NEW YORK, Sept. 26, 2018 /PRNewswire/ -- Sententia
Capital Management, LLC and its affiliates (collectively,
"SENTENTIA" or "we") are the beneficial owners of approximately
8.1% of the outstanding shares of common stock of Schmitt
Industries, Inc. (NASDAQ: SMIT) ("Schmitt" or the "Company"),
making us one of the Company's largest shareholders. We have
nominated two highly qualified candidates, Andrew. P. Hines and
Michael R. Zapata, for election at
the Company's upcoming annual meeting of shareholders.
Don't be distracted by the Company's focus on three quarters of
profitable operations, which is intended to distract shareholders
from a decade of value destruction, during which time Schmitt
generated negative $7.5
million in net income. With the stock price down 60%+
over the last decade, the Board pointing to a slight improvement in
operating results during a robust economic expansion is laughable.
We urge shareholders to hold the Board and management
accountable for these results and vote the BLUE proxy card for both
Mr. Hines and Mr. Zapata. Mr. Hines and Mr. Zapata are
highly qualified candidates with relevant turnaround and activism
experience who will push for a full strategic review by truly
independent board members to unlock value for long-suffering
shareholders and bring accountability to the Board.
DO NOT BE MISLED BY SCHMITT'S DISTORTIONS OF
THE TRUTH
FACT: SENTENTIA Engaged with Schmitt in Good
Faith on a Settlement
We spent months attempting to
negotiate with the Board to effect meaningful change at Schmitt,
including to the composition of the Board and the Company's
corporate governance.
In our discussions with the
Company, we consistently communicated the need for two new
independent directors. The five-member Board is staggered, with
directors elected once every three years, and includes (1)
Schmitt's CEO, who has been with the Company for 32 years and is
the son of the Company's founder and (2) three directors who have
tenures of 12, 22 and 26 years, during which they worked with the
current CEO and his father. We believe that putting one new
director on the Board (replacing one existing director) would not
be enough to change the troubling dynamics here.
Schmitt's settlement offers have
all come up short on the meaningful change needed at the Company,
and Schmitt unilaterally decided to withdraw its offer of a
settlement before we filed our preliminary proxy statement.
FACT: The Company Offers Misleading Support
for the Board's Track Record and Criticism of SENTENTIA's
Plans
In its investor presentation, the
Company picked an unusual stock returns timeframe of July 15, 2016 to June 10,
2018 for its slide insisting that the Board's "FY2017
Strategy" has created shareholder value. Why select a 695 day
timeframe instead of a 2-year timeframe, or going back to the start
of a fiscal year? Maybe because the stock traded at $1.79 on July 15,
2016 vs. $2.11 on June 10, 2016, so had the Company used a 2-year
time frame Schmitt's TSR would only have been 20.9% vs. 37.7% for
the Russell 3,000.
The Company states that CEO
David Case "was not responsible for
the business strategies during the period [SENTENTIA] cited as
underperforming," but seeks to give him credit as "a proponent of
the FY2017 Strategy," which was implemented in 2016 prior to Mr.
Case joining the Board and becoming CEO in 2018. Was he or was he
not responsible for the Company's strategy before becoming
CEO? We view this as part of the Company's attempt to focus
investors on a few quarters of performance while ignoring the
Board's responsibility for the Company's lengthy history of poor
performance.
The Company's investor
presentation repeatedly mentions the Board being "refreshed" in the
last three years. The appointment of the Company's CEO, who has
been with the Company for 32 years and is the son of the Company's
founder, and one new independent director, does not make for a
"refreshed" Board!
The Company states that all of
SMIT's real estate is being used for operations and SENTENTIA's
plan to sell certain real estate does not work, which is
inconsistent with the Company's previous public statements:
August 3,
2016, Schmitt Press Release:
"We have significant free and clear real estate
holdings for a company our size," commented David M. Hudson… Given
the demand and valuations that the Portland commercial real estate market is
experiencing, we believe it is an appropriate time to explore the
sale of some of these assets"
August 23, 2016, Annual Report
Presentation
By more "right sizing" our real estate ownership
to what is truly needed for our operations, the Company has access
to cash to invest in its most lucrative brands and products.
Q42017 Earnings Report
"we continue to pursue alternatives to
right size our real estate holdings and manage closely our
operating overhead," Hudson concluded.
Q32018 10Q Report
The property represents just over 10,000 square
feet of office and warehouse space, which is approximately 25% of
the Company's total real estate holdings. The Company recently
terminated its active listing of the property given market
conditions and other factors.
FACT: Meaningful Change is Needed on the
Board
The Company's investor
presentation does not address the responsibility of the Company's
three long-term directors, and its CEO who has been with the
Company for 32 years, for the Company's years of underperformance,
and the questionable independence of these long-term directors from
management.
The Company states that the "Board
is open to refreshment," but the Board's track record gives
shareholders little reason to believe that current directors would
refresh the Board with truly independent individuals who would seek
to change the status quo at Schmitt.
Despite their long tenure, current
directors own only 2.8% of the outstanding shares.
We believe Schmitt needs two new
independent directors to effect meaningful change on the Board to
maximize shareholder value and instill true Board independence from
management and accountability to shareholders.
FACT: Hines and Zapata are exceptionally
qualified
Messrs. Hines and Zapata would
bring a level of analysis, rigor and energy that we believe is
lacking on the Board, in addition to leadership, accountability and
execution for the benefit of all shareholders.
Among their many qualifications,
shareholders have to look no further than Mr. Hines and Mr.
Zapata's involvement with Intermap Technologies. Despite the
Company's attempt to paint a bad picture and mislead shareholders,
Intermap's operating metrics have improved since Mr. Zapata and Mr.
Hines joined the Board. Both Hines and Zapata were invited due to
their industry and financial expertise, and properly incentivized
for the highly complex and levered turnaround needed for the
long-term success of the company. The share price is only a
reflection of a needed financial restructuring for the long-term
benefit of the company, while operating performance has expanded
tremendously under the new leadership and board.
Mr. Hines has decades of
experience and is a sought after turnaround and restructuring
specialist. Prior to founding his firm, he held EVP and CFO
positions at Outboard Marine Corporation, F.W. Woolworth (Foot
Locker) and Adidas USA, where each
of these companies were special investment concerns of activist
investors that required exceptional corporate finance management
experience. Previously, he spent more than 15 years with RJR
Nabisco and its predecessor, including as senior finance officer
during the company's acquisition by Kohlberg, Kravis and
Roberts.
Prior to Schmitt, Mr. Zapata has
historically been successful working constructively with
management. One example is his engagement with Sterling
Construction (STRL), over a three-year period. Through Mr. Zapata's
continuous engagement with management and the company, the stock
rose from $2.75 to over $12 in over three years. The stock has continued
to rise as management continues to take further steps to expand
their business. Prior to Mr. Zapata's profession as a value
investor, he spent 10 years in service during the Global War on
Terrorism, where he was ultimately a Troop Commander at one of our
nation's premier units. He comes with exceptional leadership,
strategic and operational experience.
We are confident that our highly-qualified candidates will bring
the necessary skills and expertise to conduct a comprehensive
strategic review of the Company, instill operational discipline and
better working capital management, improve the Company's corporate
governance and better align Board and management compensation with
shareholder interests – all with the goal of creating lasting value
for the shareholders. Vote today to let the Board know that
the time for change is now!
VOTE THE BLUE PROXY CARD TODAY TO
ELECT BOTH OF OUR HIGHLY-QUALIFIED NOMINEES — ANDREW
HINES AND MICHAEL ZAPATA — TO THE BOARD AT THE COMPANY'S UPCOMING
ANNUAL MEETING
ADDITIONAL INFORMATION
SENTENTIA, together with the other participants in its proxy
solicitation, have filed a definitive proxy statement and
accompanying BLUE proxy card with the Securities and Exchange
Commission ("SEC") to be used to solicit proxies in connection with
the Company's 2018 annual meeting of shareholders (the "Annual
Meeting"). Shareholders are advised to read the proxy statement and
any other documents related to the solicitation of shareholders of
the Company in connection with the Annual Meeting because they
contain important information. These materials and other materials
filed by SENTENTIA with the SEC in connection with the solicitation
of proxies are available at no charge on the SEC's website at
http://www.sec.gov. The definitive proxy statement and other
relevant documents filed by SENTENTIA with the SEC also are
available, without charge, by directing a request to SENTENTIA's
proxy solicitor, InvestorCom, at (877) 972-0090 for shareholders
and (203) 972-9300 for banks and brokers.
ABOUT SENTENTIA CAPITAL: Sententia is a value
investing based capital management firm that runs a concentrated,
deep value portfolio.
Investor Contact
Investor Relations
212.851.3488
investorrelations@sententiacapital.com
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SOURCE Sententia Capital Management, LLC