DALLAS–(BUSINESS WIRE)–Alta Fox Capital Management, LLC (together with its affiliates, “Alta Fox” or “we”), the largest shareholder of Daktronics, Inc. (NASDAQ: DAKT) (“Daktronics” or the “Company”) based on its beneficial ownership interest on a fully converted basis of 11.7% of the Company’s outstanding shares, today announced that it has filed a lawsuit against the Company and Chairman, President and Chief Executive Officer Reece A. Kurtenbach in the United States District Court for the District of South Dakota.

The suit is in response to Daktronics’ recently called Special Meeting of Shareholders (the “Special Meeting”) to reincorporate from South Dakota to Delaware (the “Reincorporation Proposal”). Alta Fox has also filed a preliminary proxy statement (reviewable here) to solicit shareholder votes AGAINST the Reincorporation Proposal. Tellingly, the Company’s preliminary proxy statement reveals that the principal reason for reincorporation is to eliminate cumulative voting, a statutory right for all shareholders of companies incorporated in South Dakota. The Reincorporation Proposal appears to be in response to Alta Fox’s publicly disclosed plan to nominate highly qualified candidates for election to the Board of Directors (the “Board”).¹ In our view, the Board’s objective is to use a change in the Company’s jurisdiction to eliminate shareholders’ long-standing rights under South Dakota law and prevent the Board from being held to account.

Alta Fox believes the timing of the Reincorporation Proposal reveals that the Board’s intent is to weaken shareholder rights, as evidenced by the following facts:

• Daktronics only called the Special Meeting to put forth the Reincorporation Proposal after Alta Fox publicly stated our plan to nominate new director candidates for election and after we reminded the Company of our unassailable right to call a special meeting. yyyyyyyDaktronics, which has been a South Dakota company since its founding in 1968, could have chosen to reincorporate at any point over the past 57 years. Only now, in response to a major shareholder challenge, has the Board decided this is a priority – likely because the Board knows that with cumulative voting, Alta Fox would have an even greater chance of successfully electing new directors.

• The Company’s Reincorporation Proposal is just the latest tactic in its lengthy history of rejecting governance best practices. In defiance of shareholder calls for improvement, the Board retains staggered director elections; a poison pill, which the Board enacted and subsequently strengthened without a shareholder vote; and a combined Chair and CEO role. More than two years after the Company’s disclosure of a going concern notice from its auditors, the Board’s Audit Committee still includes four directors who oversaw the poor financial planning and inadequate internal controls that led to the notice.⁴ Under the Board’s supervision, the Company suffers from a nepotistic culture led by an underperforming second-generation CEO, one of three named executive officers from the same family.

• The Special Meeting agenda does not include proposals that would truly modernize Daktronics’ governance. Although the Board had the option of putting forth a proposal to immediately declassify itself or redeem its unilaterally adopted poison pill, it did not. Daktronics’ promises to finally adopt proxy access and a majority voting standard for director elections are mere distractions from the Company’s anti-shareholder agenda – both can be easily implemented without fleeing South Dakota for Delaware.

• There is no urgency to the Company’s Reincorporation Proposal, nor any reason for shareholders to endure the expense of this special meeting. The Board has the option of including the Reincorporation Proposal on the agenda for Daktronics’ next annual meeting. In calling this Special Meeting, the Board has demonstrated a concerning level of comfort wasting Company resources to shield itself from the consequences of its mistakes.

In its misguided attempts to defend itself, the Board chose to mislead investors about the value of Alta Fox’s convertible securities and publicly smear its largest shareholder – the very benefactor that provided critical financing in the Company’s time of need.⁵ Based on feedback and public statements from other shareholders, it is clear that there are widely held concerns regarding the Company’s long-term underperformance, capital allocation blunders and history of shareholder-unfriendly governance.⁶ As we have said previously, we are supportive of actions that actually enhance Daktronics’ governance.⁷ Alta Fox is committed tocontinuing to push for the governance reforms that Daktronics desperately needs and ensuring that the rights of all shareholders are upheld.

If Alta Fox prevails in our lawsuit, or if Daktronics rescinds the Reincorporation Proposal, we plan to immediately call a special meeting at which we will seek shareholder approval to:

1. Immediately declassify the Board, so that all directors stand for election annually and are accountable to shareholders.
2. Remove the Company’s poison pill, which unfairly restricts shareholder rights.
3. Elect independent, highly qualified directors who will ensure that Daktronics is managed in the best interests of all shareholders – not just the Kurtenbach family.

***

Alta Fox encourages Daktronics stakeholders to visit www.FixDaktronics.com to review our presentation exposing how poor governance and a private family business mentality have driven massive underperformance for shareholders.

About Alta Fox

Founded in 2018 by Connor Haley, Alta Fox is a Texas-based alternative asset management firm that employs a long-term focused investment strategy to pursue exceptional risk-adjusted returns for a diverse group of institutions and qualified individual clients. Alta Fox focuses on identifying often overlooked and under-the-radar opportunities across asset classes, market capitalization ranges and sectors. Learn more by visiting www.AltaFoxCapital.com.