Showdown near for IRE coup attempt Shareholders will choose Friday between 2 slates

Dissident challenges board

Bronson says company hasn't reached goals 'for five years'


July 07, 1998|By Sean Somerville | Sean Somerville,SUN STAFF

After Information Resource Engineering Inc.'s stock tumbled, Steven N. Bronson didn't sell his 150,000 shares and search for another high-tech company promising to take off.

Instead, he tried a coup, proposing to overthrow IRE's board and replace it with his own candidates.

Whether the attempt succeeds will become clear Friday. At IRE's White Marsh headquarters, shareholders will choose between the company's nominees -- four incumbents and one new member -- and Bronson's.

Bronson, 32, president of Barber & Bronson Inc., a Miami-based brokerage, said his attempt follows a long series of disappointments.

IRE has reported annual losses since 1993. In a letter to shareholders, Bronson said IRE lacks focus and has failed to address problems. Shares in IRE, $29.50 in June 1996, closed at $7.50 yesterday on the Nasdaq market.

"For five years, they haven't been able to reach their goals," he said. "It's time for a change."

Officials at IRE did not return several calls seeking comment. In proxy materials sent to shareholders, the company says Bronson and his slate of candidates lack the experience to run a network security firm.

The company also says that sales have risen more than 600 percent over the past four years. Over the past six months, revenue reached nearly $10 million, making the two quarters the strongest in the company's history.

From January to June, IRE shares rose 18 percent, the company said. Shareholders are poised to reap the benefits of the company's skills in the "upcoming year and into the next millennium," the company said.

Battle turns unpleasant

The fight between the company and the shareholder has grown nasty.

In a letter to shareholders, Anthony A. Caputo, the company's chairman and chief executive officer, called Bronson a "sole dissident stockholder" pushing for a "hand-picked slate" of candidates. The company also suggested that Bronson might want to sell IRE or parts of it.

Bronson fired back that he is not "sole" but that he is "extremely dissident." He accused the company of rewarding Caputo's "pathetic performance" with raises.

At stake is the leadership of a company that designs, makes and markets computer network security systems using encryption technology.

"The company is taking it very seriously. They have to," said Thomas Morabito, a Baltimore-based analyst for Ferris Baker Watts who thinks Bronson's slate faces tough odds.

Disillusioned cheerleader

In an interview, Bronson portrayed himself as a once-avid IRE cheerleader who soured as the company expressed little interest in making itself profitable.

He said he helped the company raise $7.8 million from 1992 to 1995. Today, his holdings account for about 2.75 percent of common shares outstanding.

Among Bronson's arguments are that the company has lost 70 percent of its value; that its losses have mounted from $69,000 in 1993 to $3.6 million last year; that IRE has never adequately explained MCI's cancellation of a deal to purchase $7 million of the company's products in 1996; and that IRE has unjustifiably raised Caputo's compensation, which last year included a $250,000 salary and an $82,500 bonus.

Bronson said he decided to pursue an overthrow of the board after a January meeting in New York at which the company rebuffed his attempts to add two members to the IRE board.

"I wanted to make sure there were two new people that would be thinking for shareholders," he said. "They said no and called the meeting to an end."

Bronson, whose slate includes himself, would also replace Caputo with Matthew E. Tutino, 63. Bronson called Tutino, an electrical engineer and former investment banker who was chief executive officer of computer company Qantel Corp., a successful "turnaround and restructuring specialist" with a strong technical background. He said IRE needs someone like Tutino, who Bronson said has the discipline that IRE lacks.

"My feeling is we have a good horse here, but it's time for a new jockey," Bronson said.

When Tutino came to Qantel in 1985, the company had recently reported $50 million in losses and a monthly negative cash flow of $2 million, Bronson said. And it was in default on $175 million it owed to banks.

The company filed for bankruptcy protection in 1991, and its subsequent liquidation delivered 85 cents on every dollar owed to Qantel banks.

The company counters that Tutino is not the "turnaround specialist" that Bronson suggests. It's not clear how "Mr. Tutino's 'turnaround' of Qantel benefited its stockholders," the company told shareholders.

Using capital letters to emphasize its point, the company wrote, "ONE HOPES THAT THIS IS NOT THE TYPE OF 'TURNAROUND' THAT MSSRS. BRONSON AND TUTINO HAVE IN MIND FOR IRE."

Tutino said IRE couldn't be more wrong about him.

"I've worked in the computer industry and I've done turnarounds," he said. "These folks are totally disorganized, and they're working out of their hip pocket. They are totally unfocused."

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