KING OF PRUSSIA, Pa.,
Oct. 15, 2014 /PRNewswire/
-- Willner Capital, Inc., who together with its affiliates
("Willner Capital" or "we"), is one of the largest stockholders of
American Science and Engineering, Inc. ("ASEI" or the "Company")
(NASDAQ: ASEI), today announced its extreme disappointment with the
failure of the Board of Directors (the "Board") of ASEI to respond
to its letter delivered to Denis R.
Brown, Chairman of the Board, on September 26, 2014 (the "September 26th Letter"). In the
September 26th Letter, the
full text of which is included below, Willner Capital outlined its
serious concerns with the Company's abysmal stock price and
operating performance and poor corporate governance practices under
the stewardship of the current Board and management, including the
Company's ineffective use of excess cash. Willner Capital
also identified opportunities to unlock significant value at ASEI
in the September 26th
Letter, including a spin-off of the Company's newly released MINI Z
technology. Willner Capital's concerns were further
heightened in light of the Company's recent announcement on
September 30, 2014 that it
anticipates a net loss in the second quarter of fiscal year 2015
and a work force reduction of approximately 10%.
Michael Willner, President of
Willner Capital, stated, "I am extremely disappointed with the
Board's failure to respond to our serious concerns outlined in the
September 26th Letter,
particularly in light of the Company's anticipated net loss for Q2
FY15'. In fact, over the past year, we have privately reached
out to Charles P. Dougherty, the
Company's CEO, and most recently, Mr. Brown, to discuss our serious
concerns. Unfortunately, our concerns have fallen, and
continue to fall, on deaf ears. This merely confirms the
Company's extremely poor investor relations and stockholder
communications policies, which we believe contributes to ASEI's
stock price underperformance. The Company's announced
anticipated loss for Q2 FY15' only heightens our concerns regarding
the direction of ASEI. We believe the Board should hire an
investment banking firm to explore all strategic opportunities to
maximize value for the benefit of all ASEI stockholders, including
a sale or merger of the Company."
Mr. Willner concluded, "We had hoped that through the
September 26th Letter, the
Board would more fully understand our strong desire to work
constructively with the Board and management to implement
meaningful steps to enhance stockholder value at ASEI. While
we had intended to keep our dialogue private, we were left with no
choice but to publicize our substantial concerns. As the
former Vice Chairman of the Board of Directors of a large publicly
traded company and Chair of its Strategic Planning Committee, I
understand the importance of engaging in active dialogue with
stockholders and exploring opportunities to maximize value for the
benefit of all. We urge the Company to take our concerns
seriously and immediately engage in constructive dialogue so that
we can explore opportunities to maximize value for the benefit of
all stockholders. However, we remain ready, willing and able
to take any and all action required to protect the interest of all
ASEI stockholders."
The full text of the September
26th Letter follows:
September 26,
2014
Board of Directors
American Science and Engineering, Inc.
829 Middlesex Turnpike
Billerica, Massachusetts 01821
Attention: Denis R. Brown,
Chairman
Dear Mr. Brown:
I am writing this letter on behalf of Willner Capital, Inc., who
together with its affiliates ("Willner Capital" or "we"), is one of
the largest stockholders of American Science and Engineering, Inc.
("ASEI" or the "Company"). We invested in the Company because
of its unique and compelling technology and strategic opportunities
for growth; however, we are disappointed with the Company's abysmal
performance and poor corporate governance practices under the
direction of the current management team and Board of Directors
(the "Board"). Having been a stockholder of the Company for
over ten years, we have a profound understanding of the Company's
business, prospects and operations and believe there are
significant opportunities to increase value for the benefit of all
stockholders.
Over the past year, we have privately reached out to the
Company's CEO, Charles P. Dougherty,
and most recently, you, to discuss our concerns.
Unfortunately, our concerns have fallen on deaf ears.
We hope that through this letter, you will take our concerns
seriously and more fully understand our strong desire to work
constructively with you, the other members of the Board and
management to implement meaningful steps to enhance stockholder
value at ASEI.
Abysmal Stock Price and Operating
Performance
We have grown increasingly alarmed with the direction of ASEI as
it has delivered dismal total shareholder returns over the past
five years. In fact, the Company's stock price has
significantly unperformed the broader U.S. equity indices during
the last five, three and one year periods.
The Company's operating performance has likewise been
abysmal. Despite the increasing strength of the current
market, ASEI's earnings per share, net income and EBITDA have
decreased for each of the last three fiscal years.
The Company's Q1 FY15' results were equally as troubling as ASEI
reported significantly weaker than expected results. The
Company reported Q1 revenue and EPS of $35.5
million and $0.18,
respectively, versus consensus estimates of $40 million and $0.32. Bookings were also disappointingly
low at $22.3 million. We find
these poor results particularly concerning in light of the
Company's upbeat comments during its Q4 FY14' conference call and
Mr. Dougherty's remarks during the Q1 FY15' conference call that
low shipment and bookings were clearly attributable to the turmoil
in the Middle East, despite the
fact that the Middle Eastern region had been highlighted by ASEI as
a positive catalyst for sales in light of the turmoil and terrorism
there. The Company's failure to hold itself accountable for
weaker than expected results is alarming.
Poor Investor Communications and Lack of
Transparency
Perhaps even more concerning is the Company's failure to provide
any guidance regarding its underperformance. Stockholder
value will not be achieved without transparent communications
detailing the reasons for any earnings shortfalls, providing
specific evidence regarding how problems will be solved, and
providing clear, accurate and concise guidelines for future
results. By failing to adequately address the underlying
causes for ASEI's underperformance, we believe the Company is
missing the significant opportunities to participate in an
improving economy.
Further, management's and your lack of response to my requests
for a constructive dialogue only underscores how much improvement
is needed in this regard. ASEI's investor communications
appear weak, disorganized and inefficient. The Company's
stockholders, the true owners of the Company, are entitled to
transparency and disclosure of material information. We
believe the Company's failure to communicate effectively with its
stockholders is one of the reasons for its dismal stock
performance. This practice of disseminating minimal and
ambiguous disclosure has likely caused the stock to underperform by
increasing uncertainty and making it extremely difficult for
potential new investors to understand the business. ASEI
should adopt a formal policy of transparent and timely disclosure
to all its stockholders.
Ineffective Use of Excess Cash
The Company has over $19 per share
in cash and cash equivalents. We see no conceivable business
justification for holding this much cash. Further, the
Company's stock repurchases have not been the most efficient use of
its cash due to the Company's relatively small float, which
precludes larger investors from becoming meaningful owners in the
Company. The cornerstone of disciplined capital allocation is
using a risk-adjusted, fact-based business plan to determine the
fair value of a company's stock. We believe that ASEI's stock
repurchases may have been an attempt to placate the stockholder
base, rather than a carefully evaluated effort to create long-term
stockholder value.
This is not to say that stock repurchases are never in the best
interests of a company's stockholders. The time to execute a
repurchase is when the stock is trading at a significant discount
to fair value, which is calculated based on the present value of
the Company's long-term plan. The value of the repurchase is
not realized upon the completion of the buy-back, but rather
when the stock price accretes towards fair value as the long-term
plan is executed.
There are better opportunities to utilize ASEI's excess
cash. We strongly believe ASEI should pay a special dividend
to shareholders equal to $15 per
share. We find it hard to believe that outside of ASEI's
newly released MINI Z technology ("MINI Z"), the Company has not
been able to identify opportunities for organic growth leveraging
its existing customer relationships and reputation in the
industry.
Spin-Off of MINI Z
ASEI could use a portion of its excess cash to spin-off MINI
Z. We believe the new product launch of MINI Z would be
afforded a higher multiple and accordingly, should be spun off from
the legacy Company and its technology. We think this would
result in the creation of substantial stockholder value as there
may be applications for the new technology beyond the contemplated
public safety market. The low ASP will not result in
meaningful growth for the Company – as a standalone, we believe it
would be afforded a higher multiple, will have greater growth
potential and will hopefully lead to higher and less irregular
earnings.
Lack of Meaningful Stock Ownership
We believe a culture focused on long-term value creation and
stockholder accountability requires placing stockholder
representatives on the Board who have a significant financial
commitment to the Company along with relevant experience.
This requirement ensures the proper alignment of interests between
the Board and stockholders. According to the Company's proxy
statement (the "2014 Proxy Statement") for its 2014 annual meeting
of stockholders (the "2014 Annual Meeting"), each director and
executive officer of the Company owns less than 1% of ASEI's
outstanding shares of common stock and collectively, they own a
mere 3.1%, which ownership is largely comprised of stock options
and similar compensatory awards.
Perhaps even more concerning is the general lack of open market
purchases by such individuals. In fact, according to the
Company's public filings, you made the last open market purchase
on February 10, 2006. It
seems apparent to us that with so little "skin in the game" and not
enough confidence in the Company to engage in meaningful share
acquisitions in the open market, the Board does not have the same
commitment to stockholder value as we do.
By contrast, we have invested approximately $8.5 million to accumulate our current ownership
position in the Company, making us one of the largest
investors. We believe our substantial "skin in the game"
results in optimal long-term alignment of interests with
stockholders and demonstrates our motivation to maximize value of
ASEI for the benefit of all stakeholders.
We are beginning to doubt whether the Board and management's
interests are aligned closely enough with those of other
stockholders. We are concerned that the lack of significant
actual equity ownership and the minimal real investment dollars at
risk may contribute to a lack of commitment to maximizing
stockholder value.
Excessive Executive Compensation
We are likewise concerned with the Company's executive
compensation practices. While we applaud the Board's efforts
to better align ASEI's compensation practices with the Company's
performance, we believe the compensation awarded to executives is
significantly high given the Company's abysmal stock price and
operating performance. We are particularly concerned with the
compensation package awarded to Mr. Dougherty in light of the
Company's significant underperformance, which amounted to a
staggering $1.91 million for fiscal
2014. According to the 2014 Proxy Statement, ASEI and
Mr. Dougherty entered into an employment agreement that entitled
him to $550,000 in base salary, a
target bonus equal to 100 percent of his base salary, which was
guaranteed for the fiscal year 2014, and a target long-term
incentive award of 200 percent of base salary. We find it
extremely troubling that Mr. Dougherty was guaranteed a bonus for
fiscal 2014 without having to meet rigorous performance
conditions.
We are likewise concerned with the Company's 2014 Equity and
Incentive Plan (the "Equity Plan"), which was approved by a very
slim margin (3,278,648 votes "For" vs. 3,028,250 votes "Against")
at the 2014 Annual Meeting. In fact, Institutional
Shareholders Services ("ISS"), a leady proxy advisory firm, advised
that shareholders vote "AGAINST" approval of the Equity Plan
because the estimated shareholder value transfer of nine percent
(9%) is greater than the company-specific allowable cap of eight
percent (8%).
ISS further highlighted concerns regarding the lack of
transparency of the Company's long-term incentive program, advising
stockholders to closely monitor compensation decisions of ASEI
moving forward. Specifically, ISS noted that while payout
under the program is based on pre-determined performance metrics,
the specific goals and the specific performance periods for each
individual goal were not disclosed. Accordingly, stockholders
cannot assess the rigor of the incentive program. Based on
the vesting of the fiscal 2014 award, it is also possible for a
portion of an award to vest less than one year after the grant
date, which raises concerns about the long-term nature of the
award. Similar to ISS, we believe stockholders prefer awards
that vest "based on achievement of multi-year performance goals to
promote long-term alignment between pay and performance."
Further, given that half of the awards associated with unmet
performance goals cliff vest after five years, the link between pay
and performance is significantly diminished.
We believe that the Company's poor executive compensation
practices have contributed to a management and Board culture that
seem indifferent to poor operational results. We call for the
Board and its Compensation Committee to take action to develop new
compensation arrangements and target minimum stock ownership levels
for the management team.
A Need for Change
For the reasons set forth above, we lack confidence in
management's and the Board's ability to unlock value for ASEI
stockholders, including their ability to engage in strategic
acquisitions at an appropriate price. While we appreciate Mr.
Dougherty's enthusiasm and experience in the public safety sector,
we are concerned with the Company's abysmal performance under his
direction, particularly given the strength of the current
market. We nevertheless believe ASEI has a solid long-term
foundation and exciting growth prospects. With the right
tools in place, we believe Mr. Dougherty can make ASEI a stronger
and more profitable Company.
We are ready, willing and able to work constructively with Mr.
Dougherty as well as the other members of ASEI's management team
and Board, to help drive performance. As described above, we
believe the path to increasing value and restoring the market's
confidence in ASEI requires the following actions, among others:
(i) improve IR policies to promote transparency and stockholder
communications; (ii) utilize excess cash to (a) issue a special
dividend to stockholders and (b) spin-off of MINI Z; and (iii)
improve compensation practices and implement stronger stock
ownership guidelines. We are committed to exchanging our
views and meeting with you, the other members of the Board and
management in an effort to help unlock value for all ASEI
stockholders.
We are professional investors who take corporate governance very
seriously. Our priority is to work with the Company – not
against it – in doing what is best for all stockholders. As
the former Vice Chairman of the board of directors of a publicly
traded company much larger than ASEI, I understand the importance
of engaging in active dialogue with stockholders in a professional
and constructive manner. Further, being one of the largest
shareholders of ASEI, we have significant "skin in the game" and
have a substantial interest in seeing that management and the Board
are committed to maximizing value for the benefit of all
stockholders.
We remind you that the Board's duties are to stockholders of
ASEI. As always, we stand ready to meet with you at your
earliest convenience and are willing to discuss our views in more
detail. While we intend to keep our dialogue private, we must
reserve all rights to take any and all action required to protect
the interest of stockholders. We hope such action will be
unnecessary, however, and look forward to working constructively
with you to unlock significant value for
all.
Sincerely,
Michael Willner
Willner Capital, Inc.
About Willner Capital, Inc.
Willner Capital, Inc.
invests in companies undergoing change and focuses on event-driven,
value-oriented investment opportunities.
Investor contact:
Michael J.
Willner
willnercap@gmail.com
SOURCE Willner Capital, Inc.