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A Valentine’s day letter to the Board of Directors of Geospace Technologies

Lemelson Capital Management Logo resized to 220 px

February 14, 2018

Gary Owens, Chairman of the Board of Directors
The Board of Directors
Geospace Technologies Corporation
7007 Pinemont Drive
Houston, Texas 77040

RE: Annual Meeting Circus

Dear Gary,

I trust that you are aware that entities under our control collectively own approximately 10% of the issued and outstanding shares of common stock of Geospace Technologies, Inc. This makes us one of the company’s largest shareholders.[1]

As one of the largest shareholders, we cannot but be deeply troubled by the actions of this board of directors in responding to the activities of current executives and directors of the company, who have knowingly violated securities laws as outlined in our letter to you of February 9, 2018.[2] As you know our vote against the proposed executive compensation plan was confirmed by both you and the transfer agent at the annual meeting held on February 7, 2018. Nevertheless, company executives have acted as if this vote was never cast, and, even worse, to cover up this deception in the form 8-K which was filed on February 12, 2018. Mr. McIntire’s attempt to justify the chicanery of later disregarding the votes in the most recent form 8-K, to put it nicely, is fanciful. This action is particularly offensive considering Mr. Wheeler’s recent comments on the Q1 2018 conference call--that the executive management team and directors of the company “...have a very good dialogue [with Lemelson Capital]…” and that “[Lemelson Capital] is a very valued shareholder.”[3]

We cannot reach any other conclusion other than the one that your actions are part of an attempt to ram-through a dilutive, overpriced and value-destroying compensation plan by engaging in a scheme to stifle and hide from public view the significant concerns of major shareholders against the plan. We believe the primary goal of the compensation plan is to continue to insulate and entrench yourselves at the expense of shareholders while using the company’s mountain of cash to cover-over the incompetence of current management. Ken Funston from FAMCo. summed it up nicely on the recent conference call when he remarked that the current management team “sounds more like morticians than visionary leaders.”

It has now become apparent that Geospace Technologies has operated in a leadership vacuum for almost four years. The board’s refusal, thus far, to hold Mr. Wheeler and Mr. McEntire accountable for their performance since 2014, a period during which they presided over a massive destruction of shareholder value, defies reason. The company’s stock price has plummeted almost 90 percent since Mr. Wheeler took over as CEO in 2014, but under your watch, Mr. Wheelers and Mr. McIntire enjoyed a 125% increase in compensation since 2015, even as the company’s sales hit a 13-year low in 2016.

Your attempt to entrench yourselves by engaging in a scheme to hide from public view our valid vote in opposition to the compensation plan, in a verbose 8-K filing designed to obfuscate, would make Andrew Fastow and Jeffrey Skilling blush while your utter disregard for accountability to the owners of Geospace Technologies and carefully engineered opacity would leave the Maduro regime marveling at your talent.  

Based on the above, it is clear, that without shareholder or regulatory intervention, the board of directors cannot be trusted to oversee management to ensure that these egregious practices are not repeated. Therefore, as we discussed in our letter of February 9, 2018, we believe the following changes must be made immediately:

  • Correct the recently filed form 8-K to reflect the accurate tally of votes and make public any correspondence or process in which Geospace invited or directed third parties to make motions or alter the vote count (the "process letters") at the most recent annual meeting.
  • Remove Mr. Wheeler and Mr. McEntire for clearly breaching their fiduciary responsibilities to shareholders and for violating securities laws and regulations by knowingly filing a false and materially misleading form 8-K on both February 8 and February 12, 2018.
  • Engage an investment bank to explore strategic alternatives for a sale of the company.

We of course would encourage you to meet with some of Geospace Technologies’ largest shareholders to discuss their views on the future of the company. While we are extremely disturbed by your recent conduct and lack of urgency, we nevertheless are willing to meet with you as part of this process. However, let me be clear: this willingness should not be mistaken as an exclusive forum for discussing issues vital to the company’s future success.

Geospace Technologies should dispel lingering shareholder concerns by making a public announcement, stating plainly that discussions among shareholders concerning the above proposed changes – and any other corporate governance changes suggested by other shareholders are being reviewed and considered.

We expect you will act swiftly and decisively to correct the matters described above. We’d prefer that resources not be wasted on needless and disruptive fights.

However, it is important that you clearly understand that if you continue to ignore the interests of shareholders and continue to aid and abet material misrepresentations of their votes and wishes, we will not hesitate to take whatever actions we consider necessary to protect our investment.

Sincerely,

Rev. Fr. Emmanuel Lemelson
Chief Investment Officer
Lemelson Capital Management, LLC

[1] This fact is acknowledged in Geospace Technologies definitive proxy statement filed with the SEC on January 4, 2018. See page 25: “Security Ownership of Certain Beneficial Owners and Management,” and is further publicly verifiable via Schedule 13G Amendment No. 2 filed with the Securities and Exchange Commission on January 11, 2017, indicating that Lemelson Capital Management, LLC beneficially owns 1,200,000 shares and has voting power with respect to these shares.

[2] See “Lemelson Capital Management calls for Removal of Geospace Technologies (NASDAQ: GEOS) Senior Executives, Sale of Company,” February 9, 2017 (click here to access a copy).

[3] See: Geospace Technologies' (GEOS) CEO Rick Wheeler on Q1 2018 Results - Earnings Call Transcript (click here to access a copy).

SPECIAL NOTE REGARDING THIS RELEASE

THIS REPORT INCLUDES INFORMATION BASED ON DATA FOUND IN FILINGS WITH THE SECURITIES AND EXCHANGE COMMISSION, INDEPENDENT INDUSTRY PUBLICATIONS AND OTHER SOURCES. ALTHOUGH WE BELIEVE THAT THE DATA IS RELIABLE, WE HAVE NOT SOUGHT, NOR HAVE WE RECEIVED, PERMISSION FROM ANY THIRD-PARTY TO INCLUDE THEIR INFORMATION IN THIS PRESENTATION. MANY OF THE STATEMENTS IN THIS PRESENTATION REFLECT OUR SUBJECTIVE BELIEF.

EMMANUEL LEMELSON’S VIEWS AND HIS HOLDINGS OF THE SECURITIES MENTIONED IN THIS RELEASE COULD CHANGE AT ANY TIME. HE MAY SELL ANY OR ALL OF HIS HOLDINGS OR INCREASE HIS HOLDINGS BY PURCHASING ADDITIONAL SECURITIES. HE MAY TAKE ANY OF THESE OR OTHER ACTIONS REGARDING ANY OF SUCH SECURITIES WITHOUT UPDATING THIS RELEASE OR PROVIDING ANY NOTICE WHATSOEVER OF ANY SUCH CHANGES.

THE INFORMATION CONTAINED ABOVE IS NOT AND SHOULD NOT BE CONSTRUED AS INVESTMENT ADVICE, AND DOES NOT PURPORT TO BE AND DOES NOT EXPRESS ANY OPINION AS TO THE PRICE AT WHICH THE SECURITIES OF GEOSPACE TECHNOLOGIES MAY TRADE AT ANY TIME. THE INFORMATION AND OPINIONS PROVIDED ABOVE SHOULD NOT BE TAKEN AS SPECIFIC ADVICE ON THE MERITS OF ANY INVESTMENT DECISION. INVESTORS SHOULD MAKE THEIR OWN DECISIONS REGARDING GEOSPACE TECHNOLOGIES AND ITS PROSPECTS BASED ON SUCH INVESTORS' OWN REVIEW OF PUBLICALLY AVAILABLE INFORMATION AND SHOULD NOT RELY ON THE INFORMATION CONTAINED ABOVE. NEITHER LEMELSON CAPITAL MANAGEMENT, LLC NOR ANY OF ITS AFFILIATES ACCEPTS ANY LIABILITY WHATSOEVER FOR ANY DIRECT OR CONSEQUENTIAL LOSS HOWSOEVER ARISING, DIRECTLY OR INDIRECTLY, FROM ANY USE OF THE INFORMATION CONTAINED ABOVE.

FORWARD-LOOKING STATEMENTS

Certain statements contained in this letter are forward-looking statements including, but not limited to, statements that are predications of or indicate future events, trends, plans or objectives. Undue reliance should not be placed on such statements because, by their nature, they are subject to known and unknown risks and uncertainties. Forward-looking statements are not guarantees of future performance or activities and are subject to many risks and uncertainties. Due to such risks and uncertainties, actual events or results or actual performance may differ materially from those reflected or contemplated in such forward-looking statements. Forward-looking statements can be identified by the use of the future tense or other forward-looking words such as "believe," "expect," "anticipate," "intend," "plan," "estimate," "should," "may," "will," "objective," "projection," "forecast," "management believes," "continue," "strategy," "position" or the negative of those terms or other variations of them or by comparable terminology.  Important factors that could cause actual results to differ materially from the expectations set forth in this letter include, among other things, the factors identified under the section entitled "Risk Factors" in Geospace Technologies Annual Report on Form 10-K for the year ended September 30, 2017. Such forward-looking statements should therefore be construed in light of such factors, and Lemelson Capital is under no obligation, and expressly disclaims any intention or obligation, to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

A Valentine’s day letter to the Board of Directors of Geospace Technologies by amvona on Scribd

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