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ACTIVISM

Lemelson Capital Wants to Toss Geospace Execs
The activist paints a grim picture of Geospace's management and performance.

By Paul Springer

 Updated on May 18, 2018, 04:50 PM ET

A feud is escalating between Geospace Technologies Corp. and activist investor Lemelson Capital Management LLC, which says the
company is poorly managed and wants to see key executives shown the door.

Houston-based Geospace provides seismic detection devices to oil explorers, and it has also been expanding its non-seismic product
lines.

The company's seismic detection devices for land and marine use provide data to oil explorers that helps to locate oil and gas reserves
and to understand the geological features of the exploration area.

Such technology used to rely on cables, but Geospace products are wireless. Product lines include equipment for use on land, the sea
floor and in boreholes. The company has also been expanding into non-seismic technology, including printing and industrial
manufacturing.
Like many other funds, Lemelson Capital focuses on value and special situations, but it is one of the few that builds ethics into its
decisions.

"Lemelson Capital Management has advocated a Christian philosophy of investment based on a belief that investments selected on
strict value criteria mitigate risk and often lead to better than average returns, a cornerstone of good stewardship," according to its
website.

Fr. Emmanuel Lemelson is a Greek Orthodox priest and the CIO of Lemelson, which is the general partner of the Amovna Fund LP.

Marlborough, Mass.-based Lemelson Capital disclosed in a May 15 regulatory filing that the fund is no longer a passive investor. The
fund controls 9.3% of Geospace's shares.

The investor has a variety of issues with the company's performance, and the recent regulatory filing refers to a pointed Feb. 9 letter to
management. The letter has not received a response, at least in regulatory filings or news statements.

"As a result of the prior letter, the investment intent had changed from a passive investor to attempting to influence a change in the
direction of the Company," the recent filing says.

The Feb. 9 letter made no bones about Lemelson Capital's criticism of the company.

"Lemelson Capital Management LLC, as the beneficial owner of approximately 10 percent of Geospace Technologies outstanding
shares, is calling for the immediate removal, for cause, of Mr. Rick Wheeler, CEO and Mr. Tom McEntire, CFO," the letter said.

"In addition, Lemelson Capital Management LLC urges the board to contemporaneously explore a sale of the company."

The letter delineated specific performance measures behind its recommendation.

"As a direct result of the failed management of Mr. Wheeler and Mr. McEntire, the stock price of Geospace has recently hit a new 52-
week low, (plummeting nearly 90 percent since Mr. Wheeler took over as CEO in January 2014). This despite the extraordinary industry-
wide recovery in the oil and gas sector .... "

In addition to the performance issue, the fund also maintains that Geospace filed a misleading Form 8-K on Feb. 7, which the investor
alleges masked voting improprieties at the last Geospace annual meeting.

The letter also states that Geospace has lost contracts with significant players including Statoil (STO)—and lost them to an "obscure"
provider.

Geospace did not respond to inquiries from The Deal, but the company had already provided a rationale for its performance during its
May 4 earnings call.

During the call, management argued that the increase in oil prices led to increases in spending on production and decreases in spending
on exploration, which drives the company's revenues.

Management noted that while seismic equipment revenue had fallen since the last quarter, printing revenue was flat and industrial
manufacturing revenue had increased.

Wheeler stated that oil price increases have pushed many companies into cash flow positive territory.

"Nevertheless, there remains a hesitancy to increase spending, given the history of how costs have spiraled upwards in the past,"
Wheeler said.

"As the seismic market takes on recovery, we believe our support and dedication to our customers' needs for both new and existing
technological products favors us."

Geospace did not respond to inquiries. Lemelson Capital provided letters, a video and analytical information not available in Securities
and Exchange Commission filings.
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