<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. _____)
/x/ Filed by the Registrant
/ / Filed by a Party other than the Registrant
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
Rule 14a-6(e)(2))
/x/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Section 240.14a-11(c) or Section
240.14a-12
SCHMITT INDUSTRIES, INC.
---------------------------------------------------------------------------
(Name of Registrant as Specified In Its Charter)
---------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
/x/ $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction apples:
--------
(2) Aggregate number of securities to which transactions applies:
--------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
------------
(4) Proposed maximum aggregate value of transaction:
----------------------
(5) Total fee paid:
-------------------------------------------------------
/ / Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
----------------------------------------------
(2) Form, Schedule or Registration Statement No.:
-------------------------
(3) Filing Party:
---------------------------------------------------------
(4) Date Filed:
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<PAGE>
SCHMITT INDUSTRIES, INC.
2765 N.W. NICOLAI STREET
PORTLAND, OREGON 97210
-------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
October 25, 1996
-------------------------
TO THE SHAREHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders of SCHMITT
INDUSTRIES, INC., an Oregon corporation (the "Company"), will be held on Friday,
October 25, 1996 at 3:00 p.m., local time, at 2765 N.W. Nicolai Street,
Portland, Oregon 97210 for the following purposes:
1. To elect directors to serve one-year terms and until their successors
are elected.
2. To approve the Company's Stock Option Plan.
3. To ratify the appointment of Moss Adams LLP as independent auditors
for the Company for the fiscal year ending May 31, 1997.
4. To transact such other business as may properly come before the
meeting or any postponement or adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only shareholders of record at the close of business on September 9, 1996
are entitled to notice of and to vote at the Annual Meeting and any adjournments
thereof.
All shareholders are cordially invited to attend the Annual Meeting.
However, to assure your representation at the meeting, you are urged to mark,
sign, date and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any shareholder attending
the meeting may vote in person even if he or she returned a proxy.
By Order of the Board of Directors
Wayne A. Case
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Portland, Oregon
September 20, 1996
IMPORTANT
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, PLEASE SIGN AND RETURN THE
ENCLOSED PROXY CARD AS PROMPTLY AS POSSIBLE IN THE ENCLOSED POSTAGE-PREPAID
ENVELOPE. IF A QUORUM IS NOT REACHED, THE COMPANY WILL HAVE THE ADDED EXPENSE
OF REISSUING THESE PROXY MATERIALS. IF YOU ATTEND THE MEETING, AND SO DESIRE,
YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.
<PAGE>
SCHMITT INDUSTRIES, INC.
2765 N.W. NICOLAI STREET
PORTLAND, OREGON 97210
(503) 227-7908
-------------------------
PROXY STATEMENT
-------------------------
INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of the Board of Directors of
Schmitt Industries, Inc. (the "Company") for use at the Annual Meeting of
Shareholders to be held Friday, October 25, 1996, at 3:00 p.m., local time, or
at any postponement or adjournment thereof (the "Meeting"), for the purposes set
forth herein and in the accompanying Notice of Annual Meeting of Shareholders.
The Meeting will be held at 2765 N.W. Nicolai Street, Portland, Oregon 97210
(telephone number (503) 227-7908).
These proxy solicitation materials are being mailed on or about September
20, 1996 to all shareholders entitled to vote at the Meeting.
RECORD DATE
Shareholders of record of the Company's Common Stock at the close of
business on September 9, 1996 are entitled to notice of, and to vote at, the
Meeting. On September 9, 1996, 6,989,389 shares of the Company's Common Stock
were issued and outstanding.
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before its use by delivering to the Company a written
notice of revocation or a duly executed proxy bearing a later date or by
attending the meeting and voting in person.
VOTING
Holders of shares of Common Stock are entitled to one vote per share on all
matters. One-third of the shares issued and outstanding as of September 9, 1996
must be present in person or represented by proxy at the Meeting for the
transaction of business. Nominees for election of directors are elected by
plurality vote of all votes cast at the Meeting. Ratification of Moss Adams LLP
as the independent public accountants and approval of the Stock Option Plan
require the affirmative vote of a majority of the shares present at the Meeting
in person or by proxy and entitled to vote. Abstentions and broker non-votes
are counted for purposes of determining whether a quorum exists at the Meeting.
Abstentions and
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broker non-votes are not counted and have no effect on the determination of
whether a plurality exists with respect to a given nominee but do have the
effect of a "no" vote in determining whether other proposals, including
ratification of appointment of Moss Adams LLP and approval of the Stock Option
Plan, are approved.
SOLICITATION
The cost of soliciting proxies will be borne by the Company. In addition
to use of the mails, proxies may be solicited personally or by telephone by
directors, officers and employees of the Company, who will not be specially
compensated for such activities. Such solicitations may be made personally, or
by mail, facsimile, telephone, telegraph or messenger. The Company will also
request persons, firms and companies holding shares in their names or in the
name of their nominees, which are beneficially owned by others, to send proxy
materials to and obtain proxies from such beneficial owners. The Company will
reimburse such persons for their reasonable expenses incurred in that
connection.
DEADLINE FOR RECEIPT OF SHAREHOLDER PROPOSALS FOR 1997 ANNUAL MEETING
Proposals of shareholders that are intended to be presented by such
shareholders at the Company's 1997 Annual Meeting must be received by the
Company no later than May 23, 1997 in order that such proposals may be included
in the proxy statement and form of proxy relating to that meeting.
ELECTION OF DIRECTORS
The Company's Bylaws provide that the Company shall not have less than two
nor more than nine directors, with the exact number set by the Board of
Directors. The size of the Board of Directors is currently set at six
directors.
At the Meeting, six directors will be elected, each to serve for a one-year
term until the 1997 Annual Meeting and until their successors are elected and
qualified. The nominees are Maynard E. Brown, Wayne A. Case, David L. Dotlich,
David M. Hudson, Trevor Nelson and John A. Rupp (the "Nominees"), all of whom
are currently members of the Board of Directors of the Company. The persons
named on the enclosed proxy (the proxy holders) will vote for election of the
Nominees unless you have withheld authority for them to do so on your proxy
card. In the unanticipated event that a Nominee is unable or declines for good
cause to serve as a director at the time of the Meeting, the proxies will be
voted for any nominee named by the current Board of Directors to fill the
vacancy. As of the date of this Proxy Statement, the Board of Directors is not
aware of any Nominee who is unable and/or will decline to serve as a director.
There is no cumulative voting for election of directors.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR
THE ELECTION OF ITS NOMINEES FOR DIRECTOR.
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The Company's directors and executive officers are as follows:
NAME AGE POSITION
- ------------- ----- --------------------------------
Wayne A. Case 56 Chairman/President/CEO, Director
David W. Case 33 Vice President of Operations
Annie Windsor 53 Chief Financial Officer
Linda M. Case 51 Secretary
Maynard E. Brown 46 Director
David L. Dotlich 49 Director
David M. Hudson 44 Director
Trevor Nelson 34 Director
John A. Rupp 56 Director
WAYNE A. CASE has been Chairman of the Board, President and Chief Executive
Officer of the Company since 1986. Mr. Case holds a Bachelor of Science degree
in Business and Economics from Linfield College and a Master of Business
Administration degree from the University of Portland. In addition to
overseeing the day-to-day operations of the Company, he is responsible for
international marketing operations. Mr. Case is married to Linda M. Case and is
the father of David W. Case.
DAVID W. CASE has been Vice President of Operations of the Company since
1993 and before then was Production Manager. Mr. Case holds a Bachelor of Arts
degree in Engineering and Business Administration from the University of Oregon.
He has been responsible for many of the design features of the SBS Dynamic
Balance System. His duties include manufacturing, engineering and quality
assurance. Mr. Case is the son of Wayne A. Case.
ANNIE WINDSOR has been Chief Financial Officer of the Company since 1993
and before then acted as Accounting Manager. Ms. Windsor holds a Bachelor of
Arts degree in psychology from Coe College in Cedar Rapids, Iowa, and a Master
of Arts degree from Southern Illinois University. Her duties include being
Chief Financial Officer and creating and maintaining a computerized inventory
management and accounting system covering all aspects of the Company's business.
LINDA M. CASE has been Secretary of the Company since 1994 and before then
was Office Manager. Her duties include investor relations, office management,
purchasing and inventory management. Ms. Case holds a B.A. degree in sociology
and psychology from Linfield College in McMinnville, Oregon. Ms. Case is
married to Wayne A. Case.
MAYNARD E. BROWN, a director since 1992, resides in British Columbia,
Canada. Since November 1993, Mr. Brown has been the senior partner of Brown
McCue of Vancouver, British Columbia, which firm specializes in advising
publicly held corporations in securities and related matters. Brown McCue acts
as the Company's Canadian counsel. Prior to November 1993, he was a sole
practitioner in Vancouver. Mr. Brown has a Bachelor of Law degree from
Dalhousie University in Halifax, Canada.
DAVID L. DOTLICH, a director since August 1996, is a member of the faculty
of the University of Michigan Business School, where he also serves as Executive
Director of the Michigan Human Resource Partnership, and on the graduate faculty
of the University of Minnesota. He is a consultant to top management of large
corporations, including four Fortune 500 companies, specializing in corporate
transformation and senior leadership development. Until 1992, he was Executive
Vice President of
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Groupe Bull, a computer manufacturer headquartered in Paris. Mr. Dotlich
received a B.A. degree from the University of Illinois, an M.A. degree from the
University of Witwaterstand in Johannesburg, South Africa, and a Ph.D. in
organizational psychology and management from the University of Minnesota.
DAVID M. HUDSON, a director since August 1996, is founder and President of
Coldstream Holdings, Inc. and Coldstream Capital Management, Inc., a privately
held registered investment advisory firm which provides advisory services to
individuals, institutions, trusts and endowments and advises clients on a
variety of corporate finance matters. Mr. Hudson holds a B.S. degree in
mathematics from the University of Oregon where he also pursued post-graduate
studies in economics.
TREVOR NELSON, a director since 1989, resides in British Columbia, Canada.
Since 1988, Mr. Nelson has been a financial planner for the Stewart Thomas Group
in Vancouver, British Columbia. He holds a Bachelor of Commerce degree with an
emphasis on accounting management and information systems and is a Chartered
Accountant.
JOHN A. RUPP, a director since August 1996, is Vice President of Beauty
Management, Inc., which owns and manages beauty salons, and manages his personal
investments. Mr. Rupp holds a B.A. in economics from Harvard University.
BOARD MEETINGS, NOMINATIONS BY SHAREHOLDERS AND COMMITTEES
The Board of Directors of the Company held only one meeting during the
fiscal year ended May 31, 1996.
The Board of Directors acts as a nominating committee for selecting
nominees for election as directors. The Company's bylaws also permit
shareholders to make nominations for the election of directors, if such
nominations are made pursuant to timely notice in writing to the Company's
Secretary. To be timely, notice must be delivered to, or mailed to and received
at, the principal executive offices of the Company not less than 60 days nor
more than 90 days prior to the date of the meeting, provided that at least 60
days' notice or prior public disclosure of the date of the meeting is given or
made to shareholders. If less than 60 days' notice or prior public disclosure
of the date of the meeting is given or made to shareholders, notice by the
shareholder to be timely must be received by the Company not later than the
close of business on the tenth day following the date on which such notice of
the meeting was mailed or such public disclosure was made. Public disclosure of
the date of the Meeting was made by the issuance of a press release on September
20, 1996. A shareholder's notice of nomination must also set forth certain
information specified in Section 2.3.2 of the Company's restated bylaws
concerning each person the shareholder proposes to nominate for election and the
nominating shareholder.
The Company's Board of Directors currently has an Audit Committee, a
Compensation Committee, and an Option Committee. The Audit Committee recommends
engagement of the Company's independent certified public accountants, reviews
the scope of the audit, considers comments made by the independent certified
public accountants with respect to accounting procedures and internal controls
and the consideration given thereto by management, and reviews internal
accounting procedures and controls with the Company's financial and accounting
staff; the Audit Committee, which currently consists of Maynard E. Brown, Wayne
A. Case and Trevor Nelson, held one meeting in Fiscal 1996. The Compensation
Committee reviews executive compensation and establishes executive compensation
levels; the Compensation Committee, which currently consists of Messrs. Brown,
Case and Nelson, met
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once in Fiscal 1996. The Option Committee administers the Company's Stock
Option Plan and currently consists of Messrs. Brown and Nelson; during Fiscal
1996, the Option Committee held one meeting.
During Fiscal 1996, no director attended fewer than 75% of the aggregate of
(i) the total number of meetings of the Board of Directors and (ii) the total
number of meetings of all committees of the Board of Directors on which such
director served (during the period he served).
DIRECTOR COMPENSATION
The Company has no formal plan for compensating its directors for their
service in their capacity as directors. Directors are entitled to reimbursement
for reasonable travel and other out-of-pocket expenses incurred in connection
with attendance at meetings of the Board of Directors. The Board of Directors
may award special remuneration to any director undertaking any special services
on behalf of the Company other than services ordinarily required of a director.
During Fiscal 1996, no director received any compensation for his services as a
director, including committee participation and/or special assignments.
EXECUTIVE COMPENSATION
The following table sets forth, for each of the three years in the period
ended May 31, 1996, amounts of cash and certain other compensation paid by the
Company to Wayne A. Case, President and Chief Executive Officer (the "Named
Executive"). No other executive officer was paid salary and bonus in excess of
$100,000 in Fiscal 1996.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
------------------------------------------------------------
OTHER ANNUAL ALL OTHER
NAME/TITLE YEAR SALARY BONUS COMPENSATION COMPENSATION
- ---------------- -------- ----------- --------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
Wayne A. Case(1)
President/CEO 1996 $125,360 -- $ -- $ 7,146
1995 69,837 -- -- 6,981
1994(2) 61,741 -- 183,538 5,950
</TABLE>
- -----------------------
(1) During Fiscal 1995 and 1996, "Other Annual Compensation" included an
allocation for automobile use benefits. During Fiscal 1994, "Other Annual
Compensation" included $966 of automobile use benefits and $182,572 of net
market value of exercised stock options. "All Other Compensation" included
SEP/IRA and group insurance benefits, which are standardized and equal for
all salaried officers.
(2) Converted from Canadian to U.S. dollars at a conversion rate of U.S. $1.00
= CDN $1.381 (May 1994 average).
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AGGREGATED OPTION EXERCISES IN LAST
FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table provides information with respect to the Named
Executive concerning the exercise of options during the fiscal year ended May
31, 1996 and unexercised options held as of such date. No options were granted
to the Named Executive in Fiscal 1996.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
OPTIONS AT FY-END MONEY OPTIONS AT FY-END(1)
--------------------------- ------------------------------
SHARES
ACQUIRED ON VALUE
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------- ------------ ---------- ----------- ------------- ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Wayne A. Case 18,750 $ 37,500 293,250 -- $ 3,335,719 --
</TABLE>
- ----------------------------
(1) Amounts reflected are based upon the market value of the Common Stock as of
May 31, 1996 ($13.375) minus the exercise price ($2.00), multiplied by the
number of shares underlying the options.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION*
EXECUTIVE COMPENSATION PHILOSOPHY
The Compensation Committee of the Board of Directors, which is composed of
Maynard E. Brown, Wayne A. Case and Trevor Nelson, was established in August
1996 and met then for the first time. Prior to August 1996, the full Board of
Directors performed the functions of the Compensation Committee. The
Compensation Committee is responsible for setting and administering the policies
and programs that govern compensation for the executive officers of the Company.
The Board of Directors' Option Committee ("Option Committee"), composed of
Maynard E. Brown and Trevor Nelson, administers the Company's Stock Option Plan
(the "Option Plan"). The goal of the Company's executive compensation policy is
to ensure that an appropriate relationship exists between compensation and
corporate performance, while at the same time attracting, motivating and
retaining executive officers and other key employees.
The key components of the Company's compensation program are base salary
and potential long-term compensation through stock options. These components
are administered with the goal of providing total compensation that is
competitive in the marketplace, rewards successful financial performance and
aligns executive officers' interests with those of stockholders. The
Compensation Committee reviews executive compensation on an annual basis, or
more often if necessary, and determines, subject to the
- -----------------------
* The report of the Compensation Committee shall not be deemed incorporated
by reference by any general statement incorporating by reference this Proxy
Statement into any filing under either the Securities Act of 1933, as amended,
or the Securities Exchange Act of 1934, as amended (together, the "Acts"),
except to the extent that the Company specifically incorporates such report by
reference; and further, such report shall not otherwise be deemed filed under
the Acts.
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Board's approval, base salary for executive officers. The Option Committee
makes all decisions with respect to stock option grants.
EQUITY PARTICIPATION
The Company uses stock options granted under its Option Plan both to reward
past performance and to motivate future performance, especially long-term
performance. The Compensation Committee believes that through the use of stock
options, executive interests are directly tied to enhancing shareholder value.
STOCK OPTIONS
As of August 1, 1996, a total of 814,500 shares of Common Stock were
subject to outstanding options granted to employees. Wayne A. Case had options
to purchase 293,250 shares at an exercise price of CDN $2.67 per share, expiring
on February 4, 1999. David W. Case had options to purchase 237,500 shares at an
exercise price of CDN $1.96 per share, expiring on January 7, 1999. One other
employee had options to purchase 12,500 shares at an exercise price of CDN $1.96
per share, expiring on January 7, 1999. In addition, as of August 1, 1996,
options granted under the Option Plan to purchase a total of 271,250 shares of
Common Stock with exercise prices of $4.375, $5.50 and $9.75 per share, expiring
on January 12, 2006, March 11, 2006 and May 3, 2006, respectively, were
outstanding. These options were held by 28 executive officers and employees. A
maximum of 500,000 shares of the Company's Common Stock may be issued under the
Option Plan.
The stock options provide value to the recipients only when the market
price of the Company's Common Stock increases above the option grant price and
only as the shares vest and become exercisable. While option grants under the
Option Plan are made by the Option Committee, the Compensation Committee
considers these grants in making its cash compensation decisions.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Chief Executive Officer's compensation is set using the Compensation
Committee's general philosophy as described above. In Fiscal 1996, Wayne A.
Case received a base salary of $125,000. He received no stock option grants in
Fiscal 1996.
DEDUCTIBILITY OF EXECUTIVE COMPENSATION
The Compensation Committee has considered the impact of Section 162(m) of
the Internal Revenue Code adopted under the Omnibus Budget Reconciliation Act of
1993, which section disallows a deduction for any publicly held corporation for
individual compensation exceeding $1 million in any taxable year for the CEO and
the four other most highly compensated executive officers, unless such
compensation meets certain exceptions to the general rule. Compensation paid by
the Company to each
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of its executive officers in 1995 was well below $1 million, and therefore
Section 162(m) did not affect the tax deductions available to the Company. The
Committee will continue to monitor the applicability of the section to the
Company's compensation programs and will determine at a later date what actions,
if any, the Company should take to qualify for available tax deductions.
COMPENSATION COMMITTEE
Maynard E. Brown
Wayne A. Case
Trevor Nelson
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Since its formation in August 1996, the Compensation Committee has
consisted of Maynard E. Brown, Wayne A. Case and Trevor Nelson. Mr. Case is
President and Chief Executive Officer of the Company. Prior to August 1996, the
Board of Directors did not have a Compensation Committee; consequently, all
directors, including Mr. Case, participated in deliberations concerning
executive officer compensation. No member of the Compensation Committee or
executive officer of the Company has a relationship that would constitute an
interlocking relationship with executive officers or directors of another
entity.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of August 1, 1996 by (i) each person
who is known to the Company to own beneficially more than 5% of the Company's
outstanding Common Stock, (ii) each of the Company's directors and executive
officers, (iii) the Named Executive and (iv) all current directors and executive
officers as a group.
SHARES BENEFICIALLY OWNED(1)
------------------------------
DIRECTORS, NAMED EXECUTIVE
AND 5% SHAREHOLDERS NUMBER PERCENT
- ------------------------------------------------ ----------------- ----------
Wayne A. Case(2) 2,202,750(3) 30.3%
David W. Case(2) 402,500(4) 5.6%
Maynard E. Brown -- --
David L. Dotlich 14,500 *
David M. Hudson 87,500(5) 1.3%
Trevor Nelson -- --
John A. Rupp 227,200 3.3%
All directors and executive officers
as a group (nine persons) 2,944,250(6) 39.2%
- ----------------------
* Less than 1%.
(1) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the date hereof upon the
exercise of options. Each beneficial owner's percentage ownership is
determined by assuming that options that are held by such person (but not
those held by any other person) and that are exercisable within 60 days
from the date hereof have been exercised. Unless otherwise noted, the
Company believes that all persons named in the table have sole voting and
investment power with respect to all shares of Common Stock beneficially
owned by them.
(2) The address of the shareholder is care of Schmitt Industries, Inc., 2765
N.W. Nicolai Street, Portland, Oregon 97210.
(3) Includes 1,659,783 shares held as trustee of the Wayne A. Case Family Trust
with respect to which Mr. Case has sole voting and investment power and 750
shares held by Linda M. Case, Mr. Case's wife, as trustee for the Linda A.
Case Family Trust with respect to which Mrs. Case has sole voting and
investment power. Also includes 293,250 shares subject to options that are
currently exercisable.
(4) Includes 237,500 shares subject to options that are currently exercisable.
(5) Includes 77,500 shares held by a partnership, the general partner of which
is Coldstream Capital Management, Inc. of which Mr. Hudson is president and
a shareholder.
(6) Includes 530,750 shares subject to options that are currently exercisable.
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<PAGE>
CERTAIN TRANSACTIONS
The Company paid the law firm of Brown McCue, in which Maynard E. Brown, a
director of the Company, is a principal, a total of $20,981 in Fiscal 1995 and
$15,370 in Fiscal 1996 for legal services.
PERFORMANCE GRAPH
The following graph compares the yearly percentage change in the Company's
cumulative total shareholder return on its common stock with the cumulative
total return for the period from May 31, 1991 through May 31, 1996 of (i) the
Total Return Index of Nasdaq Stock Market--U.S. and (ii) the Pacific Stock
Exchange ("PSE") Technology Index. The PSE Technology Index represents 100
listed and over-the-counter technology stocks from 15 industries. The graph
assumes that on May 31, 1991, $100 was invested in the Common Stock of the
Company and in each of the comparative indices. The stock price performance on
the following graph is not necessarily indicative of future stock price
performance.
10
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[GRAPH]
<TABLE>
<CAPTION>
05/31/91 05/31/92 05/31/93 05/31/94 05/31/95 05/31/96
---------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Schmitt Industries, Inc.. . . . . . . . $ 100 $ 117 $ 233 $ 1,199 $ 1,079 $ 6,076
Nasdaq - US . . . . . . . . . . . . . . 100 117 141 149 177 257
PSE Technology Index. . . . . . . . . . 100 106 125 144 201 275
</TABLE>
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COMPLIANCE WITH SECTION 16(a) OF THE SECURITIES EXCHANGE ACT OF 1934
Under the securities laws of the United States, the Company's directors,
its officers and any persons holding more than 10% of the Company's Common Stock
are required to report their initial ownership to the Securities and Exchange
Commission ("SEC"). Specific filing deadlines of these reports have been
established, and the Company is required to disclose in this Proxy Statement any
failure to file by these dates during the fiscal year ended May 31, 1996. To
the best of the Company's knowledge, all of these filing requirements have been
satisfied. In making this statement, the Company has relied solely on written
representations of its directors, officers and 10% holders and copies of the
reports that they filed with the SEC.
APPROVAL OF STOCK OPTION PLAN
GENERAL
The Stock Option Plan (the "Plan") was adopted by the Board of Directors on
December 19, 1995 and amended and restated on August 27, 1996. At the Meeting,
the stockholders are being asked to approve the Plan as amended and restated.
As of August 1, 1996, options to purchase 23,750 shares of Common Stock had been
exercised, and options to purchase a total of 276,250 shares with exercise
prices of $4.375, $5.50 and $9.75 per share, expiring on January 12, 2006, March
11, 2006 and May 3, 2006, respectively, were outstanding. A total of 500,000
shares of Common Stock are covered by the Plan. The text of the Plan is
attached to this Proxy Statement as Appendix A. The following is a summary of
the Plan and should be read together with the full text of the Plan.
PURPOSE
The purpose of the Plan is to enhance the ability of the Company to
attract, motivate and retain directors, officers and other key employees of the
Company and selected non-employee agents, consultants, advisors, persons
involved in the sale or distribution of the Company's products and independent
contractors of the Company and to provide such personnel with additional
incentive to advance the interests of the Company.
ELIGIBILITY
Directors (including directors who are not employees), officers and other
key employees of the Company and selected non-employee agents, consultants,
advisors, persons involved in the sale or distribution of the Company's products
and independent contractors of the Company are eligible to receive options
pursuant to the terms of the Plan. The Company has not developed any
performance formulas or measurements for determining to whom it should grant
options.
STOCK OPTIONS
An option granted under the Plan may be either an incentive stock option
("ISO"), as defined in Section 422 of the Code, or a non-statutory stock option
("NSO"). ISOs may be granted only to employees of the Company and are subject
to the following limitations, in addition to restrictions applicable to all
stock options under the Plan:
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(1) An ISO may not be granted to an employee who at the time of grant owns
in excess of 10% of the outstanding Common Stock of the Company,
unless the exercise price under the option is at least 110% of the
fair market value of the stock subject to the option as of the date of
grant of the option and the option term is no more than five years.
(2) The aggregate fair market value (determined as of the time the option
is granted) of stock with respect to which ISOs are exercisable for
the first time by an optionee during any calendar year (under all
option plans of the Company) will not exceed $100,000.
Options that do not meet the above qualifications will be treated as NSOs.
EXERCISE OF OPTIONS; EXERCISE PRICE; VESTING
Options granted pursuant to the Plan will be evidenced by agreements in
such form as the administrator of the Plan (the "Plan Administrator") may from
time to time establish. Each option agreement will state the number of shares
covered thereby, the option price, and whether the option is an ISO or an NSO.
If the agreement provides that the option is an ISO, the option price will not
be less than 100% of the fair market value of such shares on the date the option
is granted.
No option shall be exercisable until it has vested. The Plan Administrator
has the power to set the vesting schedule for each option. Unless the option
agreement executed by the optionee expressly otherwise provides, the option
shall vest on a cumulative basis as to one-quarter of the total number of shares
covered thereby on each of the first, second, third and fourth anniversary dates
of the date of the grant of the option. No option shall be exercisable after
the expiration of 10 years from the date it is granted, except in the case of an
ISO granted to a 10% shareholder (in which event the option must be exercised
within five years). An ISO is not exercisable prior to the expiration of 12
months from the date it is granted.
To the extent the right to purchase shares has accrued under the option,
the option may be exercised from time to time by written notice to the Company,
stating the number of shares being purchased and accompanied by the payment in
full of the option price of such number of shares, such payment to be made in
cash or, upon approval of the Plan Administrator, by (i) delivering shares
previously held by the option holders, (ii) executing a promissory note in a
form approved by the Plan Administrator, (iii) directing the Company to withhold
shares otherwise issuable upon exercise of the option, or (iv) delivering an
irrevocable election to a broker directing the broker to use the proceeds of the
sale of the shares to pay the purchase price.
If any option expires or terminates before being exercised in full or in
part, the shares not acquired upon exercise of that option may be made subject
to additional options granted under the Plan.
DURATION OF OPTIONS
Vested options shall terminate, to the extent not previously exercised,
upon the occurrence of the first of the following events: (i) the expiration of
the option, as designated by the Plan Administrator; (ii) the date of an
optionee's termination of employment with the Company or any related corporation
for cause (as determined in the sole discretion of the Plan Administrator);
(iii) the expiration of 90 days from the date of an optionee's termination of
employment with the Company or any related corporation for any reason whatsoever
other than cause, death or disability unless the exercise period is extended by
the Plan Administrator until a date not later than the expiration date of the
option; or (iv) the expiration
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of one year from the date of death of the optionee or cessation of an optionee's
employment by reason of disability unless the exercise period is extended by the
Plan Administrator until a date not later than the expiration date of the
option. If an optionee's employment is terminated by death, any option held by
the optionee shall be exercisable only by the person or persons to whom such
optionee's rights under such option shall pass by the optionee's will or by the
laws of descent and distribution. For purposes of the Plan, unless otherwise
defined in the option agreement, "disability" shall mean any physical, mental or
other health condition that substantially impairs the optionee's ability to
perform his or her assigned duties for 120 days or more in any 240-day period or
that can be expected to result in death.
TRANSFERABILITY
Options shall not be transferred, assigned or pledged other than (i) by
will or by the applicable laws of descent and distribution or (ii) by gift to
members of the Optionee's family, including grandparents, parents, spouses,
siblings, children, grandchildren and great-grandchildren, or trusts for the
benefit of such family members, or by gift to charitable organizations.
DURATION OF THE PLAN AND AMENDMENT
Options may be granted under the Plan from time to time until December 19,
2005. The Board may at any time terminate or amend the Plan, provided that any
modification that materially increases the benefits accruing to participants or
the number of shares that may be issued under the Plan, or materially modifies
the requirements as to eligibility for participation in the Plan, will become
effective only upon approval of the holders of a majority of the securities of
the Company present, or represented, and entitled to vote at a meeting duly held
in accordance with the laws of the jurisdiction in which the Company is
incorporated.
The Plan provides that upon a merger, consolidation, acquisition of
property or stock, separation, reorganization or liquidation of the Company as a
result of which shareholders of the Company receive cash, stock or other
property, any option granted under the Plan shall terminate, but the optionee
shall have the right immediately prior to such event to exercise such option, in
whole or part, to the extent the vesting requirements set forth in his or her
option agreement have been satisfied, unless stated otherwise in his or her
option agreement. Upon such event, if the shareholders of the Company receive
capital stock of another corporation, all options granted under the Plan shall
be converted into options to purchase shares of such other corporation unless
the Company and the corporation issuing exchange shares determine in their sole
discretion that any or all such options shall not be converted but instead shall
terminate and the optionee shall have the right to exercise such option
immediately prior to consummation of the exchange. In the event of a "change in
control" of the Company, any options or portions of options outstanding as the
date of such event that are not yet fully vested shall become immediately
exercisable in full. "Change in control" is defined in the Plan as (i) an
extraordinary event, such as certain mergers or consolidations, a transfer of
substantially all of the Company's assets or adoption of a plan or proposal for
liquidation or dissolution of the Company, (ii) an acquisition by any person of
shares of common stock or securities convertible into common stock if after the
acquisition the person beneficially owned at least 20% of the combined voting
power of the Company's then outstanding securities or (iii) a change in the
Board of Director in which the current members of the Board (the "Continuing
Directors") cease to constitute at least a majority of the Board provided that
any person becoming a director whose nomination for election was approved by a
majority of the Continuing Directors (other than a nomination of an individual
who assumed office in connection with an actual threatened election contest
relating to the election of the directors of the Company, as such terms are used
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in Rule 14a-11 of Regulation 14A under the Exchange Act of 1934) shall be deemed
to be a Continuing Director.
ADMINISTRATION OF THE PLAN
The Plan is administered by the Plan Administrator, which is either the
Board or a committee appointed by the Board. The Plan is currently administered
by a committee of the Board of Directors, which consists of Maynard E. Brown and
Trevor Nelson.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary discusses certain of the federal income tax
consequences associated with (i) the grant of a stock option under the Plan,
(ii) the exercise of such option and (ii) the disposition of shares received
upon the exercise of an option. This description of tax consequences is based
upon present federal tax laws and regulations, but does not purport to be a
complete description of the federal income tax consequences applicable to an
optionee under the Plan.
NON-STATUTORY STOCK OPTIONS
The grant of an NSO (including any option exceeding the limitations on ISOs
described above) to an optionee will not be a taxable event so long as the
option does not have a readily ascertainable fair market value. Options granted
pursuant to the Plan should not have a readily ascertainable fair market value
because they are not actively traded on an established securities market, are
not transferable, are not immediately exercisable in full upon grant and have
more than a nominal exercise price. Accordingly, the optionee will not be
subject to any income tax consequences with respect to such option unless and
until the option is exercised.
Upon the exercise of an NSO, the optionee generally must recognize ordinary
compensation income equal to the "spread" between the exercise price and the
fair market value of the Common Stock on the date of exercise. However, if the
Common Stock received by the optionee is not vested (that is, the optionee's
right to enjoy the full benefits of ownership of the Common Stock is conditioned
on rendering further services or is subject to other restrictions that
constitute a substantial risk of forfeiture), then the optionee would not be
required to include such "spread" in income upon exercise, unless the optionee
elected to do so under the special, but somewhat complicated, rules of Section
83(b) of the Code. Shares purchased upon exercise of options granted under the
standard terms of the Plan would generally be deemed "vested."
The amount and character of any gain or loss realized on a subsequent
disposition of Common Stock by the optionee generally would depend on, among
other things, whether such disposition occurred before or after such Common
Stock vested, whether an election under Code Section 83(b) with respect to such
shares had been made, and the length of time such shares were held by the
employee.
INCENTIVE STOCK OPTIONS
There are no federal income tax consequences associated with the grant of
an ISO to an employee. However, in contrast to the exercise of an NSO, the
exercise of an ISO will not cause an employee to recognize taxable income for
regular income tax purposes (although the employee could be subject to an
alternative minimum tax liability as described below). If the employee holds
the shares acquired upon exercise of the ISO for a minimum of two years from the
date of the grant of the ISO, and
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for at least one year after exercise, any gain realized by the optionee on the
subsequent sale or exchange of such shares generally would be treated as
long-term capital gain. If the shares are sold or otherwise disposed of prior
to the expiration of such periods (a "disqualifying disposition"), then a
portion of any gain recognized by the employee which would otherwise be
characterized as capital gain would instead be taxable as ordinary compensation
income. The amount of such gain which would be characterized as ordinary income
would not exceed an amount equal to the excess of (i) the fair market value of
such shares as of the date the option was exercised over (ii) the amount paid
for such shares. Any loss recognized upon a taxable disposition of the shares
generally would be characterized as a capital loss.
Upon exercise of an ISO by an employee, the alternative minimum taxable
income of such employee must be determined as if such ISO were an NSO.
Accordingly, such employee will be required to include as alternative minimum
taxable income the excess (if any) of the value of the shares received upon
exercise as of the date such shares are vested over the amount paid for such
shares. Such employee would then be required to pay the greater of such
employee's regular or alternative minimum tax liability computed with respect to
such year.
WITHHOLDING TAXES
The Company may condition the exercise of any option under the Plan on the
receipt of an amount sufficient to pay, and will deduct from the compensation of
a holder of an option under the Plan, the amount of any tax required by any
governmental authority to be withheld and paid over by the Company to such
governmental authority for the account of such person with respect to such
options and the exercise thereof.
COMPENSATION DEDUCTION
To the extent compensation income is recognized by an optionee in
connection with the exercise of an NSO or a "disqualifying disposition" of stock
obtained upon exercise of an ISO, the Company generally would be entitled to a
matching compensation deduction (assuming the withholding requirements are
satisfied).
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Moss Adams LLP, independent auditors,
to audit the consolidated financial statements of the Company for the fiscal
year ending May 31, 1997, and recommends that shareholders vote for ratification
of such appointment. In the event of a negative vote on such ratification, the
Board of Directors will reconsider its selection. Representatives of Moss Adams
LLP are expected to be present at the meeting, with the opportunity to make a
statement if they desire to do so and to respond to appropriate questions.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.
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OTHER MATTERS
The Company knows of no other matters to be submitted at the Meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the shares they represent as
the Board of Directors may recommend.
ADDITIONAL INFORMATION
A copy of the Company's Annual Report to the Securities and Exchange
Commission on Form 10-K for the fiscal year ended May 31, 1996 is available
without charge upon written request to: Corporate Secretary, Schmitt
Industries, Inc., 2765 N.W. Nicolai Street, Portland, Oregon 97210.
BY ORDER OF THE BOARD OF DIRECTORS
Wayne A. Case
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Portland, Oregon
September 20, 1996
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APPENDIX A
SCHMITT INDUSTRIES, INC.
STOCK OPTION PLAN
1. PURPOSES. The purposes of this Schmitt Industries, Inc. Stock Option
Plan ("Plan") are to:
1.1 retain the services of valued key employees and consultants of
Schmitt Industries, Inc. ("Company") and such other persons as the
Plan Administrator shall select in accordance with Section 4 below;
1.2 provide such persons with an equity ownership in the Company
commensurate with the Company's performance as reflected in increased
value of its common shares;
1.3 provide an aid and inducement in hiring of new employees and to
provide an equity incentive to directors, consultants and other
persons selected by the Plan Administrator; and
1.4 provide a means whereby the Company can continue to attract,
motivate and retain the services of selected non-employee agents,
consultants, advisors, persons involved in the sale or distribution of
the Company's products and independent contractors of the Company.
2. ADMINISTRATION. This Plan shall be administered by the Board of
Directors of the Company ("Board") or, in the event the Board shall appoint
and/or authorize a committee to administer this Plan, by a committee of the
Board consisting of at least two (2) non-employee directors ("Committee"). The
administrator of this Plan, whether the Board or Committee, shall hereinafter be
referred to as the "Plan Administrator." The Plan Administrator shall
administer the Plan in accordance with the following:
2.1 INCAPACITY OF PLAN ADMINISTRATOR. No member of the Board or the
Committee shall vote with respect to the granting of an option created
under this Plan ("Option(s)") to himself or herself. Any Option
granted to a director for his or her services as such shall not be
effective until approved by the full Board.
2.2 REGISTRATION UNDER THE SECURITIES ACT. If the Company registers
any of its equity securities pursuant to Section 12(b) or 12(g) of the
Securities Exchange Act of 1934, as amended ("Exchange Act") and any
officers or directors are eligible to receive Options, the following
provisions shall apply to the administration of this Plan with respect
to grants made to directors, officers or other Optionees (as
hereinafter defined) affected by Section 16(b) of the Exchange Act.
The Plan Administrator shall be constituted at all times so as to meet
the requirements of Section 16(b) of the Exchange Act, as amended
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from time to time. The members of any committee serving as Plan
Administrator shall be appointed by the Board for such term as the
Board may determine. The Board may from time to time remove members
from, or add members to, the committee. Vacancies on the committee,
however caused, may be filled by the Board. Currently, the Plan
Administrator is a committee. If, at any time, an insufficient number
of disinterested non-employee directors is available to serve on such
committee, interested non-employee directors may serve on the
committee; however, during such time, no Options shall be granted to
any person if the granting of such Option would not meet the
requirements of Section 16(b) of the Exchange Act. For purposes of
this Section 2, a disinterested director shall be a member of the
Board who meets the definition of "disinterested person" as set forth
in the rules and regulations promulgated under Section 16(b) of the
Exchange Act, as amended from time to time (the "16(b) Rules").
Currently, a disinterested director for purposes of this Section 2 is
a member of the Board who for one (1) year prior to service as an
administrator of this Plan has not been (and during service as a Plan
Administrator, will not be) granted or awarded equity securities,
including options for equity securities pursuant to this Plan or any
other plan of the Company or its affiliates, except for certain
exclusions described in Rule 16b-3. For purposes of this Section 2, a
non-employee director shall be a member of the Board who meets the
definition of "non-employee director" as set forth in the 16(b) Rules.
Currently, a non-employee director is a member of the Board who (i) is
not currently an officer of the Company or a parent or subsidiary of
the Company, or otherwise currently employed by the Company or a
parent or subsidiary of the Company; (ii) does not receive
compensation, either directly or indirectly, from the Company or a
parent or subsidiary of the Company, for services rendered as a
consultant or in any capacity other than as a director, except for an
amount that does not exceed the dollar amount for which disclosure
would be required pursuant to Item 404(a) of Regulation S-K
promulgated under the Exchange Act (("S-K"); (iii) does not possess an
interest in any other transaction for which disclosure would be
required pursuant to Item 404(b) of S-K; and (iv) is not engaged in a
business relationship for which disclosure would be required pursuant
to Item 404(b) of S-K.
2.3 PROCEDURES. The Board may designate one of the members of the
Plan Administrator as chairman. The Plan Administrator may hold
meetings at such times and places as it shall determine. The acts of
a majority of the members of the Plan Administrator present at
meetings at which a quorum exists, or acts reduced to or approved in
writing by all Plan Administrator members, shall be valid acts of the
Plan Administrator.
2.4 RESPONSIBILITIES. Except for the terms and conditions explicitly
set forth in this Plan, the Plan Administrator shall have the
authority, in its discretion, to determine all matters relating to the
Options, including selection of the individuals to be granted Options,
the number of shares to be subject to each Option, the exercise price
for such Option ("Exercise Price"), and all other terms and conditions
of the Options. The interpretation and construction by the Plan
Administrator of any terms or provisions of this Plan or any Option,
or of any rule or regulation promulgated in connection with this Plan,
shall be conclusive and binding on all interested parties, so long as
such interpretation and construction with respect to incentive stock
options correspond to the requirements of Section 422 of the Internal
Revenue Code of 1986, as amended ("Code"), and the regulations issued
thereunder, and any amendment or successor sections or regulations.
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2.5 SECTION 16(b) COMPLIANCE AND BIFURCATION OF PLAN. If the Company
registers any of its equity securities pursuant to Sections 12(b) and
12(g) of the Exchange Act, it is the intention of the Company that
this Plan then comply in all respects with Rule 16b-3 under the
Exchange Act and, if any Plan provision is later found not to be in
compliance with such Section, the provision shall be deemed null and
void. In all events, the Plan shall be construed in favor of its
meeting the requirements of Rule 16b-3. Notwithstanding anything in
the Plan to the contrary, the Board, in its absolute discretion, may
bifurcate the Plan so as to restrict, limit or condition the use of
any provision of the Plan to participants who are officers and
directors subject to Section 16(b) of the Exchange Act without so
restricting, limiting or conditioning the Plan with respect to other
participants.
3. STOCK SUBJECT TO THIS PLAN. The stock subject to this Plan shall be
the Company's common stock ("Common Stock"). The Company shall have authorized
and have in reserve for issuance at the time of exercise of any Option a
sufficient number of shares of Common Stock to meet the Company's obligation.
The maximum number of shares of Common Stock which may be issued under the Plan
shall be five hundred thousand (500,000). If any Option expires or is
surrendered, exchanged for another Option, cancelled or terminated for any
reason without having been exercised in full, the unpurchased shares subject to
such Option shall again be available for purposes of this Plan, including for
replacement Options which may be granted in exchange for such expired,
exchanged, surrendered, cancelled or terminated Options.
4. ELIGIBILITY. An incentive stock option in accordance with Section 422
of the Code ("Incentive Option") may be granted only to an individual who, at
the time the option is granted, is an employee of the Company and who the Plan
Administrator may from time to time select for participation in this Plan.
Members of the Board shall not be eligible for grants of Incentive Options
unless they are also employees of the Company. At the discretion of the Plan
Administrator, employees, officers, directors of the Company (including non-
employee directors), selected non-employee agents, consultants, advisors,
persons involved in the sale or distribution of the Company's products and
independent contractors of the Company also may receive stock options which are
not qualified under Section 422 of the Code ("Nonqualified Option"). (Qualified
and Nonqualified Options are included collectively within the term "Options" as
used in this Plan.) Any party to whom an Option is granted shall be referred to
as an "Optionee."
5. TERMS AND CONDITIONS OF OPTIONS. Options granted under this Plan
shall be evidenced by written agreements which shall contain such terms,
conditions, limitations and restrictions as the Plan Administrator shall deem
advisable and which are not inconsistent with this Plan. Notwithstanding the
foregoing, Option agreements shall include or incorporate by reference the
following terms and conditions:
5.1 NUMBER OF SHARES. Each Option agreement shall state the number
of shares of stock subject to the Option.
5.2 OPTION PRICE. The Option agreement shall state the Exercise
Price per share, and the Plan Administrator shall act in good faith to
establish the Exercise Price as follows:
5.2.1 INCENTIVE OPTIONS. Subject to subsection 5.2.3, the
Exercise Price of Incentive Options shall be not less than the
fair market value per share of the Common Stock at the time the
Incentive Option is granted.
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5.2.2 INCENTIVE OPTIONS TO GREATER THAN 10% SHAREHOLDERS.
With respect to Incentive Options granted to shareholders then
holding greater than ten percent (10%) of the then-issued and
outstanding shares of voting stock of the Company, the Exercise
Price shall be as required by Section 6.
5.2.3 FAIR MARKET VALUE. ith respect to Incentive Options,
the fair market value per share of the Common Stock shall be
determined by the Plan Administrator in good faith at the time
the Incentive Option is granted.
5.2.4 SUBSTITUTED OPTIONS. Options granted in substitution
for outstanding Options in the Company in connection with the
merger, consolidation, continuation acquisition of property or
stock of the Company or a subsidiary of the Company or another
corporation or any subsidiary of another corporation may be
granted with an exercise price equal to the exercise price for
the substituted option of the Company or other corporation,
subject to any adjustment consistent with the terms of the
transaction pursuant to which the substitution is to occur.
5.2.5 NONQUALIFIED OPTIONS. The Exercise Price of
Nonqualified Options shall be as is determined by the Plan
Administrator in good faith at the time of their issuance.
5.3 TERM, MATURITY AND VESTING. Subject to the restrictions
contained in Sections 5.8 and 6, the term of each Incentive Option
shall be ten (10) years from the date it is granted unless a shorter
period of time is established by the Plan Administrator, but in no
event shall the term of any Incentive Option exceed ten (10) years.
The term of each Nonqualified Option shall also be ten (10) years from
the date it is granted unless a shorter period of time is established
by the Plan Administrator. The Plan Administrator shall specify which
Options granted hereunder are Incentive Options and which are
Nonqualified Options.
No Option shall be exercisable until it has vested. The vesting
schedule for each Option shall be specified by the Plan Administrator
at the time of grant; PROVIDED, that if no vesting schedule is
specified at the time of grant, the Option shall vest according to the
following schedule:
NUMBER OF YEARS PERCENTAGE OF TOTAL
FOLLOWING DATE OF GRANT OPTION VESTED
------------------------ -------------------
One 25%
Two 50%
Three 75%
Four 100%
The Plan Administrator may specify a vesting schedule for all or any
portion of an Option based on the achievement of performance
objectives established in advance of the commencement by the Optionee
of services related to the achievement of the performance objectives.
Performance objectives shall be expressed in terms of one or more of
the following: return on equity, return on assets, share price,
market share, sales, earnings per share, costs, net earnings, net
worth, inventories, cash and cash equivalents, gross
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margin or the Company's performance relative to its internal business
plan. Performance objectives may be in respect of the performance of
the Company as a whole (whether on a consolidated or unconsolidated
basis), a related corporation, or a subdivision, operating unit,
product or product line of either of the foregoing. Performance
objectives may be absolute or relative and may be expressed in terms
of a progression or a range. An option which is exercisable (in whole
or in part) upon the achievement of one or more performance objectives
may be exercised only following written notice to the Optionee and
the Company by the Plan Administrator that the performance objective
has been achieved.
5.4 EXERCISE. Subject to the limitations on exercise described in
subsection 5.3 above and any additional holding period required by
applicable law, each Option may be exercised in whole or in part;
provided, however, that only whole shares will be issued pursuant to
the exercise of any Option. During an Optionee's lifetime, any
Options granted under this Plan are personal to him or her and are
exercisable solely by such Optionee. Options shall be exercised by
delivery to the Company of a written notice of the number of shares
with respect to which the Option is to be exercised, together with
payment of the Exercise Price in accordance with Section 5.5.
5.5 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall
be made in full at the time the written notice of exercise of an
Option is delivered to the Company, and shall be in cash, bank
certified or cashier's check or personal check (unless at the time of
exercise the Plan Administrator in a particular case determines not to
accept a personal check) for the Common Stock being purchased. The
Plan Administrator can determine in its discretion (i) at the time an
Incentive Option is granted, or (ii) at any time before exercise of
Nonqualified Options that additional forms of payment will be
permitted, including installment payments on such terms and over such
period as the Plan Administrator may determine. To the extent
permitted by the Plan Administrator and applicable laws and
regulations (including, but not limited to, federal tax and securities
laws and regulations and state corporate law), an option may be
exercised by:
5.5.1 DELIVERY OF COMMON STOCK. Delivery of shares of Common
Stock held by an Optionee having a fair market value equal to the
Exercise Price, such fair market value to be determined in good
faith by the Plan Administrator;
5.5.2 DELIVERY OF PROMISSORY NOTE. Delivery of a
full-recourse promissory note executed by the Optionee; provided
that (i) such note if delivered in connection with an Incentive
Option shall, and such note if delivered in connection with a
Nonqualified Option may, bear interest at a rate specified by the
Plan Administrator, but in no case less than the rate required to
avoid imputation of interest (taking into account any exceptions
to the imputed interest rules) for federal income tax purposes;
(ii) the Plan Administrator shall specify the term and other
provisions of such note at the time an Incentive Option is
granted or at any time prior to exercise of a Nonqualified
Option; (iii) the Plan Administrator may require that the
Optionee pledge the Optionee's shares to the Company for the
purpose of securing the payment of such note, and may require
that the certificate representing such shares be held in escrow
to perfect the Company's security interest; (iv) the note
provides that ninety (90) days following the Optionee's
termination of employment with the Company or a related
Corporation, the entire outstanding balance under the note shall
become
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due and payable, if not previously due and payable; and (v) the
Plan Administrator in its sole discretion may at any time after
granting an Option restrict or rescind the right to pay using a
promissory note upon written notification to any Optionee;
5.5.3 DELIVERY OF SALE PROCEEDS. Delivery of a properly
executed written exercise notice, together with irrevocable
instructions to a broker, all in accordance with the regulations
of the Federal Reserve Board, to promptly deliver to the Company
the amount of sale or loan proceeds to pay the exercise price and
any federal, state or local withholding tax obligations that may
arise in connection with the exercise; provided, that the Plan
Administrator may at any time determine that this subsection
5.5.3, to the extent the instructions to the broker call for an
immediate sale of the shares, shall not be available to any
Optionee who is subject to Section 16(b) of the Exchange Act if
such transaction would result in a violation of Section 16(b), or
if such Optionee is not an employee at the time of exercise; or
5.5.4 DELIVERY OF WITHHOLDING NOTICE. Delivery of a properly
executed written exercise notice together with instructions to
the Company to withhold upon exercise from the shares that would
otherwise be issued that number of shares having a fair market
value equal to the Exercise Price.
5.6 WITHHOLDING TAX REQUIREMENT. The Company or any related entity
shall have the right to retain and withhold from any payment of cash
or Common Stock under this Plan the amount of taxes required by any
government to be withheld or otherwise deducted and paid with respect
to such payment. At its discretion, the Company may require an
Optionee receiving shares of Common Stock to reimburse the Company for
any such taxes required to be withheld by the Company, and may
withhold any distribution in whole or in part until the Company is so
reimbursed. In lieu of such withholding or reimbursement, the Company
shall have the right to withhold from any other cash amounts due or to
become due from the Company to the Optionee an amount equal to such
taxes or to retain and withhold a number of shares having a market
value not less than the amount of such taxes required to be withheld
by the Company to reimburse the Company for any such taxes and cancel
(in whole or in part) any such shares so withheld. If required by
Section 16(b) of the Exchange Act, the election to pay withholding
taxes by delivery of shares held by any person who at the time of
exercise is subject to Section 16(b) of the Exchange Act, shall be
made during the quarterly 10-day window period required under Section
16(b) of the Exchange Act for exercises of stock appreciation rights.
5.7 TRANSFERABILITY OF OPTION. Options and the rights and privileges
conferred by this Plan shall not be transferred, assigned or pledged
in any manner (whether by operation of law or otherwise) other than
(i) by will or by the applicable laws of descent and distribution, or
(ii) by gift to members of the Optionee's family, including
grandparents, parents, spouses, siblings, children, grandchildren and
great-grandchildren, or trusts for the benefit of such family members
or to charitable organizations, and shall not be subject to execution,
attachment or similar process. Any attempt to transfer, assign,
pledge or otherwise dispose of any Option or of any right or privilege
conferred by this Plan, contrary to the Code or to the provisions of
this Plan, or the sale or levy or any attachment or similar process
upon the rights and privileges conferred by this Plan shall
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be null and void. Notwithstanding the foregoing, an Optionee may,
during the Optionee's lifetime, designate a person who may exercise
the Option after the Optionee's death by giving written notice of such
designation to the Plan Administrator. Such designation may be
changed from time to time by the Optionee giving written notice to the
Plan Administrator revoking any earlier designation and making a new
designation. In the event that no such designation is made, the
executor or personal representative of the Optionee's estate shall
have any rights then remaining to the Optionee or his estate under
this Plan.
5.8 DURATION OF OPTION. Vested Options shall terminate, to the
extent not previously exercised, upon the occurrence of the first of
the following events: (i) the expiration of the Option, as designated
by the Plan Administrator in accordance with section 5.3; (ii) the
date of an Optionee's termination of employment with the Company or
any related corporation for cause (as determined in the sole
discretion of the Plan Administrator); (iii) the expiration of ninety
(90) days from the date of an Optionee's termination of employment
with the Company or any related corporation for any reason whatsoever
other than cause, death or Disability (as defined below) unless, the
exercise period is extended by the Plan Administrator until a date not
later than the expiration date of the Option; or (iv) the expiration
of one year from (A) the date of death of the Optionee or (B)
cessation of an Optionee's employment by reason of Disability (as
defined below) unless, the exercise period is extended by the Plan
Administrator until a date not later than the expiration date of the
Option. If an Optionee's employment is terminated by death, any
Option held by the Optionee shall be exercisable only by the person or
persons to whom such Optionee's rights under such Option shall pass by
the Optionee's will or by the laws of descent and distribution of the
state or county of the Optionee's domicile at the time of death. For
purposes of the Plan, unless otherwise defined in the Agreement,
"Disability" shall mean any physical, mental or other health condition
which substantially impairs the Optionee's ability to perform his or
her assigned duties for one hundred twenty (120) days or more in any
two hundred forty (240) day period or that can be expected to result
in death. The Plan Administrator shall determine whether an Optionee
has incurred a Disability on the basis of medical evidence acceptable
to the Plan Administrator. Upon making a determination of Disability,
the Plan Administrator shall, for purposes of the Plan, determine the
date of an Optionee's termination of employment.
Unless accelerated in accordance with Section 7, unvested Options
shall terminate immediately upon termination of employment of the
Optionee by the Company for any reason whatsoever, including death or
Disability. For purposes of this Plan, transfer of employment between
or among the Company and/or any related corporation shall not be
deemed to constitute a termination of employment with the Company or
any related corporation. For purposes of this subsection with respect
to Incentive Stock Options, employment shall be deemed to continue
while the Optionee is on military leave, sick leave or other bona fide
leave of absence (as determined by the Plan Administrator). The
foregoing not withstanding, employment shall not be deemed to continue
beyond the first ninety (90) days of such leave, unless the Optionee's
re-employment rights are guaranteed by statute or by contract.
5.9 STATUS OF SHAREHOLDER. Neither the Optionee nor any party to
which the Optionee's rights and privileges under the Option may pass
shall be, or shall have any of the rights or privileges of, a
shareholder of the Company with respect to any of the
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shares issuable upon the exercise of any Option unless and until such
Option has been exercised.
5.10 RIGHT TO TERMINATE EMPLOYMENT. Nothing in this Plan or in any
Option shall confer upon any Optionee any right to continue in the
employ of the Company or of a related entity, or to interfere in any
way with the right of the Company or of any related corporation to
terminate, at will, his or her employment or other relationship with
the Company at any time.
5.11 MODIFICATION AND AMENDMENT OF OPTION. Subject to the
requirements of Code Section 422 with respect to Incentive Options and
to the terms, conditions and limitations of this Plan, the Plan
Administrator may modify or amend outstanding Options. The
modification or amendment of an outstanding Option shall not, without
the consent of the Optionee, impair or diminish any of his or her
rights or any of the obligations of the Company under such Option.
Except as otherwise provided in this Plan, no outstanding Option shall
be terminated without the consent of the Optionee. Unless the
Optionee agrees otherwise, any changes or adjustments made to
outstanding Incentive Options shall be made in such a manner so as not
to constitute a "modification" as defined in Code Section 424(h) and
so as not to cause any Incentive Option to fail to continue to qualify
as an "incentive stock option" as defined in Code Section 422(b).
5.12 LIMITATION ON VALUE FOR INCENTIVE OPTIONS. As to all Incentive
Options, to the extent that the aggregate fair market value of the
Common Stock with respect to which Incentive Options are exercisable
for the first time by the Optionee during any calendar year (under
this Plan and all other incentive stock option plans of the Company, a
related corporation or a predecessor corporation) exceeds $100,000,
those Options (or the portion of an Option) beyond the $100,000
threshold shall be treated as Nonqualified Options. If the Internal
Revenue Service publicly rules, issues a private ruling to the
Company, any Optionee, or any legatee, personal representative or
distributee of an Optionee or issues regulations changing or
eliminating such annual limit, the dollar limitation in the preceding
sentence shall be adjusted correspondingly.
6. GREATER THAN 10% SHAREHOLDERS. In the case of Incentive Options
granted to employees who own at the time of their grant ten percent (10%) or
more of the then-issued and outstanding voting stock of the Company, the
following rules shall apply:
6.1 EXERCISE PRICE AND TERM OF INCENTIVE OPTIONS. If Incentive
Options are granted to employees who own more than ten percent (10%)
of the total combined voting power of all classes of stock of the
Company or any related corporation, the term of such individual's
Incentive Options shall not exceed five (5) years and the Exercise
Price shall be not less than one hundred ten percent (110%) of the
fair market value of the Common Stock at the time the Incentive Option
is granted. This provision shall control notwithstanding any contrary
terms contained in an Option agreement or any other document.
6.2 ATTRIBUTION RULE. For purposes of subsection 6.1, in determining
stock ownership, an employee shall be deemed to own such shares as are
owned by those persons or entities defined in Code Section 424. For
purposes of this Section 6, stock owned by an employee shall include
all stock actually issued and outstanding immediately before the grant
of the Incentive Option to the employee.
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7. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. The aggregate number and
class of shares for which Options may be granted under this Plan, the number and
class of shares covered by each outstanding Option and the Exercise Price per
share thereof (but not the total price), and each such Option, shall all be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock of the Company resulting from a split-up or consolidation
of shares or any like capital adjustment, or the payment of any stock dividend.
7.1 EFFECT OF LIQUIDATION, REORGANIZATION OR CHANGE IN CONTROL.
7.1.1 CASH, STOCK OR OTHER PROPERTY FOR STOCK. Except as
provided in subsection 7.1.2, upon a merger (other than a merger
of the Company in which the holders of Common Stock immediately
prior to the merger have the same proportionate ownership of
Common Stock in the surviving corporation immediately after the
merger), consolidation, acquisition of property or stock,
separation, reorganization (other than a mere reincorporation or
the creation of a holding company) or liquidation of the Company,
as a result of which the shareholders of the Company receive
cash, stock or other property in exchange for or in connection
with their shares of Common Stock, any Option granted under this
Plan shall terminate, but the Optionee shall have the right
immediately prior to any such merger, consolidation, acquisition
of property or stock, separation, reorganization or liquidation
to exercise such Option in whole or in part, to the extent the
vesting requirements set forth in the Option agreement have been
satisfied, unless stated otherwise in the Optionee's individual
Option agreement.
7.1.2 CONVERSION OF OPTIONS ON STOCK-FOR-STOCK EXCHANGE. If
the shareholders of the Company receive capital stock of another
corporation ("Exchange Stock") in exchange for their shares of
Common Stock in any transaction involving a merger (other than a
merger of the Company in which the holders of Common Stock
immediately prior to the merger have the same proportionate
ownership of Common Stock in the surviving corporation
immediately after the merger), consolidation, acquisition of
property or stock, separation or reorganization (other than a
mere reincorporation or the creation of a holding company), all
Options granted under this Plan shall be converted into options
to purchase shares of Exchange Stock unless the Company and the
Corporation issuing the Exchange Stock, in their sole discretion,
determine that any or all such Options shall not be converted
into options to purchase shares of Exchange Stock, but instead
shall terminate in accordance with the provisions of subsection
7.1.1. The amount and price of converted options shall be
determined by adjusting the amount and price of the Options in
the same proportion as used for determining the number of shares
of Exchange Stock the holders of the Common Stock receive in such
merger, consolidation, acquisition of property or stock,
separation or reorganization. Unless accelerated by the Board,
the exercise limitations set forth in the Option agreement and
the Plan shall continue to apply for the Exchange Stock.
7.1.3 CHANGE IN CONTROL. In the event of a "Change in
Control," as defined below, of the Company, unless otherwise
determined by the Board prior to the occurrence of such Change in
Control, any Options or portions of such Options outstanding as
of the date such Change in Control is determined to have occurred
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that are not yet fully vested on such date shall become
immediately exercisable in full.
7.1.4 DEFINITION OF "CHANGE IN CONTROL". For purposes of
this Plan, a "Change in Control" shall mean (a) the first
approval by the Board or by the stockholders of the Company of an
Extraordinary Event, (b) a Purchase or (c) a Board Change. For
purposes of the Plan, such terms shall have the following
meanings:
7.1.4.1 An "Extraordinary Event" shall mean any of the
following actions: (i) any consolidation or merger of the
Company in which the Company is not the continuing or
surviving corporation or pursuant to which shares of Common
Stock would be converted into cash, securities or other
property, other than a merger of the Company in which the
holders of Common Stock immediately prior to the merger have
the same proportionate ownership of common stock of the
surviving corporation immediately after the merger; (ii) any
sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all, or
substantially all, the assets of the Company; or, (iii) the
adoption of any plan or proposal for liquidation or
dissolution of the Company.
7.1.4.2 A "Purchase" shall mean the acquisition by any
person (as such term is defined in Section 13(d) of the
Exchange Act) of any shares of Common Stock or securities
convertible into Common Stock without the prior approval of
a majority of the Continuing Directors (as defined below) of
the Company, if after making such acquisition such person is
the beneficial owner (as such term is defined in Rule 13d-3
under the Exchange Act) directly or indirectly of Securities
of the Company representing twenty percent (20%) or more of
the combined voting power of the Company's then outstanding
securities (calculated as provided in paragraph (d) of such
Rule 13d-3).
7.1.4.3 A "Board Change" shall have occurred if
individuals who constitute the Board of the Company at the
time of adoption of this Plan (the "Continuing Directors")
cease for any reason to constitute at least a majority of
the Board, provided that any person becoming a Director
subsequent to the date of adoption of this Plan whose
nomination for election was approved by a vote of at least a
majority of the Continuing Directors (other than a
nomination of an individual whose initial assumption of
office is in connection with an actual threatened election
contest relating to the election of the Directors of the
Company, as such terms are used in Rule 14a-11 of Regulation
14A under the Exchange Act) shall be deemed to be a
Continuing Director.
7.2 FRACTIONAL SHARES. In the event of any adjustment in the number
of shares covered by any Option, any fractional shares resulting from
such adjustment shall be disregarded and each such Option shall cover
only the number of full shares resulting from such adjustment.
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7.3 DETERMINATION OF BOARD TO BE FINAL. All Section 7 adjustments
shall be made by the Board, and its determination as to what
adjustments shall be made, and the extent of such adjustments, shall
be final, binding and conclusive. Unless an Optionee agrees
otherwise, any change or adjustment to an Incentive Option shall be
made in such a manner so as not to constitute a "modification" as
defined in Code Section 424(h) and so as not to cause his or her
Incentive Option to fail to continue to qualify as an incentive stock
option as defined in Code Section 422(b).
8. SECURITIES REGULATION. Shares shall not be issued with respect to an
Option unless the exercise of such Option and the issuance and delivery of such
shares pursuant to the exercise of such Option shall comply with all relevant
provisions of law, including, without limitation, any applicable state
securities laws, the Securities Act of 1933, as amended, the Exchange Act, the
rules and regulations promulgated thereunder, and the requirements of any stock
exchange upon which the shares may then be listed, and shall be further subject
to the approval of counsel for the Company with respect to such compliance,
including the availability of an exemption from registration for the issuance
and sale of any shares under this Plan. Inability of the Company to obtain from
any regulatory body having jurisdiction, the authority deemed by the Company's
counsel to be necessary for the lawful issuance and sale of any shares under
this Plan or the unavailability of an exemption from registration for the
issuance and sale of any shares under this Plan shall relieve the Company of any
liability in respect of the non-issuance or sale of such shares as to which such
requisite authority shall not have been obtained.
As a condition to the exercise of any Option, the Company may require the
Optionee to represent and warrant at the time of any such exercise that the
shares are being purchased only for investment and without any present intention
to sell or distribute such shares if, in the opinion of counsel for the Company,
such a representation is required by any relevant provision of the
aforementioned laws. At the option of the Company, a stop-transfer order
against any shares of stock may be placed on the official stock books and
records of the Company, and a legend indicating that the stock may not be
pledged, sold or otherwise transferred unless an opinion of counsel is provided
(concurred in by counsel for the Company) stating that such transfer is not in
violation of any applicable law or regulation, may be stamped on stock
certificates in order to assure exemption from registration. The Plan
Administrator may also require such other action or agreement by the Optionees
as may from time to time be necessary to comply with the federal and state
securities laws. THIS PROVISION SHALL NOT OBLIGATE THE COMPANY TO UNDERTAKE
REGISTRATION OF THE OPTIONS OR STOCK HEREUNDER. Should any of the Company's
capital stock of the same class as the stock subject to Options be listed on a
national securities exchange, all stock issued under this Plan if not previously
listed on such exchange shall be authorized by that exchange for listing on such
exchange prior to the issuance of such stock.
9. AMENDMENT AND TERMINATION. This Plan may be amended from time to time
as follows:
9.1 BOARD ACTION. The Board may at any time suspend, amend or
terminate this Plan; provided, that except as set forth in Section 7,
the approval of the Company's shareholders is necessary within twelve
(12) months before or after the adoption by the Board of any amendment
which will:
9.1.1 increase the number of shares which are to be reserved
for the issuance of Options;
9.1.2 permit the granting of stock options to a class of
persons other than those presently permitted to receive Options;
or
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9.1.3 require shareholder approval under applicable law,
including Section 16(b) of the Exchange Act.
Any amendment made to this Plan which would constitute a
"modification" to Incentive Options outstanding on the date of such
amendment, shall not be applicable to such outstanding Incentive
Options, but shall have prospective effect only, unless the Optionee
agrees otherwise.
9.2 AUTOMATIC TERMINATION. Unless sooner terminated by the Board,
this Plan shall terminate ten (10) years from the earlier of (i) the
date on which this Plan is adopted by the Board or (ii) the date on
which this Plan is approved by the shareholders of the Company. No
Option may be granted after such termination or during any suspension
of this Plan. The amendment or termination of this Plan shall not,
without the consent of the option holder, alter or impair any rights
or obligations under any option previously granted under this Plan.
10. EFFECTIVENESS OF THIS PLAN. This Plan shall become effective upon
adoption by the Board so long as it is approved by the Company's shareholders
any time within twelve (12) months before or after the adoption of this Plan.
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SCHMITT INDUSTRIES, INC.
2765 N.W. NICOLAI STREET
PORTLAND, OREGON 97210
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOR THE ANNUAL MEETING OF THE SHAREHOLDERS, OCTOBER 25, 1996
The undersigned hereby appoints Wayne A. Case and Annie Windsor, or each of
them, as proxies, each with power of substitution, to vote for and on behalf of
the undersigned at the Annual Meeting of the Shareholders of the Company to be
held on October 25, 1996, and at any adjournment thereof, upon matters properly
coming before the Meeting, as set forth in the related Notice of Annual Meeting
and Proxy Statement, both of which have been received by the undersigned.
Without otherwise limiting the general authorization given hereby, said proxies
are instructed to vote as follows:
1. Election of the following nominees for Directors: MAYNARD E. BROWN, WAYNE
A. CASE, DAVID L. DOTLICH, DAVID M. HUDSON, TREVOR NELSON, JOHN A. RUPP.
(THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR")
/ / FOR all nominees listed above / / WITHHOLD AUTHORITY to vote for all
nominees listed above
INSTRUCTION: To withhold authority to vote for any individual nominee listed
above, write that nominee's name in the space provided below.
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2. Approval of the adoption of the Schmitt Industries, Inc. Stock Option Plan.
(THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR")
FOR / / AGAINST / / ABSTAIN / /
3. Ratification of the selection of Moss Adams LLP as the independent auditors
of the Company for the fiscal year ending May 31, 1997.
(THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR")
FOR / / AGAINST / / ABSTAIN / /
In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Meeting.
This proxy when properly executed will be voted in the manner directed
herein by the undersigned holder.
If no direction is made, this proxy will be voted for Proposals 1, 2 and 3.
Please sign exactly as name appears below. When shares are held by joint
tenants, both should sign. When signing as attorney, executor, administrator,
trustee or guardian, please give full title as such. If a corporation, please
sign in full corporate name by the president or other authorized officer. If a
partnership, please sign in partnership name by authorized person.
-----------------------------------
Signature
-----------------------------------
Signature if held jointly
Dated: , 1996
----------------------
PLEASE MARK, SIGN, DATE AND RETURN
THE PROXY CARD PROMPTLY USING THE
ENCLOSED ENVELOPE
