy
Stabosz's Articles
***
An Open Letter to PHI Management
February 19, 2019
Dear Al, Trudy, Lance, and Board of Directors:
I am left feeling completely heartsick at the stories emanating
from Debtwire the last 4 weeks. It started on January
18th, and has only escalated. The most recent story,
dated February 11th, which I was able to obtain a copy of, lurid
and phantasmagoric as it is, uses anonymous sourcing (i.e, "sources
familiar with the matter"), unattributed innuendo, and even direct
statements alleged to have been made by supposed PHI executives, to
suggest that you met "face-to-face" with bondholders, and
"acknowledged at the meeting that the existing equity would likely
be wiped out." While the Debtwire reporter, when contacted,
asserted that you have not "agreed" with the bondholders (and that
their proposal had not even been formally made yet), these kind of
reports, which represent unidentified 3rd party characterizations
of YOUR intentions, that assail YOUR integrity as a management
team.....need, deserve, and REQUIRE a public response. In
fact, the volatility in PHI stock caused by these reports seems
suspiciously timed to suit the needs of short-sellers, in order to
generate a “supply of stock" for them to cover their short
positions, at precisely a time when there is an extraordinary
tightness in supply of available shares for shorting, with reported
borrowing rates as high as 575%. This can only make one
wonder if Debtwire is being used as a handmaiden for those looking
to manipulate PHI stock!
The fact that you have chosen not to respond, despite requests
from a number of your largest shareholders urging you to do so, is
completely unacceptable, and deeply troubling. Does this mean
we are supposed to believe that the Debtwire stories are in fact
true? Has CEO Al Gonsoulin now "flipped" on us (as the
story suggests), decided that it is time to ride off into the
sunset (as long as he gets "his share"), and turn the company over
to the bondholders, so that they can sell the pieces to private
equity firms, who will, in turn, carve up the company, destroying
the widely respected, and renowned, culture of PHI? In such a
scenario, bases will be closed, employees will be out of jobs,
communities around the country will suffer...and it won't only be
shareholders who are left in the gutter, gnashing their teeth.
I remind you that you made a clear, incontestable, and
incontrovertible affirmation, declaration, and PROMISE to your
shareholders, when you stated in the most recent Form 10-Q, dated
November 9, 2018, that you were aware of "several possible
transactions," that you believed would be able to "help us
discharge our short term indebtedness." You also stated
that these "transactions" would not only "improve our liquidity,"
but also "ENHANCE shareholder value." [emphasis mine] I want
to formally put you on notice that if you decide to suddenly turn
about, lay in bed with the Devil, and sell out employees,
shareholders, and other stakeholders, while simultaneously going
back on these public pronouncements, disingenuously PRETENDING that
there is NO net asset value remaining for shareholders, it will
stand as a colossal betrayal of shareholders (both employee and
outsider alike), and a monstrous abdication of your fiduciary
duties. lt will also be seen as an opportunistic attempt by
Mr. Gonsoulin to take advantage of a stock price plunge, from $9.50
to $1.69, this past fall, in order to illegally and immorally
squeeze out the shareholders, and cast aside his loyal family of
employees, to his own selfish benefit.
It is hard to know for certain whether the faith that I, and so
many others, have placed in you, and the reliance that you INDUCED,
based upon your statements in the 10-Q, are still valid, because it
is utterly confounding, and deeply distressing, that you have not,
as of yet, DISCLAIMED and REPUDIATED the series of Debtwire
stories. I will again remind you that should you choose to
suddenly change your tune and assert a false pretense that there is
no equity value, and attempt to engage in a sham process that seeks
to seize all the value for Mr. Gonsoulin and the bondholders, on
the backs of shareholders and employees, in direct contravention of
previous representations you made, you will have violated not only
your fiduciary duty, but you will have also nakedly violated the
SEC's prohibition on false and misleading statements. And you
WILL be held accountable.
If you have suddenly decided to jettison your most ferociously
loyal stakeholders, despite your public assurances matter-of-factly
stating your intent to generate liquidity by engaging in one or
more transactions that "enhance shareholder value," I will
personally utilize all my resources (and I am aware of up to 50% of
the shareholder base that would similarly join me) to ensure that
an equity committee is formed, should the board decide in
sanctioning Mr. Gonsoulin's seeking to use a Chapter 11 process to
seize the company for himself and the bondholders. In this,
you will be subject to a process of court-based discovery,
investigating the offers received for the different company
divisions, that were (and are) available to you, in an orderly
corporate breakup, as well as potential legal claims for acts of
gross negligence, bad faith, betrayal of duty of care and duties of
loyalty, fraud, and breach of fiduciary duty, in why you failed to
take action to maximize the company's value for its shareholders,
and why you deliberately misled shareholders as to your intent in
the 10-Q. Such actions, if they rise to a level of indecency
that shocks the court, could very well subject you to punitive
damages.
Importantly, it is widely known that there is at least one buyer
for the company, who currently possess the financial wherewithal to
readily REFINANCE the debt, and would be willing to pay a handsome
PREMIUM to stockholders, as well. I remind you that your
fiduciary duty REQUIRES you to pursue such options...even if it is
not what Mr. Gonsoulin should want. I will also say that I
have received indications from at least half a dozen former and
current executives in the space you operate in and, without
exception, each and every one asserts that your Air Medical
division is worth at least $400 million. With all of this in
mind, I call on you, at this time, to directly and immediately
REFUTE the Debtwire story, as the story not only puts words in YOUR
mouth that mock your integrity, but it directly negates statements
and assurances you made in the 3rd Quarter 10-Q. Such
refutation needs to be made in a public press release.
In closing, consider yourself put on notice that your actions
are being scrutinized very carefully. Should you use a
collapsed stock price as a pretext to wheel about and assert the
false claim that there is "no equity value," in order to engage in
a sordid bargain with PHI's bondholders, while seeking to hinder
"price discovery" for the value of PHI's assets, or for the company
as a whole, in a bonafide value maximizing process, such act will
be exposed for the fiduciary betrayal that it is. Finally, it
is both atrocious and tragic that you continue to fail to see the
importance of adequately and appropriately communicating with your
shareholder base through public media, which is, in my humble
opinion, a large part of the reason, in the first place, that your
stock price collapsed this past fall. (I remain available, at
any time, to assist you in crafting an appropriate communications
strategy, which should include investor conference calls, and
management commentary in earnings press releases, about the current
results and future outlook [as a bare minimum]).
Very truly yours,
Timothy J. Stabosz
***
CONTACT: Timothy Stabosz at (219) 363-7485, or
tstabosz@csinet.net.