Peter J. Clemens, IV
Birmingham, AL, January 27, 2020
– Harbert Discovery Fund, LP and Harbert Discovery Co-Investment Fund I, LP (collectively “HDF”), the beneficial
owners of more than 11.8% of the outstanding shares of Enzo Biochem, Inc. (NYSE: ENZ) (“Enzo” or the “Company”),
today sent a letter to shareholders in connection with its efforts to elect two highly-qualified, fresh voices – Fabian Blank
and Peter Clemens – to the Company’s Board of Directors (the “Board”) at its 2019 Annual Meeting of Shareholders
(the “Annual Meeting”), which will be held on January 31, 2020.
The full text of the letter follows
and is available at https://cureenzo.com/:
January 27, 2020
Dear Fellow Shareholders,
With the Enzo Annual Meeting quickly
approaching, you have a very important choice to make. Will you allow the Company to continue on its current path, which has been
defined by broken promises, value destruction and disregard for the views of its shareholders? Or will you vote to elect two experienced
fresh voices to join the five-person Board, so that your best interests will be effectively represented and Enzo can be put on
the path to value creation?
As you think through this decision,
we urge you to consider the following points:
Enzo’s
Drastic Underperformance is Undeniable
Enzo has indisputably destroyed value for its
shareholders. As proxy advisory firm Glass, Lewis & Co. (“Glass Lewis”), stated in its report, “The Company
has underperformed every benchmark over every period.” It does not get simpler than that, as the below table of the Company’s
total shareholder return (TSR) illustrates:
Enzo’s story is one of promises
without progress. In this campaign the Company has simply recycled the same excuses and reassurances it has used for years without
giving investors any reason to trust that things will be different this time around.
Enzo’s narrative is that success
and value creation is always “just around the corner.” Unfortunately, this story has become a broken record. In its
2015 presentation – issued in the context of a proxy fight with another investor – Enzo said that it was “positioned…to
thrive.” The Company’s presentation issued earlier this month claimed that “Enzo is well-positioned to succeed…”
Shareholders could be forgiven for thinking that Enzo’s strategy is more about tired repetition than successful execution.
Institutional Shareholder Services
Inc. (“ISS”), had this to say about Enzo’s lack of strategic direction and chronic underperformance1:
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“[Harbert] has made a compelling
case that board change is warranted, as evidenced by operational deterioration, prolonged absolute and relative TSR underperformance,
and substandard corporate governance.”
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“[T]here are no clear signs of
recovery in share price or operating performance to provide shareholders with confidence that the turnaround strategy is taking
root or that the market has been receptive to its chances of success.”
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Glass Lewis noted the following:
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“Disconcertingly, investors hoping
to see a bold response steeped in critical measures of operational progress have instead been greeted by what we consider to be
a fairly loosely structured narrative functionally ripped from Enzo's last battle, including rehashed promises of pending value
generation.”
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Glass Lewis cites “entirely legitimate
concerns around strategy and shareholder value, as well as the board's failure to produce arguments that meaningfully
update its own dated case from late 2015.”
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Clearly, change is needed. Otherwise
the broken record of unfulfilled promises will continue to repeat at Enzo.
Enzo’s
current board has a credibility problem
In the context of this proxy campaign,
the tactics Enzo’s Board has resorted to in order to obfuscate, confuse, and distract shareholders are concerning, as well
as disappointing. As Glass Lewis notes, the evidence, suggests “there may be some foundational and atypical disconnect between
the Company and investors.”
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1 Permission to quote third
parties was neither sought nor obtained. Emphasis added.
First, Enzo has only addressed
corporate governance issues when forced to do so. Nearly every single governance “improvement” the Company cites
occurred after public pressure from Harbert and other investors in the context of proxy campaigns. This includes the appointment
of Rebecca Fischer to the Board on December 31, 2019 months after HDF launched its campaign and Barry Weiner stepping down as CFO
so that he would not continue serving in that role while also being on the Board – a move Glass Lewis described as nothing
more than “another low risk, high optical upside modification intended to cultivate a more favorable impression of Enzo's
governance.”
Additionally, a close study of Enzo’s
filings reveals that the Company has only mentioned Board refreshment when under public pressure from shareholders. Enzo’s
“proactive engagement process” with shareholders and the institution of a “diversity policy,” as well as
a proposed bylaw change to a majority voting standard, were first mentioned in December 2019, well after Harbert had gone public
with its concerns.
These facts demonstrate that the
current Board does not take proactive, positive actions with regard to corporate governance unless it faces public criticism from
large shareholders. That is at the root of the problem within this Company’s boardroom.
ISS notes the following on this subject:
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“ENZ also missed the opportunity
to enhance its governance structure in the immediate aftermath of the 2015 proxy contest, instead waiting until recently to
appoint the first woman to its board, strengthen the lead independent director role, and propose a majority voting standard for
uncontested director elections.”
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“Although the board states that it
has integrated shareholder feedback into its governance improvements, such feedback did not translate into changes until recently.”
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Second, Enzo has repeatedly attempted to
distract investors by attacking Harbert and our independent nominees. The Company seemingly misses the point that this campaign
is not about Harbert. It is about the need for fresh, independent voices with exceptional track records of value creation in the
healthcare industry on the Board. Our nominees are completely independent of Harbert and we believe they would be strong advocates
for the best interests of all Enzo shareholders.
In its investor presentation, Enzo notes roughly
six times that a company on whose board our nominee Fabian Blank sits is based in what they persistently describe as “Georgia
(former Soviet Republic).” Rebuking Enzo for this odd tactic, Glass Lewis notes, “In contrast, the board's criticism
of Mr. Blank -- which highlights GHG's microcap status despite the fact that it is worth nearly twice as much as Enzo and seemingly
pleads for guilt by association by repeatedly referencing a thirty-years out-of-date association between Georgia and the
former Soviet Union -- is, in our view, entirely unconvincing.”
We believe this type of behavior is simply not
the approach of a professional, objective board that prioritizes what is best for investors over what is best towards maintaining
the status quo.
Third,
Enzo troublingly mischaracterizes ISS’s report in the Company’s January 17, 2020 press release. Enzo states, “ISS
highlights the dissident’s puzzling unwillingness to engage in constructive discussions with the Board, recognizes the significant
refresh of Enzo’s Board over the last
four years and highlights the meaningful improvements in a number of corporate governance areas…”
In reality,
ISS’s analysis says nothing of the sort. These points only appear in the section of the ISS report that summarizes Enzo’s
position – which is standard in every ISS report. It is deeply troubling that Enzo would so blatantly mislead investors
about ISS’s position.
Fourth,
the incumbent Board is clearly divorced from reality. The ISS report highlighted perplexing comments from Enzo nominee Dr.
Bruce Hanna regarding CEO Elazar Rabbani, further calling into question the Board’s independence and judgement:
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“When asked by ISS how he was recruited
to the board in 2016, director Hanna replied that he has been familiar with ENZ for almost 40 years, having served as a
consultant to ENZ in the late 1980's, and that he has been a longtime associate of CEO Rabbani.”
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“Further, when discussing Rabbani's
performance as CEO, Hanna offered significant praise, going so far as to liken Rabbani to Steve Jobs (despite the TSR and operational
underperformance discussed above).”
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“These factors raise doubts for shareholders
about whether Hanna is sufficiently capable of challenging management.”
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These quotes, in our view, are representative
of a broader problem in the Enzo boardroom – namely, the idolization of management and a complete misunderstanding of the
importance of director independence.
HDF’s
Nominees Would Bring Valuable, Fresh Perspectives to Boardroom
The addition of our two independent nominees,
Fabian Blank and Peter Clemens, will provide the relevant skillsets and expertise required to help realize Enzo’s value potential.
Both Fabian’s and Pete’s voices in the boardroom are necessary to ensure change is truly enacted. We believe this is
the first step to unlocking value for Enzo’s shareholders.
The addition of only one of these nominees would
create a situation where that director could easily be ignored and sidelined by the rest of the Board, and would limit that individual’s
ability to stimulate fair debate. It is critical that that situation be avoided by electing both of our independent nominees.
Both Glass Lewis and ISS have positive things
to say about our nominees. Glass Lewis states:
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“Speaking first to Fabian Blank,
we identify a reasonable health care services background, including what appears to be a breadth of advisory roles spanning varying
industry segments and geographies.”
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“Peter Clemens, in turn, has a background
which includes c-suite roles at several healthcare services firms, including Surgical Care Affiliates and Caremark Rx, Inc….The
presence of this senior executive experience at a range of larger and more complex enterprises in the healthcare sector supports
Mr. Clemens' prospective ability to add value to a range of key strategic and financial discussions and overrides, in our
view, nominal concerns that Mr. Clemens
has not previously served on the board of a publicly-traded firm.”
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ISS notes the following:
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“Dissident nominee Blank seems qualified
to contribute industry expertise and a fresh perspective which would be additive to the board and appears to be sufficient
to prompt the board to address performance and oversight concerns…He currently serves on the board of Georgia Healthcare
Group plc (LSE:GHG), a similarly sized healthcare company to ENZ based in the Republic of Georgia, experience which would be additive
to the board given that only one other ENZ director has public board experience.”
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“[D]issident nominee Clemens' qualifications
could also be additive to the board in light of his experience as a CFO at two public healthcare companies (where he likely
would have had to work directly with each company's board on a regular basis).”
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***
Finally, we strongly urge the
incumbent Board to refrain from taking any steps in the run-up to the Annual Meeting that would disenfranchise shareholders and
/ or prevent a free and fair election of directors at the Annual Meeting scheduled for January 31, 2020. Any last-minute attempts
to do so would not be in the long-term interests of the Company and its investors. Further, we will not hesitate to hold individual
Board members individually responsible for any such actions.
Now is the time to vote your shares.
Vote on the BLUE proxy card FOR the election of Fabian Blank and Peter Clemens today.
Please visit our website at www.cureenzo.com
to learn more.
Sincerely,
Harbert Discovery Fund, LP
Harbert Discovery Co-Investment Fund I, LP
Kenan Lucas, Managing Director and Portfolio
Manager of Harbert Discovery Fund GP, LLC and Harbert Discovery Co-Investment Fund I GP, LLC
Important Information about
Participants in a Proxy Solicitation:
Harbert Discovery Fund, LP (“Harbert
Discovery”), Harbert Discovery Fund GP, LLC (“Harbert Discovery GP”), Harbert Discovery Co-Investment Fund I,
LP (“Harbert Discovery Co-Investment” and together with Harbert Discovery, the “Discovery Funds”), Harbert
Discovery Co-Investment Fund I GP, LLC (“Harbert Discovery Co-Investment GP”), Harbert Fund Advisors, Inc. (“HFA”),
Harbert Management Corporation (“HMC”), Jack Bryant (“Mr. Bryant”), Raymond Harbert (“Mr. Harbert”)
and Kenan Lucas (“Mr. Lucas” and together with Harbert Discovery, Harbert Discovery
GP, Harbert Discovery Co-Investment,
Harbert Discovery Co-Investment GP, HFA, HMC and Messrs. Bryant and Harbert, the “Harbert Discovery Parties”) (collectively,
the “Participants”) have filed with the Securities and Exchange Commission (the “SEC”) a definitive proxy
statement and accompanying form of proxy to be used in connection with the solicitation of proxies from the shareholders of Enzo
Biochem, Inc. (the “Company”) in connection with the annual meeting of shareholders of the Company (the “Annual
Meeting”). All shareholders of the Company are advised to read the definitive proxy statement and other documents related
to the solicitation of proxies by the Participants in respect of the Annual Meeting, as they contain important information, including
additional information related to the Participants, their nominees for election to the board of directors of the Company and the
Annual Meeting. The definitive proxy statement and an accompanying proxy card will be furnished to some or all of the Company’s
shareholders and are, along with other relevant documents, available at no charge on the SEC website at http://www.sec.gov/ and
are available upon request from the Participants’ proxy solicitor, Okapi Partners, by calling (888) 758-6707 (banks and brokers
call collect (212) 297-0720).
Additional information about the
Participants can be found on the Definitive Proxy Statement filed by the Participants on December 6, 2019.
About Harbert Discovery Fund (HDF)
HDF invests in a concentrated portfolio
of publicly traded small capitalization companies in the US and Canada. We perform significant due diligence on each portfolio
company prior to investing. In addition to researching all publicly available information and meeting with management, our diligence
includes substantial primary research with industry experts, consultants, bankers, customers and competitors. We often spend months
or years researching ideas before making an investment decision and we only invest in companies that we believe are significantly
undervalued, and where there is the potential for change to enhance or accelerate value creation. In an effort to unlock this potential
value, we seek to work directly with the boards and management teams of our portfolio companies privately and collaboratively,
engaging with them on a range of factors including governance, board composition, corporate strategy, capital allocation, strategic
alternatives and operations. We have effected positive, fundamental changes at our current and past investments through this behind-the-scenes,
constructive approach. HDF currently has board representation at three of our portfolio companies. In each case, changes to the
board were agreed upon privately and it is our strong preference in every investment to avoid the unnecessary distractions and
costs of a public proxy campaign.
About Harbert Management Corporation
(HMC)
HMC is an alternative asset management
firm with approximately $7.0 billion in regulatory assets under management as of December 31, 2019. HMC currently sponsors nine
distinct investment strategies with dedicated investment teams. Additional information about HMC can be found at www.harbert.net.
Contacts
Investor Contact
Okapi Partners LLC
Bruce Goldfarb / Chuck Garske / Jason Alexander, 212-297-0720
info@okapipartners.com
Media Contact
Sloane & Company
Dan Zacchei / Joe Germani, 212-486-9500
dzacchei@sloanepr.com
/ jgermani@sloanepr.com