Star Equity Fund, LP (“Star Equity Fund” or “we”), a shareholder of
Servotronics, Inc. (NYSE American: SVT) (“Servotronics” or “the
Company”), seeks to unlock shareholder value and improve corporate
governance at its portfolio companies. To that end, on March 2,
2022, Star Equity Fund announced its nomination of a diverse,
highly qualified slate of director candidates for election at
Servotronics to act in the best interests of all shareholders who
have long suffered value destruction during the tenure of the
Company’s incumbent board of directors.
Servotronics recently issued its fourth quarter
and full year 2021 earnings release in which it touted record
operating cash flow and year-end cash, lower operating costs, and
net income growth.
The earnings release included statements
that, in our view, are highly misleading.Specifically, the
Company claimed:
- “Reduced total operating costs and
expenses in 2021,” however, SG&A for the full year 2021 of $9.4
million was the highest in the Company’s history in absolute terms
and also the highest in its history as a percentage of revenue at
23.2%.
- “Record operating cash flow and
year-end cash” as well as “net income growth,” but each of these
metrics was principally driven by the receipt of $9.6 million of
government funds via PPP loans and employee retention credits.
In reality, the Company’s core business
struggled in 2021.
- The Company’s ATG division full
year 2021 revenue declined 35% versus 2019 (its pre-COVID level)
while the division’s fourth quarter 2021 revenue declined 44%
versus the fourth quarter of 2019.
- The Company’s CPG division, as
consistent with prior years, incurred operating losses in each
quarter of 2021. The Company has not provided any guidance or a
plan on how this division will improve.
The Company also noted in its earnings release
that it is conducting a search for new independent directors. We
see no reason to trust the incumbent board to name truly
independent new directors to the board. They have lost that trust
due to their terrible record of enabling former CEO Kenneth
Trbovich, who has been sued for various counts of sexual
harassment, infliction of emotional distress, breach of fiduciary
duties, fraud, and corporate waste.
We want Servotronics to thrive.
Our mission is to liberate the Company’s clients, employees, and
shareholders from the malfeasance of the Trbovich family and its
enablers, namely the incumbent board members. To that end, we urge
Servotronics to hold its 2022 Annual Meeting as soon as possible to
let the shareholders, not the incumbent board, decide who
represents them. Last year’s annual meeting was held on May 14,
2021, and the Company should schedule the 2022 Annual Meeting on a
similar timeframe.
We have attempted to engage with the Company
privately and constructively on reaching a negotiated resolution to
the election contest in the best interest of shareholders,
including by making a settlement proposal enabling an orderly
transition in the composition of the board. We regret to report,
however, that the Company has declined to respond to that offer or
make any counter-proposals, instead informing us that the Company
is in the process of selecting new directors on its own. As a
result, the incumbent board is leaving us with no alternative but
to proceed with our election contest, which we are fully prepared
to do for the benefit of all shareholders.
About Star Equity Fund, LPStar
Equity Fund, LP is an investment fund managed by Star Equity
Holdings, Inc. Star Equity Fund seeks to unlock shareholder value
and improve corporate governance at its portfolio companies.
About Star Equity Holdings,
Inc.Star Equity Holdings, Inc. is a diversified
holding company with three divisions: Healthcare, Construction, and
Investments.
CERTAIN INFORMATION CONCERNING THE
PARTICIPANTS
Star Equity Fund, LP (“Star Equity Fund”),
together with the other participants named herein (collectively,
“Star Equity”), intends to file a preliminary proxy statement and
accompanying WHITE proxy card with the Securities and Exchange
Commission (“SEC”) to be used to solicit votes for the election of
its slate of highly-qualified director nominees at the 2022 annual
meeting of stockholders of Servotronics, Inc., a Delaware
corporation (the “Company”).
STAR EQUITY STRONGLY ADVISES ALL STOCKHOLDERS OF
THE COMPANY TO READ THE PROXY STATEMENT AND OTHER PROXY MATERIALS
AS THEY BECOME AVAILABLE BECAUSE THEY WILL CONTAIN IMPORTANT
INFORMATION. SUCH PROXY MATERIALS WILL BE AVAILABLE AT NO CHARGE ON
THE SEC'S WEB SITE AT HTTP://WWW.SEC.GOV. IN ADDITION, THE
PARTICIPANTS IN THIS PROXY SOLICITATION WILL PROVIDE COPIES OF THE
PROXY STATEMENT WITHOUT CHARGE, WHEN AVAILABLE, UPON REQUEST.
The participants in the proxy solicitation are
anticipated to be Star Equity Fund, Star Equity Fund GP, LLC (“Star
Equity Fund GP”), Star Value, LLC (“Star Value”), Star Equity
Holdings, Inc. (“Star Equity Holdings”), Star Investment
Management, LLC (“Star Investment Management”), Jeffrey E.
Eberwein, Hannah M. Bible, BaShara (Bo) Boyd, Richard K. Coleman,
Jr., John W. Gildea, Daniel M. Koch, Louis A. Parks, Robert G.
Pearse, G. Mark Pomeroy and Brandon G. Stranzl.
As of the date hereof, Star Equity Fund
beneficially owns directly 44,688 shares of common stock, par value
$0.20 per share, of the Company (the “Common Stock”). Star Equity
Fund GP, as the general partner of Star Equity Fund, may be deemed
to beneficially own the 44,688 shares of Common Stock owned
directly by Star Equity Fund. Star Value, as the sole member of
Star Equity Fund GP, may be deemed to beneficially own the 44,688
shares of Common Stock owned directly by Star Equity Fund. Star
Equity Holdings, as the parent company of Star Equity Fund, may be
deemed to beneficially own the 44,688 shares of Common Stock owned
directly by Star Equity Fund. Star Investment Management, as the
investment manager of Star Equity Fund, may be deemed to
beneficially own the 44,688 shares of Common Stock owned directly
by Star Equity Fund. Mr. Eberwein, as the Portfolio Manager of Star
Equity Fund, may be deemed to beneficially own the 44,688 shares of
Common Stock owned directly by Star Equity Fund. As of the date
hereof, none of Mses. Bible or Boyd or Messrs. Coleman, Gildea,
Koch, Parks, Pearse, Pomeroy, or Stranzl beneficially owns any
Common Stock.
For more information contact: |
|
Star Equity Fund, LP |
The Equity
Group |
Jeffrey E. Eberwein |
Lena Cati |
Portfolio Manager |
Senior Vice President |
203-489-9501 |
212-836-9611 |
jeff.eberwein@starequity.com |
lcati@equityny.com |
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