July 18 (Bloomberg) -- John Gorman IV, a Texas bond salesman with an exotic animal ranch, says he’s won an 11-month legal battle for control of Tejas Securities Group Inc. Not so fast, says courtroom rival Gary Salamone, who sued to block Gorman’s move.
Gorman appointed himself chief executive officer of Austin-based Tejas’s parent company, Westech Capital Corp., according to a July 7 letter to employees which cited his authority as majority shareholder. Salamone, still serving as CEO, says a May ruling by Delaware Chancery Court Judge John Noble left him in charge.
“Apparently, Mr. Gorman doesn’t believe Judge Noble’s decision applies to him,” Salamone said in a July 16 phone interview. “Until I get an order from Judge Noble saying otherwise, I’m still CEO as far as I’m concerned.”
Gorman, vacationing in the Hamptons in Long Island, New York, said in a July 16 phone interview that Salamone is wrong.
“I believe I’m CEO, yeah,” said Gorman, one of the co-founders of Westech. Its Tejas unit is a distressed-debt broker with about $20 million a year in revenue.
Salamone filed a suit July 10 challenging Gorman’s takeover bid, saying the controlling shareholder of Tejas’s parent is improperly seeking to amend Westech’s bylaws to allow shareholders to remove directors and executives.
Gorman is wrongfully using that amendment to seek Salamone’s ouster both as CEO and as a Westech director, according to the Delaware Chancery Court suit.
The takeover effort comes more than a month after Noble, based in Dover, Delaware, found Gorman failed to honor a voting-rights agreement by installing his slate of Westech directors and improperly removing an existing board member.
That left the seven-member board with only four validly elected directors, including Gorman and Salamone, Noble said. The judge also found Gorman acted in accordance with the agreement when he ousted another director and named an ally to the board.
Noble’s May 30 ruling didn’t resolve the question of who controls Westech and Tejas, and that led to Gorman’s takeover bid, Salamone said.
John Randolph, who said he’s the interim CEO of Tejas, said in a voice message that the brokerage is still open and operating as usual. Randolph said Salamone is still the CEO of the parent company.
Gorman owns more than 2.4 million shares, or 59 percent of Westech’s common stock, along with about 51 percent of the holding company’s preferred shares, according to court filings.
In the earlier case, Noble interpreted a voting agreement created as part of an $8.5 million recapitalization the brokerage undertook in 2011. Some Tejas employees and a former Westech director contend Gorman’s trading losses and extravagant spending forced the firm to recapitalize.
Gorman denied the wasteful-spending allegations in a January phone interview, saying he invested $15 million in the company and never took a salary or a dividend.
He said he has donated millions of dollars to private schools and charity wine auctions, as well as helped the city of Austin expand its hiking and biking trails. Gorman also says he breeds exotic animals such as oryx and wildebeest at his R Bar C ranch outside the city.
Gorman’s opponents argued they had the power under the agreement to nominate a majority of directors. Gorman countered that as majority stockholder, he should control the board.
The fight escalated after Gorman resigned from the board last year and began pushing to replace directors with people loyal to him, Westech’s current managers said in court filings. Gorman later rejoined the board after buying the interests of a Westech investor.
After Noble handed down his ruling, which left Westech’s board deadlocked, Salamone and other Tejas executives asked the judge to appoint a custodian to serve as a tie-breaker for directors.
While Noble considered that request, Gorman on July 7 filed notices that as Westech’s controlling shareholder, he was amending the company’s bylaws to allow stockholders to remove directors and executives by consent. He then ousted Salamone as a Westech director and the holding company’s CEO, according to the suit.
Gorman took over Salamone’s seat on Westech’s board and appointed Craig Biddle to assume his director slot, according to court filings.
In his letter, Gorman said in his role as Westech’s interim CEO, he was “ordering that all transfers of company funds be halted until the board has a chance to review the propriety of any payments proposed to be made (although ordinary course of business trading transactions at Tejas are not affected by this directive.)
‘‘If there are any fund transfers that need to take place immediately to avoid adverse consequences to the company, of course bring them to my attention and they’ll be considered on a case-by-case basis,’’ Gorman added.
Gorman said he will serve as the top executive ‘‘until a search for a permanent CEO can be conducted.’’
The bond salesman sued Salamone and ex-Westech Director Robert Halder in state court in Austin earlier this month, seeking to have a Texas judge ratify his move to oust Salamone.
Gorman says Salamone and others have refused to recognize his ‘‘status as CEO and have denied him access in any capacity to the company’s premises, employees, books or records,’’ according to court filings.
Salamone and counter in their suit that Gorman’s move to amend the company’s bylaws violates Delaware law and the voting agreement created as part of the recapitalization deal.
It also runs afoul of Salamone’s employment contract, which says ‘‘only the board has the power to terminate” the executive as Westech’s CEO.
“It’s our position that only the board has the duty and power to appoint or remove officers and directors under the bylaws and we’ll see whether Judge Noble agrees with us,” Halder said in a telephone interview.
The Delaware case is Salamone v. Gorman, CA No. 9870, Delaware Chancery Court (Dover). The Texas case is Gorman v. Salamone, Cause No. D-1-GN-14-002043, District Court for Travis County, Texas, 201st Judicial District (Austin).