Author Topic: SYTE - Enterprise Diversified  (Read 210384 times)

oddballstocks

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Re: SYTE - Sitestar
« Reply #430 on: April 11, 2018, 11:03:02 AM »
Can anyone explain Kiel's job at Santa Monica Partners? thx!

"Includes 85,413,593 shares owned by Arquitos Capital Partners, LP. Arquitos Capital Management LLC acts as the General Partner to Arquitos Capital Partners, LP. Steven L. Kiel is the Managing Member of Arquitos Capital Management LLC and is deemed to have beneficial ownership over the Common Stock owned. Also includes 41,666,667 shares owned by Santa Monica Partners, L.P. SMP Asset Management, LLC is the general partner of Santa Monica Partners, L.P. and Steven L. Kiel is an advisor of SMP Asset Management, LLC and is deemed to have beneficial ownership over the Issuer's Common Stock owned by Santa Monica Partners, L.P. "

Yes...nothing nefarious there.  But why not just email him and ask.
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LowIQinvestor

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Re: SYTE - Sitestar
« Reply #431 on: April 11, 2018, 11:30:19 AM »
Can anyone explain Kiel's job at Santa Monica Partners? thx!

"Includes 85,413,593 shares owned by Arquitos Capital Partners, LP. Arquitos Capital Management LLC acts as the General Partner to Arquitos Capital Partners, LP. Steven L. Kiel is the Managing Member of Arquitos Capital Management LLC and is deemed to have beneficial ownership over the Common Stock owned. Also includes 41,666,667 shares owned by Santa Monica Partners, L.P. SMP Asset Management, LLC is the general partner of Santa Monica Partners, L.P. and Steven L. Kiel is an advisor of SMP Asset Management, LLC and is deemed to have beneficial ownership over the Issuer's Common Stock owned by Santa Monica Partners, L.P. "

Yes...nothing nefarious there.  But why not just email him and ask.


Was not implying anything nefarious. I just didn't know about this other job and what it entails exactly...
« Last Edit: April 11, 2018, 11:33:23 AM by LowIQinvestor »

slkiel

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Re: SYTE - Sitestar
« Reply #432 on: April 12, 2018, 06:45:39 AM »
Hey guys- some answers to a few of your questions. We always go more in-depth at our shareholder meeting as well. I invite you attend (even if you are not currently a shareholder). Details are here: http://sitestarcorp.com/annual-meeting/

Name change: We have always wanted the subsidiaries to be the stars. The corporate office primarily does capital allocation, so the brands should be at the subsidiary level. Any investor who wants to know about Enterprise Diversified (ENDI) should follow our SEC filings. We will likely refer to the company as ENDI. If they want to learn about our subsidiaries they should keep an alert for Willow Oak, Mt Melrose, etc.

Santa Monica Partners reference: I was an advisor for the fund for a several years and they are a significant investor in the company. That entailed suggesting stock ideas and reviewing the holdings in their portfolio. I am no longer an advisor, but was for most of last year. The language in the proxy probably should have said that I was an advisor at the time of the issuance as opposed to the insinuation that I am currently an advisor.

Management compensation: The short answer here is that shareholders get an excellent deal. We have a COO, a chief of staff, a general counsel, a controller, and a back office admin at the corporate level in addition to me. Each of them deserves much, much higher pay. They put in far more work than peers at other companies and do a hyper-efficient job. They work for us because they enjoy the culture, autonomy, and opportunity to be involved in creating a special company. I recommend coming to the annual meeting and talking to them. They would be happy to share their opinions. As for my pay and the idea of double-dipping. I don't fully understand this argument. Our COO and general counsel also own a significant amount of shares in the company. Should they not also get a salary? I urge you to read my employment agreement (and Jeff's and Tabitha's) to see how we think about things. Objectively my salary and bonus are significantly less than the value I provide to the company and significantly less than anyone else would accept to run the company. We have set this up as fair as possible, and I would urge other companies to follow our compensation model.

The capital raise: I have written about this several times (including on this thread) and we talked extensively about it at the annual meeting. You can get additional background in last year's shareholder letter below. To be clear, we could not do a rights offering due to issues with the SEC and DTCC. It took several years to clear that up. However, anyone who had interest in participating was aware of the private placement. One of the reasons we did it in several phases was to make sure everyone knew about it. Even with that, we were unable to get it fully subscribed.

As for the price, 8 cents was not market value and I am not sure why that keeps being referenced. Something like $20,000 dollars of shares traded hands at that price. We were trying to raise more than $10 million to recapitalize the company. Even so, there was not nearly enough interest at 5 cents. I ended up having to backstop it at a far higher level than I wanted to.

The 5 cent price was set at book value. The company had not traded above book value for something like five years before. It often traded for less than half of book value even after our proxy group announced our intention to attempt to get board seats. There were restrictions with the private placement, but that was not the primary reason for the 5 cent price. The price was set internally when shares traded near book value.

If you are not experienced in the nano-cap world, you may not fully appreciate that the last trading price in an illiquid penny stock is not true value. If we could have raised money at 8 cents or 7 cents or 6 cents, we would have. We would have loved for the company to have another $6m in cash!

http://sitestarcorp.com/wp-content/uploads/2017/03/032417-Shareholder-Letter-1.pdf

I understand that Neal feels wronged in some way. I am not sure what we could have done differently to satisfy him. He had the opportunity to participate in the private placement and we would have loved for him to do so. We were talking about a company with about $4 million in book value at the time that files with the SEC. That size makes absolutely no sense to be public. If we did not do the capital raise we would have delisted and the share price would be significantly lower than today. We chose to attempt to grow the company and remain listed. 

I don't want to make it a habit to respond here, but I do want to clear up some of the ongoing misconceptions. We are doing the best we can to build a great company. We have a lot of great people involved. For others who have roles like this, they know it is far from easy. On the whole our results have been astronomically good. Have we been perfect? No chance, but we have always put the shareholders first and have acted ruthlessly on their behalf.

Don't attempt to group us ethically into the company who is named after their CEO (I won't name it here). Our people deserve much, much better than that. If you take the time to meet us, that will be painfully obvious. We would not have attracted the talent that we have if we act like that other company.
 
I hope you take the opportunity to meet us either at our annual meeting or at Berkshire: https://medium.com/@WOAM/investor-day-presentation-may-5-2018-28b71e38ca3a


 


roark33

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Re: SYTE - Sitestar
« Reply #433 on: April 12, 2018, 07:36:33 AM »
One question I have around the discussion of trading price of an illiquid stock.  You seem to indicate that the stock market price is not indicative of the actual value.  I believe you use the stock market value to calculate your Fund's investment results and are compensated on that basis.  Do you think this is the appropriate method? 

slkiel

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Re: SYTE - Sitestar
« Reply #434 on: April 12, 2018, 07:49:32 AM »
The SYTE position was marked at an illiquidity discount in my fund. Now that it is more liquid, it is not. The August 31, 2016 mark for the fund, for example, was 5.2 cents. The valuation terms with the hedge fund are governed by its LPA. An individual investor's situation is going to be different. For those who follow my fund, you will see that about half of the gains in 2017 were from the SYTE position. I first owned shares in the company in 2013 and did not have material gains in the position until 2017. 
« Last Edit: April 12, 2018, 07:55:54 AM by slkiel »

InelegantInvestor

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Re: SYTE - Sitestar
« Reply #435 on: April 12, 2018, 09:55:59 AM »

Management compensation: The short answer here is that shareholders get an excellent deal. We have a COO, a chief of staff, a general counsel, a controller, and a back office admin at the corporate level in addition to me. Each of them deserves much, much higher pay. They put in far more work than peers at other companies and do a hyper-efficient job. They work for us because they enjoy the culture, autonomy, and opportunity to be involved in creating a special company. I recommend coming to the annual meeting and talking to them. They would be happy to share their opinions. As for my pay and the idea of double-dipping. I don't fully understand this argument. Our COO and general counsel also own a significant amount of shares in the company. Should they not also get a salary? I urge you to read my employment agreement (and Jeff's and Tabitha's) to see how we think about things. Objectively my salary and bonus are significantly less than the value I provide to the company and significantly less than anyone else would accept to run the company. We have set this up as fair as possible, and I would urge other companies to follow our compensation model.

The capital raise: I have written about this several times (including on this thread) and we talked extensively about it at the annual meeting. You can get additional background in last year's shareholder letter below. To be clear, we could not do a rights offering due to issues with the SEC and DTCC. It took several years to clear that up. However, anyone who had interest in participating was aware of the private placement. One of the reasons we did it in several phases was to make sure everyone knew about it. Even with that, we were unable to get it fully subscribed.

As for the price, 8 cents was not market value and I am not sure why that keeps being referenced. Something like $20,000 dollars of shares traded hands at that price. We were trying to raise more than $10 million to recapitalize the company. Even so, there was not nearly enough interest at 5 cents. I ended up having to backstop it at a far higher level than I wanted to.

The 5 cent price was set at book value. The company had not traded above book value for something like five years before. It often traded for less than half of book value even after our proxy group announced our intention to attempt to get board seats. There were restrictions with the private placement, but that was not the primary reason for the 5 cent price. The price was set internally when shares traded near book value.

If you are not experienced in the nano-cap world, you may not fully appreciate that the last trading price in an illiquid penny stock is not true value. If we could have raised money at 8 cents or 7 cents or 6 cents, we would have. We would have loved for the company to have another $6m in cash!

http://sitestarcorp.com/wp-content/uploads/2017/03/032417-Shareholder-Letter-1.pdf

I understand that Neal feels wronged in some way. I am not sure what we could have done differently to satisfy him. He had the opportunity to participate in the private placement and we would have loved for him to do so. We were talking about a company with about $4 million in book value at the time that files with the SEC. That size makes absolutely no sense to be public. If we did not do the capital raise we would have delisted and the share price would be significantly lower than today. We chose to attempt to grow the company and remain listed. 

I don't want to make it a habit to respond here, but I do want to clear up some of the ongoing misconceptions. We are doing the best we can to build a great company. We have a lot of great people involved. For others who have roles like this, they know it is far from easy. On the whole our results have been astronomically good. Have we been perfect? No chance, but we have always put the shareholders first and have acted ruthlessly on their behalf.

Don't attempt to group us ethically into the company who is named after their CEO (I won't name it here). Our people deserve much, much better than that. If you take the time to meet us, that will be painfully obvious. We would not have attracted the talent that we have if we act like that other company.
 
I hope you take the opportunity to meet us either at our annual meeting or at Berkshire: https://medium.com/@WOAM/investor-day-presentation-may-5-2018-28b71e38ca3a

Again, I really don't want to get into a back and forth, but I feel I need to respond to what you have said. I do appreciate your making the effort to comment, even though we disagree markedly on a number of points.

First, regarding double dipping. You are paid, I presume, by your fund, to manage assets, and on the performance of those assets. You have invested a significant amount of your fund in Sitestar. You are paid by Sitestar a second time to manage those same assets, and are again compensated on their performance. Aside from that, there is a conflict in deciding whether to make investments at your fund or in this captive vehicle.

Contrary to your claim, I was not aware of the first private placement prior to its execution, nor do I think many were. That placement gave you majority control of the company without paying a control premium and without ever facing a shareholder vote(your prior claim that the support you received in the settlement from the prior CEO constituted a shareholder vote notwithstanding). I held >2% of outstanding shares prior to the dilution. You and other directors were well aware of this. At no time was I made aware of an opportunity to participate in a private placement by any of you.

I would agree that a company with $4 million in book value should have not have been public. Of course, the company had been public at that size for years. You created a false sense of urgency that demanded an immediate infusion of capital that allowed you to take control without a shareholder vote. I would have happily taken the time to meet you, as you suggest, prior to you embarking on this path. However at the time you asked that you not be contacted(in your initial letter) and you ignored or rejected multiple attempts to meet or talk. The first opportunity to meet came at the shareholder meeting after you had already given yourself a majority stake and my voice no longer had any weight to it.

Your argument about price and book value holds little weight as well. Yes, market price in an illiquid security has low correlation to value(which is one reason we all like to work in this space). Yet you trumpet the share price increase in your recent letter, and even in this comment when you refer  to your results as "astronomically good". As the main purchaser of the private placements, you could have chosen to pay a higher price- as the BOMN guys just did in their recent placement at well above book, but you did not. It is hard to maintain that market forces were at work when it was your own agency- on both sides of the transaction- that set the price.

The jury is out on your operating results. I think you would agree that HVAC is looking like a poor investment at present. Willow Oak looks better, but I don't know how it looks in a down market.  I think you are a smart guy and a reasonably talented investor, but your overconfidence has led you to be blind to how your actions appear to other shareholders. I was specifically not comparing you to Biglari, for example, who I think is pure malevolence.

I am unable to attend your annual meeting, but would be willing to meet with you or speak with you in another venue, should you desire.


Tim Eriksen

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Re: SYTE - Sitestar
« Reply #436 on: April 12, 2018, 10:41:15 AM »

First, regarding double dipping. You are paid, I presume, by your fund, to manage assets, and on the performance of those assets. You have invested a significant amount of your fund in Sitestar. You are paid by Sitestar a second time to manage those same assets, and are again compensated on their performance. Aside from that, there is a conflict in deciding whether to make investments at your fund or in this captive vehicle.


I am not trying to wade into your discussion with Steve, or defend him.  I may have a blind spot to this since I am in a similar situation, but I don't agree with the premise that he is managing the same assets and that it is therefore double dipping.  Clearly there is an overlap.  My fund owns 7% of Solitron. Steve's fund owns I believe 27% of Sitestar.  A company needs a CEO.  Should the fund manager do the work for nothing?  It is work, and it is additional work that someone else would likely charge more for.  In the end, the company is saving money and thus it is a benefit to both shareholders and fund investors.  I don't get why shareholders who are not fund investors should get a CEO for free.  They don't really seem to have legitimate argument that they are being taken advantage of.   

I know some managers choose to credit CEO and even Board fees back to their funds, and some don't.  There is no legal or moral obligation to do so.  Regulators I interact with care that whatever is chosen is fully disclosed along with any potential conflicts of interest.  They also care if it takes too much time away from managing one's fund.

CorpRaider

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Re: SYTE - Sitestar
« Reply #437 on: April 12, 2018, 10:48:33 AM »
Seems reasonable.  Speaking generally, if the shares of the related entity were a large enough percentage of the fund maybe the LPs would have a beef, but I don't see how the shareholders of the public entity have reason to complain simply because of the structure.
« Last Edit: April 12, 2018, 10:50:20 AM by CorpRaider »

InelegantInvestor

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Re: SYTE - Sitestar
« Reply #438 on: April 12, 2018, 10:56:11 AM »
Seems reasonable.  Speaking generally, if the shares of the related entity were a large enough percentage of the fund maybe the LPs would have a beef, but I don't see how the shareholders of the public entity have reason to complain simply because of the structure.
When an investment idea comes to a manager with two roles(fund manager and CEO) how does he decide whether to do it in his fund or do it in the corporation?
OTOH, if he does it in the corporation, he gets paid twice for performance. OTOH, if he does it in the fund, he has a potential problem in his role as fiduciary of the corporation. It's an untenable situation, and getting paid in both for being a capital allocator exacerbates it.  It makes me incredibly uncomfortable to pay a CEO whose primary interest in a deal may not be for the company.


CorpRaider

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Re: SYTE - Sitestar
« Reply #439 on: April 12, 2018, 11:07:44 AM »
Yeah, it seems there are potential conflicts to be navigated (as there are with the BOMN guys, and others).  My response was just addressing the "double compensation" issue as discussed in the post prior to mine. 

Also, post more on your blog.   ;D

« Last Edit: April 12, 2018, 11:16:04 AM by CorpRaider »