Additional Proxy Soliciting Materials - Non-management (definitive) (dfan14a)
September 26 2018 - 5:17PM
Edgar (US Regulatory)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
SCHEDULE
14A
(Rule
14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
The Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant ☐
Filed by a Party other than the Registrant ☒
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Preliminary Proxy Statement
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2))
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Definitive Proxy Statement
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Definitive Additional Materials
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Soliciting Material Under Rule 14a-12
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SCHMITT INDUSTRIES, INC.
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(Name of Registrant as Specified in Its Charter)
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SENTENTIA GROUP, LP
SENTENTIA CAPITAL MANAGEMENT, LLC
MICHAEL R. ZAPATA
ANDREW P. HINES
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(Name of Persons(s) Filing Proxy Statement, if Other Than the Registrant)
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Payment of Filing Fee (Check the appropriate box):
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Per unit price or other underlying value of transaction computed pursuant to Exchange Act Rule 0-11 (set forth the amount on
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Fee paid previously with preliminary materials:
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box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2) and identify the filing for which the offsetting
fee was paid previously. Identify the previous filing by registration statement number, or the form or schedule and the date of
its filing.
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Sententia Capital Management,
LLC, together with the other participants named herein (collectively, “Sententia”), has filed a definitive proxy statement
and accompanying
BLUE
proxy card with the Securities and Exchange Commission to be used to solicit votes for the election
of its slate of director nominees at the 2018 annual meeting of shareholders of Schmitt Industries, Inc., an Oregon corporation.
Item 1: On September 26,
2018, Sententia issued the following press release:
Sententia Sets the Record Straight
for Schmitt Shareholders
Highlights Flaws in Schmitt’s
Defensive Investor Presentation
Urges Shareholders to Vote for
Real and Meaningful Change at Schmitt on the
BLUE
Sententia Proxy Card to Elect Both Sententia Nominees
NEW
YORK, September 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.
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DO
NOT BE MISLED BY SCHMITT’s DISTORTIONS OF THE TRUTH
FACT: SENTENTIA Engaged with
Schmitt in Good Faith on a Settlement
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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.
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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.
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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.
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FACT: The Company Offers Misleading
Support for the Board’s Track Record and Criticism of SENTENTIA’s Plans
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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.
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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.
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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!
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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
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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.
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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.
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Despite their long tenure, current directors own only 2.8% of the outstanding shares.
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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.
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FACT: Hines and Zapata are exceptionally
qualified
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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.
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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.
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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.
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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
Item 2: On September 26,
2018, Sententia published the following message on Twitter:
Item 3: On September 26,
2018, Sententia published the following message on SumZero:
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