A bitter boardroom fight spills into open

Outside directors of public companies are often faulted for being so beholden to management that they are unable to adequately represent the interests of all shareholders.

But perhaps the recent experience of one independent-minded board member helps highlight the obstacles facing those who try to buck the status quo.

In December, Michael Connolly was named chairman of the board of Table Trac Inc., a Minnetonka-based maker of casino software systems whose shares trade for about $1 on the over-the-counter market. Last week, Connolly resigned, at least technically. In reality, he was a casualty in the crossfire between Table Trac's founder and his management team, and its single largest outside shareholder, money manager Chris Doucet of Birmingham, Ala.

Doucet has been pressing Table Trac management to do more to get business growing and its stock price moving. He suggested considering a sale. The election of two outside directors, including Connolly, whom Doucet recruited, was supposed to mark a truce of sorts between the company and its largest outside investor.

"These additions give us reason to be cautiously optimistic about the future of the company," Doucet said at the shareholder meeting in December.

That optimism proved shortlived.

Connolly said he encountered almost immediate resistance to efforts to implement more internal controls and reduce costs. "It was an incredibly frustrating experience," he said.

"In the end, they weren't willing to do the some of the things that I thought would be best to unlock shareholder value," Connolly said.

Table Trac, however, came to believe that Connolly was acting as Doucet's mole, feeding him inside information and essentially conspiring with him to take control of Table Trac.

"We had a series of events that led to a lack of trust between myself, other board members and Mr. Connolly," Hoehne said. "Certain information was finding its way into the hands of Mr. Doucet."

Connolly vehemently rejected those suggestions. "Chris may have nominated me, but my fiduciary duty was to all shareholders."

Others who know Connolly also vouched for his independence and professionalism. In the fall of 2005, Connolly helped lead a restructuring at Insignia Systems Inc., the Plymouth-based grocery store advertising company. The restructuring was undertaken in part to satisfy a dissident shareholder.

Two events seemed to feed Table Trac's suspicions.

Last year, Doucet nominated Connolly to serve on the board of another penny-stock company, Florida-based Global Axcess Corp. A few months later, the board fired that company's longtime CEO, and Connolly was named co-CEO.

One thing wrong with that conspiracy theory: Doucet voiced strong objections to the CEO firing on a subsequent Global Axcess investor conference call (though he now acknowledges the board made the right decision).

Another event that seemed to set off alarms at Table Trac was an April letter from Doucet to Hoehne, in which he suggested a number of measures to boost the company's stock price. If, instead, Table Trac thought going private a better option, Doucet said his firm would be willing sell back its 489,135 Table Trac shares.

Table Trac saw the letter as an effort to exert more control over its operations, or perhaps even selectively cash out its largest investor -- in effect, pay greenmail.

"I have a real desire to see this company perform well," he said. "But I have investments in more than 200 companies, and I don't have the time or energy to be an activist investor."

Hoehne said investors shouldn't read too much into the fact that Connolly is the third independent director to leave Table Trac in little more than a year.

"We've done a fabulous job of navigating the difficult waters of the past few years," he said. "We're building a pipeline of new business and the infrastructure to support it."

Table Trac shareholders will meet next week, and they are expected to vote on a new slate of directors. All were nominated by Hoehne.

Doucet's firm will send a representative to vote against all but one of the proposed directors, and to recommend that Table Trac put itself up for sale or seek other ways to maximize stockholder value.