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Wattles Raises Tweeter Stake; Wants To Kill Poison Pill

9/05/2005 02:00:00 AM Eastern

Ultimate Electronics' CEO Mark Wattles has further increased his stake in Tweeter Home Entertainment Group, from 11.4 percent, to 12.2 percent of outstanding shares, and is asking the company to consider dropping its defenses against hostile takeovers.

In an Aug. 26 filing with the Securities and Exchange Commission, Wattles' investment arm, Wattles Capital Management, indicated that it had acquired an additional 205,000 shares in the specialty A/V chain, bringing its total holdings in Tweeter to more than 3 million out of 24.6 million shares of outstanding common stock.

Wattles also attached to the filing a second open letter to Tweeter's president/CEO Joe McGuire, this time urging the board to add two proposals to proxy materials for the 2006 annual shareholder meeting that would effectively open the door to a hostile takeover.

One proposal would ask voters to drop Tweeter's 1998 Shareholders' Rights Plan, a poison pill provision that dilutes a suitor's stake by issuing preferred shares to existing shareholders. The provision is triggered when an “acquiring person” accumulates more than a 15 percent position in Tweeter.

The other shareholder proposal would eliminate staggered terms for board members, a common takeover defense.

In his open letter, Wattles acknowledged that he is ineligible to float the proposals, but stressed that they are in the best interests of shareholders, who should be permitted to act upon them nonetheless. “The continuation of these and other well-known takeover defenses is contrary to emerging standards of corporate governance best practices,” he wrote.

In his earlier Aug. 16 letter, Wattles suggested that Tweeter faces “operating challenges” due to undercapitalization, and offered to provide funds in exchange for equity or other securities.

On Aug. 17, McGuire responded that Wattles' assessment and choice of public forum were “highly inappropriate.” He stressed that Tweeter has “a solid strategic repositioning plan in place and continues to make significant progress, improve its financial and operational performance, and enjoys strong relationships within the vendor community.”

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