NEW YORK, Aug. 18, 2016 /PRNewswire/ -- An investor group led by Edwin R. Lozano, which collectively owns approximately 2.7% of outstanding shares in Reed's, Inc. (AMEX: REED) ("Reed's" or the "Company"), announced today that it has formed The Committee to Rescue Reed's ("The Committee") and has delivered a letter to the Chairman and CEO and the Board of Directors of Reed's highlighting the Company's poor financial performance and serious corporate governance deficiencies. The Committee is extremely disappointed that Chairman and CEO Chris Reed has rebuffed recent attempts by Mr. Lozano to engage in a dialogue regarding his serious concerns and is preparing to nominate a slate of highly qualified candidates for election to the Reed's Board at the 2016 Annual Meeting.
The Committee has retained Olshan Frome Wolosky LLP as its legal and strategic advisor in connection with its investment and involvement at Reed's.
The full text of the letter follows:
THE COMMITTEE TO RESCUE REED'S
August 18, 2016
VIA ELECTRONIC MAIL
13000 South Spring Street
Los Angeles, California 90061
Attn: Christopher J. Reed, Chairman and CEO
cc: Board of Directors
The Committee to Rescue Reed's ("The Committee") is a group of well-informed, long-term investors who collectively own a significant stake in Reed's, Inc. ("Reed's" or the "Company"). We have grown increasingly frustrated by the shortcomings in the Company's operational strategy and financial performance, as well as its weak governance oversight and practices. In our opinion, these factors are key contributors to Reed's lackluster stock price performance over the past several years. We have attempted to engage constructively with you in good-faith, but our serious concerns have unfortunately fallen on deaf ears. You have therefore left us with little choice but to go public with our concerns.
We believe that the Board has failed to demonstrate a shareholder-focused mindset, has failed to hold management or itself accountable, and has failed to place the best interests of its shareholders ahead of the personal interests of insiders. As significant shareholders, our objective is to see the full value of our shares and the shares of all other owners of this Company be recognized in the marketplace. We are committed to working on behalf of all shareholders to ensure that shareholders' interests are represented in the boardroom. To this end, we fully intend to nominate a slate of highly qualified candidates for election to the Board at the 2016 Annual Meeting.
Remarkably, it has been more than a decade since the Board has seated a new member. Certainly, this Board would benefit from thoughtful refreshment. More specifically, what is needed are members who have greater industry expertise and proven business acumen. A shareholder-focused mindset has simply been lacking on this Board for too long. The Company's 2015 Proxy states, "We intend to maintain at least three independent directors on our Board of Directors at all times in the future." Yet, since the sudden resignation of Mark Harris on June 1, 2016, the Board has failed to maintain a majority of independent directors as required under NYSE MKT listing rules.
We are not the only ones who have voiced serious concerns with the corporate governance practices at Reed's. Notably, Institutional Shareholder Services ("ISS") recommended that shareholders withhold votes on each and every Reed's Board member at the 2015 Annual Meeting and stated the following in its 2015 Report:
"ISS has highlighted several problematic governance issues at the company in recent years, including repricing of options without prior shareholder approval, eliminating shareholders' right to call special meetings without prior shareholder ratification, and a director with chronic poor attendance at board and committee meetings. A history of governance issues heightens the concern that the board is not being accountable to shareholders."
Noted shareholder advocate James McRitchie has also recently called into serious question the corporate governance practices at Reed's on his popular corporate governance portal, CorpGov.Net.
The Committee has grave concerns regarding the following severe governance and operational deficiencies at Reed's:
- Poor Share Price Performance. Since the start of 2016, the Company's price per share has fallen approximately 51%, compared to an increase of approximately 9% for the S&P 500 Index. Since going public, the Company's price per share has fallen approximately 34%, compared to an increase of approximately 54% for the S&P 500 Index.
- Poor Financial Performance. Since going public, the Company has never had a profitable fiscal year. Additionally, Reed's debt levels have ballooned to the point where debt makes up over 25% of the Company's enterprise value. These high debt levels coupled with the Company's weak cash flows and lack of profitability has necessitated that the Company undertake multiple capital raises, which has led to ongoing shareholder dilution.
- Poor Executive Compensation Practices. The 2015 Incentive and Nonstatutory Stock Option Plan permits the repricing and cash buyout of awards without prior shareholder approval. The Company repriced outstanding stock options via a reduction of exercise price. The repricing of outstanding stock options led ISS to recommend a withhold vote for all members of the Compensation Committee at the 2015 Annual Meeting.
- Independence of Directors. The Company is in the rare position of having spouses serving on the Board together. In light of the unfilled Board vacancy created this past June by the sudden resignation of Mark Harris, there are only four directors currently on the Board. Consequently, only half of the Board is independent, which, even more disturbingly, means that half of the Board is presently husband and wife. This governance structure fails to provide the appropriate checks and balances needed between the Board and management, which, in turn, engenders the market to have the harmful and value-destroying perception of a general lack of accountability on the part of the Board.
- Absent Director. Michael Fischman has been essentially missing in action from his duties as a director. His absences have not gone unnoticed by ISS, which recommended a withhold vote on Mr. Fischman in 2014. ISS noted in their 2014 report on Reed's that Mr. Fischman "has failed to attend at least 75 percent of his board and committee meetings since 2009."
- Quality of Directors. In addition to Mr. Fischman's absenteeism, there are doubts as to whether certain directors have the requisite, specific industry expertise to properly oversee the Company and put it on the right path towards enhancing shareholder value. We also have concerns regarding the lack of meaningful share ownership by the independent directors.
- Notice of Delisting from the New York Stock Exchange. To add insult to injury, on June 22, 2016, the Company received notice from the New York Stock Exchange for failure to meet standards for continued listing.
We are extremely disappointed by your apparent dismissal of the serious concerns we have raised. We continue to welcome an open dialogue with you, but to date you have demonstrated no interest in engaging constructively with us. Our sincere hope is that the Board will take a fresh look at the opinions we have outlined above and take immediate action to work with us in embracing change rather than engage in a protracted and costly proxy contest in an effort to preserve the troubling status quo. Please know, however, that we are making the necessary preparations to nominate a slate of highly qualified candidates for election to the Board at the 2016 Annual Meeting.
We remain open to speaking with you at any time.
Edwin R. Lozano
Edwin R. Lozano
The Committee to Rescue Reed's
Andrew M. Freedman
Olshan Frome Wolosky LLP
SOURCE Edwin R. Lozano