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