<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:
/X/ Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by
/ / Rule 14a-6(e)(2))
/ / 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):
/ / $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 applies:
_____________________________________________________________
(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: _________________________________________________
<PAGE>
SCHMITT INDUSTRIES, INC.
2765 N.W. NICOLAI STREET
PORTLAND, OREGON 97210
------------------------
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
September 26, 1997
------------------------
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,
September 26, 1997 at 3:00 p.m., local time, at 2765 N.W.
Nicolai Street, Portland, Oregon 97210 for the following
purposes:
1. To approve adoption of the Second Restated
Articles of Incorporation providing for
(i) staggered terms for directors; (ii) removal of
directors only for cause; (iii) the creation of a
class of Preferred Stock; (iv) special
requirements for amending the Company's Bylaws and
Articles; and (v) special voting requirements for
approval of certain business combinations.
2A. If Proposal No. 1 is approved, to elect a
staggered Board of Directors consisting of three
Classes to serve initially for one, two and
three-year terms, converting into three-year terms
upon expiration of the original term, and until
their successors are elected; or
2B. If Proposal No. 1 is not approved, to elect seven
directors to serve one-year terms and until their
successors are elected.
3. To ratify the appointment of Price Waterhouse LLP
as independent auditors for the Company for the
fiscal year ending May 31, 1998.
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
August 28, 1997 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
August 29, 1997
- ---------------------------------------------------------------------
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,
September 26, 1997, 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 August 29, 1997 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 August 28, 1997 are entitled to
notice of, and to vote at, the Meeting. On August 28, 1997,
7,081,889 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 August 28, 1997 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. Approval of the Second Restated Articles of
Incorporation (Proposal No. 1) and ratification of Price
Waterhouse LLP as the independent public accountants
(Proposal No. 3) 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 broker non-votes are not
counted
1
<PAGE>
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 Proposals Nos. 1 and 3, 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 1998
Annual Meeting
Proposals of shareholders that are intended to be
presented by such shareholders at the Company's 1998 Annual
Meeting must be received by the Company no later than
May 23, 1998 in order that such proposals may be included in
the proxy statement and form of proxy relating to that
meeting.
PROPOSAL NO. 1
ADOPTION OF THE SECOND RESTATED ARTICLES OF INCORPORATION
The Board of Directors has approved and submits to the
shareholders for their approval, the Second Restated
Articles of Incorporation of the Company (the "Proposed
Articles"). The Proposed Articles differ from the Company's
current Restated Articles of Incorporation (the "Current
Articles") by providing for (i) staggered terms for
directors; (ii) removal of the directors only for cause;
(iii) the creation of a class of Preferred Stock;
(iv) special requirements for amending the Company's Bylaws
and Articles; and (v) special voting requirements for
approval of certain business combinations. The text of the
Proposed Articles is set forth in Exhibit A hereto. The
text of the Current Articles as currently in effect is set
forth in Exhibit B hereto.
Staggered Terms. Section 5.2 of the Proposed Articles
provides for staggered terms for the directors, effective
immediately and affecting the Board of Directors elected at
this Meeting. Under the Proposed Articles, the Board of
Directors shall be divided into three classes if the number
of directors is four or more, with said classes to be as
equal in number as may be possible. Any director or
directors in excess of the number divisible by three shall
be first assigned to Class 1, and any additional director
shall be assigned to Class 2, as the case may be. (For
example, if there are five directors, the fourth director
shall be in Class 1 and the fifth director in Class 2.) If
the Proposed Articles are approved by the shareholders, the
Board of Directors shall be divided into three classes with
each Class 1 Director elected to serve until the next
ensuing annual meeting of shareholders, each Class 2
Director elected to serve until the second ensuing annual
meeting of shareholders, and each Class 3 Director elected
to serve until the third ensuing annual meeting of
shareholders. At each annual meeting of shareholders
following the Meeting, the number of directors equal to the
number of directors in a class whose term expires at the
time of such meeting shall be elected to serve until the
third ensuing annual meeting of shareholders.
2
<PAGE>
The Proposed Articles also provide that notwithstanding
the foregoing, directors shall serve until their successors
are elected and qualified or until their earlier death,
resignation or removal from office, or until there is a
decrease in the number of directors; provided, however, that
no decrease in the number of directors shall have the effect
of shortening the term of any incumbent director.
The Current Articles provide that the directors shall
be elected annually at each annual meeting of shareholders.
Notwithstanding the foregoing, the directors shall serve
until their successors are elected and qualified or until
their earlier death, resignation or removal from office or
until there is a decrease in the number of directors.
Removal of Directors for Cause Only. Section 5.3 of
the Proposed Articles provides that directors may be removed
only for cause, in the manner provided in the Company's
Bylaws, by the affirmative vote of the holders of not less
than two-thirds of the shares entitled to elect the director
or directors whose removal is being sought. "Cause" is not
defined by the Company's Proposed Articles or the Company's
Bylaws or by federal or state statute. Although "cause" has
not been defined under Oregon case law, other jurisdictions
have defined "cause" to include a director's acceptance of
employment with a direct competitor, improper engagement in
a competitor's business to the prejudice of the Company, or
general breach of trust.
Vacancies on the Board of Directors, including
vacancies caused by an increase in the number of directors,
shall be filled by a majority vote of the remaining
directors only, unless there are no directors remaining, in
which case the vacancies shall be filled by the
shareholders, and except as set forth in the Bylaws.
The Current Articles provide that directors may be
removed at any time with or without cause, in the manner
provided in the Company's Bylaws, by an affirmative vote of
the holders of a majority of the shares entitled to vote at
a shareholders meeting at which a quorum is present.
Preferred Stock. The Proposed Articles give the Board
of Directors the authority, without further action by the
shareholders, to issue up to 2,000,000 shares of Preferred
Stock in one or more series and to fix the number of shares
constituting any such series and the preferences,
limitations and relative rights, including dividend rights,
dividend rate, voting rights, terms of redemption,
redemption price or prices, conversion rights and
liquidation preferences of the shares constituting any
series. The Current Articles do not authorize the issuance
of Preferred Stock.
Amendment of Bylaws and Articles. Article VIII of the
Proposed Articles requires the vote of a majority of
"Continuing Directors" (defined as a director who was a
member of the Company's Board on September 26, 1997 or a
director who is elected to the Board after September 26,
1997, after a nomination from a majority of the existing
Continuing Directors) to amend or repeal a Bylaw, unless the
shareholders expressly have provided that a Bylaw may not be
amended or repealed by the Board. Alternatively, a
super-majority of two-thirds of the shareholders may vote to
amend or repeal the Bylaws.
Article X of the Proposed Articles requires a
super-majority vote of two-thirds of each voting group of
the shareholders to either amend or repeal provisions
contained in the Articles unless the desired amendment or
repealed provision was previously approved by a majority of
Continuing Directors, in which case only a majority vote of
each voting group of shareholders is necessary.
The Current Articles provide that the Board of
Directors has the power to amend or repeal the Company's
Bylaws, provided that the shareholders have not expressly
provided otherwise. Additionally,
3
<PAGE>
the Current Articles provide that a majority of the
shareholders may amend or repeal the Bylaws of the Company.
Currently, the Articles of the Company may be only amended
or repealed with the approval of a simple majority of the
shareholders.
Approval of Business Combinations. The Proposed
Articles require a super-majority vote of two-thirds in each
voting group for the adoption or authorization of a
"Business Combination." A "Business Combination" includes:
a merger, share exchange, or consolidation of the Company or
any of its subsidiaries; disposition, including sale, lease,
exchange or mortgage of the Company's (or its subsidiaries)
assets in other than the Company's ordinary course of
business; or any agreement or contract providing for any of
the foregoing transactions. Under the Proposed Articles, if
a Business Combination is first approved by a majority of
Continuing Directors, then a majority, rather than a
super-majority vote, would be required of each voting group
of the shareholders to achieve passage or denial of the
Business Combination. Neither the Current Articles nor
Bylaws address approval of Business Combinations.
Effect of Proposed Articles. The Proposed Articles
could discourage potential acquisition proposals, could
delay or prevent a change in control of the Company and
could make removal of management more difficult. The
Proposed Articles could diminish the opportunities for a
shareholder to participate in tender offers, including
tender offers that are priced above the then-current market
value of the Common Stock, and may inhibit increases in the
market price of the Common Stock that could result from
takeover attempts. For example, the Board of Directors of
the Company, without further shareholder approval, may issue
up to 2,000,000 shares of Preferred Stock, in one or more
series, with such terms as the Board of Directors may
determine, including rights such as voting, dividend and
conversion rights that could adversely affect the voting
power and other rights of the holders of Common Stock.
Preferred Stock thus may be issued quickly with terms
calculated to delay or prevent a change in control of the
Company or make removal of management more difficult. The
issuance of Preferred Stock may adversely affect the market
price of and the voting and other rights of the holders of
the Common Stock. In addition, the Proposed Articles'
special requirements for amending the Company's Bylaws and
Articles and for approval of certain business combinations
limit the ability of parties who acquire a significant
amount of voting stock to exercise control over the Company.
These provisions may have the effect of lengthening the time
required for a person to acquire control of the Company
through a proxy contest or the election of a majority of the
Board of Directors and may deter efforts to obtain control
of the Company. Finally, the division of the Company's
Board of Directors into three classes, each of which serves
for a staggered three-year term, may make it more difficult
for a third party to gain control of the Company's Board of
Directors.
The Board of Directors believes that the Proposed
Articles would enhance the Company's ability to negotiate
with the proponent of an unfriendly or unsolicited proposal
to acquire or restructure the Company resulting in, among
other things, terms more favorable to the Company and its
shareholders.
The Board of Directors unanimously recommends a vote
for this proposal.
4
<PAGE>
PROPOSAL NO. 2
ELECTION OF DIRECTORS
The Company's Restated 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 seven
directors. The Company's Restated Articles of Incorporation
currently provide that directors serve one-year terms until
the next Annual Meeting of Shareholders and until their
successors are elected and qualified.
A. If Proposal No. 1 Approved. If Proposal No. 1 is
approved by the shareholders at the Meeting, the directors
of the Company would be divided into three classes.
Following the Meeting, one class of directors would be
elected each year, and the members of such class would hold
office for a three-year term and until their successors are
duly elected and qualified, or until their death,
resignation or removal from office. At the Meeting, three
Class 1 directors would be elected, each to serve a one-year
term until the 1998 Annual Meeting and until their
successors are elected and qualified. At the 1998 Annual
Meeting, Class 1 directors would be elected, each for a
three-year term. The nominees for Class 1 directors are
David L. Dotlich, David M. Hudson and Dennis T. Pixton. At
the Meeting, two Class 2 directors would be elected, each to
serve a two-year term until the 1999 Annual Meeting and
until their successors are elected and qualified. At the
1999 Annual Meeting, two Class 2 directors will be elected
for a three-year term. The nominees for Class 2 directors
are Trevor Nelson and John A. Rupp. At the Meeting, two
Class 3 directors will be elected for a three-year term
until the 2000 Annual Meeting and until their successors are
elected and qualified. At the 2000 Annual Meeting, Class 3
directors would be elected for a three-year term. The
nominees for Class 3 directors are Maynard E. Brown and
Wayne A. Case. All of the nominees for the three classes
are currently members of the Board of Directors of the
Company.
B. If Proposal No. 1 Not Approved. If Proposal No. 1
is not approved by the shareholders at the Meeting, seven
directors will be elected at the Meeting, each to serve for
a one-year term until the 1998 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, Dennis T. Pixton and John A.
Rupp, 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 either (A)
for staggered terms if Proposal No. 1 is approved by the
shareholders at the Meeting or (B) for one-year terms if
Proposal No. 1 is not approved, 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.
Shareholders are asked to vote for the election of
directors both if Proposal No. 1 is approved by the shareholders
at the Meeting (indicated on the attached Proxy as "2A") and
if Proposal No. 1 is not approved (indicated on the attached
Proxy as "2B").
The Board of Directors unanimously recommends a vote
for the election of its nominees as directors, either
(A) for staggered terms if Proposal No. 1 is approved by the
shareholders at the Meeting or (B) for one-year terms if
Proposal No. 1 is not approved.
5
<PAGE>
The Company's directors and executive officers are as
follows:
Name Age Position(1)
- --------------------- --- ------------------------------------------
Wayne A. Case(2)(3) 57 Chairman/President/CEO, Director (Class 3)
David W. Case 34 Vice President of Operations
Annie Windsor 54 Chief Financial Officer
Linda M. Case 52 Secretary
Maynard E. Brown(3) 47 Director (Class 3)
David L. Dotlich 50 Director (Class 1)
David M. Hudson 45 Director (Class 1)
Trevor Nelson(2)(3)(4) 35 Director (Class 2)
Dennis T. Pixton(2) 50 Director (Class 1)
John A. Rupp(4) 57 Director (Class 2)
- ----------------------
(1) Classes indicated for the directors are those that would
be in effect if Proposal No. 1 is approved by the
shareholders at the Meeting.
(2) Member of the Audit Committee.
(3) Member of the Compensation Committee.
(4) Member of the Option Committee.
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.
6
<PAGE>
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 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.
Dennis T. Pixton, a director since January 1997, has
been President of Michaels of Oregon Co., Inc. since
December 1996. Prior to that he was managing partner of
the Portland, Oregon office of Moss Adams LLP. Mr. Pixton
holds a B.A. degree in business from the University of
Washington and is a Certified Public 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 three
meetings during the fiscal year ended May 31, 1997.
The Board of Directors acts as a nominating committee
for selecting nominees for election as directors. The
Company's Restated 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 August _____, 1997. 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.
7
<PAGE>
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 Wayne A. Case, Trevor
Nelson and Dennis T. Pixton, held one meeting in Fiscal
1997. The Compensation Committee reviews executive
compensation and establishes executive compensation levels;
the Compensation Committee, which currently consists of
Messrs. Brown, Case and Nelson, met once in Fiscal 1997.
The Option Committee administers the Company's Stock Option
Plan and currently consists of Messrs. Nelson and Rupp;
during Fiscal 1997, the Option Committee held four meetings.
During Fiscal 1997, 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 1997, 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, 1997, 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 1997.
8
<PAGE>
SUMMARY COMPENSATION TABLE
Annual Compensation
------------------------------------------
Other Annual All Other
Name/Title Year Salary Bonus Compensation Compensation
- --------------- ----- ------ ----- ------------ ------------
Wayne A. Case(1)
President/CEO 1997 $138,652 $80,000 -- $ 9,363
1996 125,360 -- -- 7,146
1995 69,837 -- -- 6,981
- --------------------
(1) During each period, "All Other Compensation"
included an allocation for automobile use benefits
and SEP/IRA and group insurance benefits, which are
standardized and equal for all salaried officers.
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 unexercised options he
held as of May 31, 1997. No options were granted to or
exercised by the Named Executive in Fiscal 1997.
Number of Shares
Underlying Unexercised Value of Unexercised In-the-Money
Options at FY-End Options at FY-End(1)
-------------------------- ---------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ----------- ----------- ------------- --------------- ----------------
Wayne A. Case 293,250 -- $2,016,094 --
- -------------------
(1) Amount reflected is based upon the market value of
the Common Stock as of May 31, 1997 ($8.875) minus
the exercise price ($2.00), multiplied by the
number of shares underlying the options.
9
<PAGE>
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 Trevor Nelson and John A. Rupp,
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, bonuses 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
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 July 15, 1997, a total of 768,000 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 192,500 shares at an exercise price of CDN $1.96
per share, expiring on January 7, 1999. In addition, as of
July 15, 1997, options granted under the Option Plan to
purchase a total of 282,250 shares of Common Stock with
exercise prices from $4.375 to $7.875 per share, expiring on
dates from January 12, 2002 to April 11, 2007, were
outstanding. These options were held by 29 executive
officers and employees. A maximum of 500,000 shares of the
Company's Common Stock may be issued under the Option Plan.
- ---------------------
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.
10
<PAGE>
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 1997, Wayne A. Case received a base salary
of $138,652 and a performance bonus of $80,000. He received
no stock option grants in Fiscal 1997.
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 of its executive officers in 1996 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.
11
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information
regarding beneficial ownership of the Company's Common Stock
as of July 15, 1997 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, (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) 2,203,000(3) 29.9%
David W. Case(2) 402,100(4) 5.5%
Maynard E. Brown -- --
David L. Dotlich 14,500 *
David M. Hudson 77,500(5) 1.1%
Trevor Nelson -- --
Dennis T. Pixton -- --
John A. Rupp 227,200 3.2%
All directors and executive officers
as a group (ten persons) 2,935,600(6) 38.8%
- ---------------------
* 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
1,000 shares held by Linda M. Case, Mr. Case's
wife, as trustee for the Linda M. 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 192,500 shares subject to options that are
currently exercisable.
(5) Consists of 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 487,250 shares subject to options that are
currently exercisable.
12
<PAGE>
CERTAIN TRANSACTIONS
Maynard E. Brown, a director of the Company, is a
principal in the Vancouver, British Columbia law firm of
Brown McCue, which the Company retained in Fiscal 1997 as
Canadian counsel and intends to retain as such in the
future.
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, 1992 through May 31, 1997 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, 1992, $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.
[GRAPH]
<TABLE>
<CAPTION>
05/31/97 05/31/96 055/31/94 05/31/95 06/31/96 06/31/97
-------- -------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Schmitt Industries, Inc...... $100 $199 $922 $922 $5,193 $3,446
Nasdaq -- US................ $100 121 127 151 220 256
PSE Technology Index......... $100 118 136 190 259 327
</TABLE>
13
<PAGE>
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,
1997. 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.
PROPOSAL NO. 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has appointed Price Waterhouse
LLP, independent auditors, to audit the consolidated
financial statements of the Company for the fiscal year
ending May 31, 1998, 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 Price
Waterhouse 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.
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, 1997 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
August 29, 1997
14
<PAGE>
EXHIBIT A
SCHMITT INDUSTRIES, INC.
SECOND RESTATED ARTICLES OF INCORPORATION
ARTICLE I
NAME
The name of this Corporation is Schmitt Industries, Inc.
ARTICLE II
CAPITAL STOCK
2.1 AUTHORIZED CAPITAL. The total number of shares which this Corporation
is authorized to issue is 21,000,000, consisting of 20,000,000 shares of Common
Stock and 1,000,000 shares of Preferred Stock. The Common Stock is subject to
the rights and preferences of the Preferred Stock as hereinafter set forth.
2.2 ISSUANCE OF PREFERRED STOCK IN SERIES. The Preferred Stock may be
issued from time to time in one or more series in any manner permitted by law
and the provisions of these Second Restated Articles of Incorporation, as
determined from time to time by the Board of Directors and stated in the
resolution or resolutions providing for the issuance thereof. The Board of
Directors shall have the authority to fix, determine and amend, subject to the
provisions hereof, the designations, preferences, limitations and relative
rights of the shares of any series that is wholly unissued or is to be
established. Unless otherwise specifically provided in the resolution
establishing any series, the Board of Directors shall further have the
authority, after the issuance of shares of a series whose number it has
designated, to amend the resolution establishing such series to decrease the
number of shares of that series, but not below the number of shares of such
series then outstanding. In the event that there are no issued or outstanding
shares of a series of Preferred Stock which this Corporation has been authorized
to issue, unless otherwise specifically provided in the resolution establishing
such series, the Board of Directors, without any further action on the part of
the holders of the outstanding shares of any class or series of stock of this
corporation, may amend these Second Restated Articles of Incorporation to delete
all reference to such series.
2.3 DIVIDENDS. The holders of shares of Preferred Stock shall be entitled
to receive dividends, out of the funds of this Corporation legally available
therefor, at the rate and at the time or times, whether cumulative or
noncumulative, as may be provided by the Board of Directors in designating a
particular series of Preferred Stock. If such dividends on
Page 1 - SECOND RESTATED ARTICLES OF INCORPORATION
<PAGE>
the Preferred Stock shall be cumulative, then if dividends shall not have
been paid, the deficiency shall be fully paid or the dividends declared and
set apart for payment at such rate, but without interest on cumulative
dividends, before any dividends on the Common Stock shall be paid or declared
and set apart for payment. The holders of Preferred Stock shall not be
entitled to receive any dividends thereon other than the dividends referred
to in this section.
2.4 REDEMPTION. The Preferred Stock may be redeemable at such price, in
such amount, and at such time or times as may be provided by the Board of
Directors in designating a particular series of Preferred Stock. In any event,
such Preferred Stock may be repurchased by this Corporation to the extent
legally permissible.
2.5 LIQUIDATION. In the event of any liquidation, dissolution or winding
up of the affairs of this Corporation, whether voluntary or involuntary, then,
before any distribution shall be made to the holders of Common Stock, the
holders of Preferred Stock at the time outstanding shall be entitled to be paid
the preferential amount or amounts per share as may be provided by the Board of
Directors in designating a particular series of Preferred Stock and dividends
accrued thereon to the date of such payment. The holders of Preferred Stock
shall not be entitled to receive any distributive amount upon the liquidation,
dissolution or winding up of the affairs of this Corporation other than the
distributive amounts referred to in this section, unless otherwise provided by
the Board of Directors in designating a particular series of Preferred Stock.
2.6 CONVERSION. Shares of Preferred Stock may be convertible into Common
Stock of this Corporation upon such terms and conditions, at such rate and
subject to such adjustments as may be provided by the Board of Directors in
designating a particular series of Preferred Stock.
2.7 VOTING RIGHTS. Holders of Preferred Stock shall have such voting
rights as may be provided by the Board of Directors in designating a particular
series of Preferred Stock.
ARTICLE III
NO PREEMPTIVE RIGHTS
Except as may otherwise be provided by the Board of Directors, no holder of
any shares of this Corporation shall have any preemptive right to purchase,
subscribe for or otherwise acquire any securities of this Corporation of any
class or kind now or hereafter authorized.
Page 2 - SECOND RESTATED ARTICLES OF INCORPORATION
<PAGE>
ARTICLE IV
NO CUMULATIVE VOTING
There shall be no cumulative voting of shares in this Corporation.
ARTICLE V
DIRECTORS
5.1 NUMBER. The Corporation shall have at least one director, the actual
number to be determined as set forth in the Bylaws.
5.2 STAGGERED TERMS. The Board of Directors shall be divided into three
classes if the number of directors is four or more, with said classes to be as
equal in number as may be possible. Any director or directors in excess of the
number divisible by three shall be first assigned to Class 1, and any additional
director shall be assigned to Class 2, as the case may be. (For example, if
there are five directors, the fourth director shall be in Class 1 and the fifth
director in Class 2.) At the first election of directors to such classified
Board of Directors, each Class 1 Director shall be elected to serve until the
next ensuing annual meeting of shareholders, each Class 2 Director shall be
elected to serve until the second annual meeting of shareholders and each Class
3 Director, shall be elected to serve until the third ensuing annual meeting of
shareholders. At each annual meeting of shareholders following the meeting at
which the Board of Directors is initially classified, the number of directors
equal to the number of directors in a class whose term expires at the time of
such meeting shall be elected to serve until the third ensuing annual meeting of
shareholders. Notwithstanding any of the foregoing provisions of this Article
V, directors shall serve until their successors are elected and qualified or
until their earlier death, resignation or removal from office, or until there is
a decrease in the number of directors; provided, however, that no decrease in
the number of directors shall have the effect of shortening the term of any
incumbent director.
5.3 REMOVAL. The directors of this Corporation may be removed only for
cause, in the manner provided in the Bylaws, by the affirmative vote of the
holders of not less than two-thirds of the shares entitled to elect the director
or directors whose removal is being sought.
5.4 VACANCIES. Vacancies on the Board of Directors, including vacancies
caused by an increase in the number of Directors, shall be filled by a majority
vote of the remaining directors only, unless there are no directors remaining,
in which case the vacancies shall be filled by the shareholders, and except as
set forth in the Bylaws.
Page 3 - SECOND RESTATED ARTICLES OF INCORPORATION
<PAGE>
ARTICLE VI
LIMITATION ON DIRECTOR LIABILITY
To the fullest extent permitted by the Oregon Business Corporation Act, as
it exists on the date hereof or may hereafter be amended, a director of this
Corporation shall not be liable to the Corporation or its shareholders for
monetary damages for his or her conduct as a director. Any amendment to or
repeal of this Article shall not adversely affect any right or protection of a
director of this Corporation with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS
To the fullest extent permitted by the Oregon Business Corporation Act and
the Bylaws of this Corporation, this Corporation is authorized to indemnify any
of its officers and directors. The Board of Directors shall be entitled to
determine the terms of indemnification, including advance of expenses, and to
give effect thereto through the adoption of Bylaws, approval of agreements, or
by any other manner approved by the Board of Directors. Any amendment to or
repeal of this Article shall not adversely affect any right of an individual
with respect to any right to indemnification arising prior to such amendment or
repeal.
ARTICLE VIII
BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal the
Bylaws of this Corporation subject to approval by a majority of the
Continuing Directors (as defined in Article XI hereof); provided, however,
that the Board of Directors may not repeal or amend any bylaw that the
shareholders expressly have provided may not be amended or repealed by the
Board of Directors. The shareholders shall also have the power to adopt,
amend or repeal the Bylaws of this Corporation by the affirmative vote of the
holders of not less than two-thirds of the outstanding shares entitled to
vote thereon and, to the extent, if any, provided by resolution adopted by
the Board of Directors authorizing the issuance of a class or series of
Preferred Stock, by the affirmative vote of the holders of not less than
two-thirds of the outstanding shares of Common Stock and/or such class or
series of Preferred Stock, voting as separate voting groups.
Page 4 - SECOND RESTATED ARTICLES OF INCORPORATION
<PAGE>
ARTICLE IX
SPECIAL MEETINGS OF SHAREHOLDERS
The President or the Board of Directors may call special meetings of the
shareholders for any purpose. Further, a special meeting of the shareholders
shall be held if the holders of not less than 25% of all the votes entitled to
be cast on any issue proposed to be considered at such special meeting have
dated, signed and delivered to the Secretary of this Corporation one or more
written demands for such meeting, describing the purpose or purposes for which
it is to be held.
ARTICLE X
AMENDMENTS TO SECOND RESTATED ARTICLES OF INCORPORATION
This Corporation reserves, and the rights of the shareholders of this
Corporation are granted subject to, the right to amend or repeal any of the
provisions contained in these Second Restated Articles of Incorporation as
follows:
10.1 SUPERMAJORITY VOTING. Except as provided in Section 10.2 of this
Article, the Second Restated Articles of Incorporation may be amended or
repealed only upon the affirmative vote of the holders of at least two-thirds of
the outstanding shares entitled to vote thereon and, to the extent, if any,
provided by resolution adopted by the Board of Directors authorizing the
issuance of a class or series of Preferred Stock, by the affirmative vote of the
holders of at least two-thirds of the outstanding shares of Common Stock and/or
of such class or series of Preferred Stock, voting as separate voting groups.
10.2 MAJORITY VOTING. Notwithstanding the provisions of Section 10.1 of
this Article, if an amendment or repeal of a Section or Article of the Second
Restated Articles of Incorporation is approved by a majority of the Continuing
Directors (as defined in Section 11.1 hereof), voting separately and as a
subclass of directors, such amendment or repeal shall require the affirmative
vote of the holders of at least a majority of the outstanding shares entitled to
vote thereon and, to the extent, if any, provided by resolution adopted by the
Board of Directors authorizing the issuance of a class or series of Preferred
Stock, by the affirmative vote of the holders of at least a majority of the
Common Stock and/or of such class or series of Preferred Stock, voting as
separate voting groups.
ARTICLE XI
SPECIAL VOTING REQUIREMENTS
In addition to any affirmative vote required by law, by these Second
Restated Articles of Incorporation or otherwise, any "Business Combination" (as
hereinafter defined) involving this Corporation shall be subject to approval in
the manner set forth in this Article.
Page 5 - SECOND RESTATED ARTICLES OF INCORPORATION
<PAGE>
11.1 DEFINITIONS. For the purpose of this Article:
(a) "Business Combination" means (i) a merger, share exchange or
consolidation of this Corporation or any of its Subsidiaries with any other
corporation; (ii) the sale, lease, exchange, mortgage, pledge, transfer or other
disposition or encumbrance, whether in one transaction or a series of
transactions, by this Corporation or any of its Subsidiaries of all or a
substantial part of this Corporation's assets otherwise than in the usual and
regular course of business; or (iii) any agreement, contract or other
arrangement providing for any of the foregoing transactions.
(b) "Continuing Director" means any member of the Board of Directors
(i) who was a member of the Board of Directors on September 26, 1997, or (ii)
who is elected to the Board of Directors after September 26, 1997, after being
nominated by a majority of the Continuing Directors voting separately and as a
subclass of directors on such nomination.
(c) "Subsidiary" means a domestic or foreign corporation, a majority
of the outstanding voting shares of which are owned, directly or indirectly, by
this Corporation.
11.2 VOTE REQUIRED FOR BUSINESS COMBINATIONS.
(a) Except as provided in subsection 11.2(b) hereof, the
affirmative vote of the holders of not less than two-thirds of the
outstanding shares entitled to vote thereon and, to the extent, if any,
provided by resolution adopted by the Board of Directors authorizing the
issuance of a class or series of Preferred Stock, the affirmative vote of the
holders of not less than two-thirds of the outstanding shares of Common Stock
and/or of such class or series of Preferred Stock, voting as separate voting
groups, shall be required for the adoption or authorization of a Business
Combination.
(b) Notwithstanding subsection 11.2(a) hereof, if a Business
Combination shall have been approved by a majority of the Continuing
Directors, voting separately and as a subclass of directors, such Business
Combination, if required to be approved by this Corporation's shareholders by
the Oregon Business Corporation Act or these Restated Articles of
Incorporation, shall be approved only with the affirmative vote of the
holders of not less than a majority of the outstanding shares entitled to
vote thereon and, to the extent, if any, provided by resolution adopted by
the Board of Directors authorizing the issuance of a class or series of
Preferred Stock, the affirmative vote of the holders of not less than a
majority of the outstanding shares of Common Stock and/or such class or
series of Preferred Stock, voting as separate voting groups.
Page 6 - SECOND RESTATED ARTICLES OF INCORPORATION
<PAGE>
EXHIBIT B
SCHMITT INDUSTRIES, INC.
RESTATED ARTICLES OF INCORPORATION
ARTICLE I
NAME
The name of this Corporation is Schmitt Industries, Inc.
ARTICLE II
CAPITAL STOCK
The total number of shares which this Corporation is authorized to issue is
20,000,000 shares of Common Stock.
ARTICLE III
NO PREEMPTIVE RIGHTS
Except as may otherwise be provided by the Board of Directors, no holder of
any shares of this Corporation shall have any preemptive right to purchase,
subscribe for or otherwise acquire any securities of this Corporation of any
class or kind now or hereafter authorized.
ARTICLE IV
NO CUMULATIVE VOTING
There shall be no cumulative voting of shares in this Corporation.
ARTICLE V
DIRECTORS
A. NUMBER. The Corporation shall have the number of directors as
determined in accordance with the Bylaws.
B. TERMS. Directors shall be elected annually at each annual meeting of
shareholders. Notwithstanding the foregoing, directors shall serve until their
successors are elected and qualified
Page 1 - RESTATED ARTICLES OF INCORPORATION
<PAGE>
or until their earlier death, resignation or removal from office, or until
there is a decrease in the number of directors.
C. REMOVAL. The directors of this Corporation may be removed at any time
with or without cause, in the manner provided in the Bylaws, by the affirmative
vote of the holders of a majority of the shares entitled to vote at a meeting at
which a quorum is present.
D. VACANCIES. Vacancies on the Board of Directors, including vacancies
caused by an increase in the number of Directors, shall be filled by a majority
vote of the remaining directors only, unless there are no directors remaining,
in which case the vacancies shall be filled by the shareholders, and except as
set forth in the Bylaws.
ARTICLE VI
LIMITATION ON DIRECTOR LIABILITY
To the fullest extent permitted by the Oregon Business Corporation Act, as
it exists on the date hereof or may hereafter be amended, a director of this
Corporation shall not be liable to the Corporation or its shareholders for
monetary damages for his or her conduct as a director. Any amendment to or
repeal of this Article shall not adversely affect any right or protection of a
director of this Corporation with respect to any acts or omissions of such
director occurring prior to such amendment or repeal.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS
To the fullest extent permitted by the Oregon Business Corporation Act and
the Bylaws of this Corporation, this Corporation is authorized to indemnify any
of its officers and directors. The Board of Directors shall be entitled to
determine the terms of indemnification, including advance of expenses, and to
give effect thereto through the adoption of Bylaws, approval of agreements, or
by any other manner approved by the Board of Directors. Any amendment to or
repeal of this Article shall not adversely affect any right of an individual
with respect to any right to indemnification arising prior to such amendment or
repeal.
ARTICLE VIII
BYLAWS
The Board of Directors shall have the power to adopt, amend or repeal the
Bylaws of this Corporation; provided, however, that the Board of Directors may
not repeal or amend any bylaw that the shareholders expressly have provided may
not be amended or repealed by the Board of Directors. The shareholders shall
also have the power to adopt, amend or repeal the Bylaws of
Page 2 - RESTATED ARTICLES OF INCORPORATION
<PAGE>
this Corporation by the affirmative vote of the holders of a majority of the
outstanding shares entitled to vote thereon.
ARTICLE IX
SPECIAL MEETINGS OF SHAREHOLDERS
The President or the Board of Directors may call special meetings of the
shareholders for any purpose. Further, a special meeting of the shareholders
shall be held if the holders of not less than 25% of all the votes entitled to
be cast on any issue proposed to be considered at such special meeting have
dated, signed and delivered to the Secretary of this Corporation one or more
written demands for such meeting, describing the purpose or purposes for which
it is to be held.
ARTICLE X
QUORUM REQUIREMENT
The presence in person or by proxy of the holders of one-third (1/3) of the
votes entitled to be cast on a matter at a general or special meeting shall
constitute a quorum of shareholders on that matter.
Page 3 - RESTATED ARTICLES OF INCORPORATION
<PAGE>
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, September 26, 1997
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 September 26, 1997, 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. To approve the Second Restated Articles of
Incorporation of the Company.
(The Board of Directors recommends a vote "FOR")
FOR / / AGAINST / / ABSTAIN / /
2A. If Proposal No. 1 is approved, election of the
following nominees for Directors in the Classes
indicated:
Class 1: David L. Dotlich, David M. Hudson,
Dennis T. Pixton
Class 2: Trevor Nelson, John A. Rupp
Class 3: Maynard E. Brown, Wayne A. Case
(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.
_______________________________________________________
2B. If Proposal No. 1 is not approved, election of the
following nominees for Directors:
Maynard E. Brown, Wayne A. Case, David L. Dotlich,
David M. Hudson, Trevor Nelson, Dennis T. Pixton, 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.
_______________________________________________________
3. Ratification of the selection of Price Waterhouse LLP
as the independent auditors of the Company for the
fiscal year ending May 31, 1998.
(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:___________________________ , 1997
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY
CARD PROMPTLY USING THE ENCLOSED ENVELOPE
