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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of
the Securities Exchange Act of 1934 (Amendment No. )
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.
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(Name of Registrant as Specified In Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/X/ No fee required
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
(1) Title of each class of securities to which transaction applies:
------------------------------------------------------------------------
(2) Aggregate number of securities to which transaction 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:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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SCHMITT INDUSTRIES, INC.
2765 N.W. NICOLAI STREET
PORTLAND, OREGON 97210
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
SEPTEMBER 26, 1997
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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 amend the Company's Restated Articles of Incorporation to provide
for the following:
(a) Staggered terms for directors;
(b) Removal of directors only for cause;
(c) The creation of a class of Preferred Stock;
(d) Special voting requirements for amending the Company's Bylaws and
Articles; and
(e) Special voting requirements for approving certain business
combinations.
2. (a) If Proposal 1(a) 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
(b) If Proposal 1(a) 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
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August 29, 1997
IMPORTANT
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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
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SCHMITT INDUSTRIES, INC.
2765 N.W. NICOLAI STREET
PORTLAND, OREGON 97210
(503) 227-7908
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PROXY STATEMENT
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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 (Proposals 2(a) and
(b)) are elected by plurality vote of all votes cast at the Meeting. Approval
of the amendments to the Restated Articles of Incorporation (Proposals
1(a)-(e)) and ratification of Price Waterhouse LLP as the independent public
accountants (Proposal 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 and have no effect on the
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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 1(a)-(e) 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.
PROPOSALS 1(a)-(e)
AMENDMENTS TO RESTATED ARTICLES OF INCORPORATION
The Board of Directors of the Company has adopted resolutions proposing
amendments (the "Proposed Amendments") to the Company's existing Restated
Articles of Incorporation ("Current Articles"), which amendments would have
the effect of reducing the likelihood that the Company would be subject to a
change of control or delaying such a change of control. The Proposed
Amendments are not in response to any change of control activity of which
management of the Company is aware. The Proposed Amendments are attached
hereto as Exhibit A; the Current Articles are attached hereto as Exhibit B .
PROPOSAL 1(a)
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AMENDMENT TO RESTATED ARTICLES TO PROVIDE FOR
STAGGERED TERM FOR DIRECTORS
The Board of Directors of the Company has adopted a resolution proposing an
amendment to the Current Articles that would provide for staggered terms for the
directors, effective immediately and affecting the Board of Directors elected at
the Meeting. Under the proposed amendment, the Board of Directors shall be
divided into three classes if the number of directors is four or more, with the
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 amendment is 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.
The proposed amendment also provides 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.
The Board of Directors believes that a staggered Board will provide
additional continuity to its management by having directors serve for a longer
period of time, without standing for reelection each year. Also, a staggered
Board will help to assure the continuity and stability of the Company's
management and policies in the future since a majority of the Board at any given
time will have prior experience as Board members.
A staggered Board is also designed to reduce the vulnerability of the
Company to an unsolicited takeover proposal. The Company believes that if a
potential acquiror were to purchase a significant amount of controlling interest
in the Company, such potential acquiror's ability to remove the Company's
directors and obtain control of the Board and thereby remove the Company's
management would severely curtail the Company's ability to negotiate effectively
with the potential acquiror. A staggered Board would reduce the likelihood of a
total change in control, thereby allowing the Board the ability to take the time
and gather the information necessary to evaluate a proposal and to study
alternative proposals and to help ensure that the best price is obtained in any
transaction.
Conversely, a staggered Board would make it more difficult to change
control of the Company by removing and replacing all or a majority of the Board.
Since not all directors would
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stand for election at a single shareholders' meeting, as is the case now,
shareholders desiring to change control would have to vote at multiple meetings
in order to do so, requiring at least two annual meetings to remove and replace
a majority of the directors of the Company, and three annual meetings to remove
and replace the entire Board. Likewise, a staggered Board may discourage a
potential acquiror from making a tender offer (including an offer at a
substantial premium over the then-prevailing market value of the Common Stock),
even though such an attempt might be beneficial to the Company and its
shareholders. By reducing the attractiveness of accumulating large blocks of
Common Stock and subsequently changing control of the Company, adoption of the
amendment could tend to reduce any temporary fluctuation in the market price of
the Common Stock that is caused by such accumulations. Accordingly,
shareholders could be deprived of certain opportunities to sell their stock at a
temporarily higher market price.
See "ADVANTAGES AND DISADVANTAGES OF PROPOSED AMENDMENTS," below, for
further discussion of factors that should be considered by shareholders in
making their voting decision.
The Board of Directors unanimously recommends a vote for this proposal.
PROPOSAL 1(b)
AMENDMENT TO RESTATED ARTICLES
TO PROVIDE FOR REMOVAL OF DIRECTORS ONLY FOR CAUSE
The Board of Directors of the Company has adopted a resolution proposing an
amendment to the Current Articles that would give the shareholders the right to
remove a director only for cause. The amendment 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.
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.
Under the proposed amendment and the Current Articles, in the event of a
vacancy on the Board of Directors, including vacancies caused by an increase in
the number of directors, the vacancy 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.
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The proposed amendment may make it more difficult for holders of a majority
of shares of Common Stock to remove directors, and consequently more difficult
to acquire control of the Company without the approval of the Board and the
Company's management. The proposed amendment would make it impossible for
someone who acquires voting control of the Company immediately to remove the
incumbent directors who may oppose such person and to replace them with more
friendly directors, and would instead require such a person to demonstrate cause
for removal of an incumbent director or replace incumbent directors as their
terms expire over a period of up to three years, as would be the case if
Proposal 1(a) were approved.
The proposed amendment would also make it more difficult to remove a
director in circumstances not involving a takeover attempt and where ultimate
change in the incumbent Board might be desired by a supermajority of
shareholders without a showing of cause.
See "ADVANTAGES AND DISADVANTAGES OF PROPOSED AMENDMENTS," below, for
further discussion of factors that should be considered by shareholders in
making their voting decision.
The Board of Directors unanimously recommends a vote for this proposal.
PROPOSAL 1(c)
AMENDMENT TO RESTATED ARTICLES TO PROVIDE FOR
CREATION OF CLASS OF PREFERRED STOCK
The Board of Directors of the Company has adopted a resolution proposing an
amendment to the Current Articles that would 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.
The issuance of Preferred Stock could adversely affect the voting power and
other rights of the holders of Common Stock. Preferred Stock 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. As a result, the Board's
ability to issue Preferred Stock may discourage the potential hostility of an
acquiror, possibly resulting in beneficial negotiations. Negotiating with an
unfriendly acquiror may result in, among other things, terms more favorable to
the Company and its shareholders.
Conversely, 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.
See "ADVANTAGES AND DISADVANTAGES OF PROPOSED AMENDMENTS," below, for
further discussion of factors that should be considered by shareholders in
making their voting decision.
The Board of Directors unanimously recommends a vote for this proposal.
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PROPOSAL 1(d)
AMENDMENT TO RESTATED ARTICLES TO PROVIDE FOR SPECIAL VOTING REQUIREMENTS
FOR AMENDING BYLAWS AND ARTICLES
The Board of Directors of the Company has adopted a resolution proposing
an amendment to the Current Articles that would require 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 supermajority of two-thirds of the shareholders may
vote to amend or repeal the Bylaws.
The proposed amendment requires a supermajority 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, 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.
The Board of Directors
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believes that the proposed amendment's special requirements for amending the
Company's Bylaws and Articles would further protect the Company from
unsolicited change of control attempts and are necessary to fulfill the intent
of the proposed amendments contained in Proposals 1(a), (b), (c) and (e). For
example, a supermajority requirement for amending the provisions contained in
Proposal 1(a) would prevent a shareholder, or a group of shareholders with a
majority of the Company's Common Stock from avoiding the requirement of a
staggered Board by simply amending the Company's Restated Articles to delete the
provisions. The supermajority requirement thereby assists management in
retaining their positions.
See "ADVANTAGES AND DISADVANTAGES OF PROPOSED AMENDMENTS," below, for further
discussion of factors that should be considered by shareholders in making their
voting decision.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THIS PROPOSAL.
PROPOSAL 1(e)
AMENDMENT TO RESTATED ARTICLES TO PROVIDE FOR SPECIAL VOTING
REQUIREMENTS FOR APPROVING CERTAIN BUSINESS COMBINATIONS
The Board of Directors of the Company has adopted a resolution proposing an
amendment to the Current Articles that would require a supermajority 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 supermajority 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.
The requirement for a vote of a supermajority, or in the alternative, a
simple majority after approval by a majority of Continuing Directors, protects
the Company against unwanted, hostile acquirors until such time as the Board has
the opportunity to consider whether Business Combination at hand is in the best
interest of the Company and the shareholders. However, the amendment could
discourage potential acquisition proposals, thereby diminishing the
opportunities for a shareholder to participate in tender offers, including
tender offers that are at prices above the then-current market value of the
Common Stock.
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See "ADVANTAGES AND DISADVANTAGES OF PROPOSED AMENDMENTS," below, for
further discussion of factors that should be considered by shareholders in
making their voting decision.
The Board of Directors unanimously recommends a vote for this proposal.
ADVANTAGES AND DISADVANTAGES OF PROPOSED AMENDMENTS
The Proposed Amendments set forth in Proposals 1(a)-(e) have both
advantages and disadvantages to shareholders. The Proposed Amendments do not
prevent a purchase of all or a majority of the equity securities of the Company,
whether pursuant to open-market purchases, negotiated purchases from large
shareholders or an unsolicited bid for all or part of the securities of the
Company. Rather, the Board believes that the Proposed Amendments would
discourage disruptive tactics and encourage persons who may seek to acquire
control of the Company to initiate such an acquisition through negotiations with
the Board. The Board believes that it will therefore be in a better position to
protect the interests of all the shareholders. Furthermore, the shareholders
will have a more meaningful opportunity to evaluate any such action. Although
the Proposed Amendments are intended to encourage persons seeking to acquire
control of the Company to initiate such an acquisition through arm's length
negotiations with the Board, the overall effect of the Proposed Amendments may
be to discourage a third party from making a tender offer for a portion or all
of the Company's Common Stock, or otherwise attempting to obtain a substantial
position in the equity securities of the Company, by preventing such third party
from immediately removing and replacing the incumbent directors.
To the extent any potential acquirors are deterred by the Proposed
Amendments, the Proposed Amendments may have the effect of preserving the
incumbent management in office. The Proposed Amendments may also serve to
benefit incumbent management by making it more difficult to remove management
even when the only reason for the proposed change of control of the shareholder
action may be the unsatisfactory performance of the present directors. In
addition, since the Proposed Amendments are in part designed to discourage
accumulations of large blocks of the Company's voting shares by purchasers whose
objective is to have such voting shares repurchased by the Company at a premium,
their adoption could tend to reduce the temporary fluctuations in the market
price of such voting shares that are caused by such accumulations. Accordingly,
shareholders could be deprived of certain opportunities to sell their shares at
a temporarily higher market price.
Takeovers or changes in the Board of Directors that are effected without
prior consultation and negotiation with the Company would not necessarily be
detrimental to the Company and its shareholders. However, the Board feels that
the benefits of seeking to protect the ability of the Company to negotiate
effectively, through directors who have previously been elected by the
shareholders as a whole and are familiar with the Company, outweigh any
disadvantage of discouraging such unsolicited proposals.
The Proposed Amendments are not in response to any specific efforts of
which the Company is aware to accumulate shares of Common Stock or obtain
control of the Company. The Board is recommending the adoption of the Proposed
Amendments in order to further continuity and stability in the leadership and
policies of the Company and to discourage certain types of tactics that could
involve actual or threatened changes of control that are not in the best
interests of the shareholders. Because of the time associated with obtaining
shareholder approval, the Company believes it is
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inadvisable to defer consideration of the Proposed Amendments until a takeover
threat is pending. Once a specific threat exists, the time required to adopt
the Proposed Amendments may render their adoption impractical prior to the
completion of the takeover. Further, the absence of a specific threat permits
shareholders to consider the merits of the Proposed Amendments outside the
pressured atmosphere of a takeover threat. For these reasons, the Company
believes it is prudent to consider the Proposed Amendments at this time.
In addition to the Proposed Amendments, Oregon law provides certain
protections that could have the effect of curtailing or delaying an unsolicited
change of control effort.
The Company is subject to the Oregon Control Share Act (the "Control Share
Act"). The Control Share Act generally provides that a person ("Acquiring
Person") who acquires voting stock of an Oregon corporation in a transaction
that results in the Acquiring Person holding more than 20%, 33 1/3%, or 50% of
the total voting power of the corporation (a "Control Share Acquisition") cannot
vote the shares it acquires in the Control Share Acquisition ("control shares")
unless voting rights are accorded to the control shares by (i) a majority of
each voting group entitled to vote and (ii) the holders of a majority of the
outstanding voting shares, excluding the control shares held by the Acquiring
Person and shares held by the Company's offices and inside directors. The term
"Acquiring Person" is broadly defined to include persons acting as a group.
The Acquiring Person may, but is not required to, submit to the Company a
statement setting forth certain information about the Acquiring Person and its
plans with respect to the Company. The statement may also request that the
Company call a special meeting of shareholders to determine whether voting
rights will be accorded to the control shares. If the Acquiring Person does not
request a special meeting of shareholders, the issue of voting rights of control
shares will be considered at the next annual meeting or special meeting of
shareholders. If the Acquiring Person's control shares are accorded voting
rights and represent a majority or more of all voting power, shareholders who do
not vote in favor of voting rights for the control shares will have the right to
receive the appraised "fair value" of their shares which may not be less than
the highest price paid per share by the Acquiring Person for the control shares.
Likewise, the Company is subject to certain provisions of the Oregon
Business Corporation Act that govern business combinations between corporations
and interested shareholders (the "Business Combination Act"). The Business
Combination Act generally provides that if a person or entity acquires 15% or
more of the voting stock of an Oregon corporation (an "Interested Shareholder"),
the corporation and the Interested Shareholder, or any affiliated entity of the
Interested Shareholder, may not engage in certain business combination
transactions for three years following the date the person became an Interested
Shareholder. Business combination transactions for this purpose include (a) a
merger or plan of share exchange, (b) any sales, lease, mortgage or other
disposition of 10% or more of the assets of the corporation and (c) certain
transactions that result in the issuance of capital stock of the corporation to
the Interested Shareholder. These restrictions do not apply if (i) the
Interested Shareholder, as a result of the transaction in which such person
became an Interested Shareholder, owns at least 85% of the outstanding voting
stock of the corporation (disregarding shares owned by directors who are also
officers and certain employee benefit plans), (ii) the board of directors
approves the share acquisition or business combination before the Interested
Shareholder acquires 15% or more of the corporation's outstanding voting stock
of the corporation (disregarding shares owned by the Interested Shareholder)
approve the transaction after the Interested Shareholder acquires 15% or more of
the corporation's voting stock.
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While the Control Share Act and the Business Combination Act afford the
Company certain protections against unsolicited changes of control, the Board of
Directors feels it is in the best interests of the Company and its shareholders
to have the additional anti-takeover protection provided by the Proposed
Amendments.
Other than as disclosed herein, the Board does not currently contemplate
recommending the adoption of any further amendments to the Restated Articles or
any other action designed to affect the ability of third parties to take over or
change control of the Company.
PROPOSALS 2(a)-(b)
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 1(a) APPROVED. If Proposal 1(a) 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 1(a) NOT APPROVED. If Proposal 1(a) 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 1(a) is
approved by the shareholders at the Meeting or (B) for one-year terms if
Proposal 1(a) 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
10
<PAGE>
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 1(a) is approved by the shareholders at the Meeting (indicated on the
attached Proxy as "2(a)") and if Proposal 1(a) is not approved (indicated on
the attached Proxy as "2(b)").
The Board of Directors unanimously recommends a vote for the election of
its nominees as directors, either (a) for staggered terms if Proposal 1(a) is
approved by the shareholders at the Meeting or (b) for one-year terms if
Proposal 1(a) is not approved.
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 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
11
<PAGE>
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 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.
12
<PAGE>
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
21, 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.
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.
13
<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.
14
<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 shareholders. 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.
15
<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.
16
<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.
17
<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.
<TABLE>
<CAPTION>
05/31/92 05/31/93 05/31/94 05/31/95 05/31/96 05/31/97
- ------------------------------------------------------------------------------------------------------------------------------
<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>
18
<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 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
19
<PAGE>
EXHIBIT A
PROPOSED AMENDMENTS TO RESTATED
ARTICLES OF INCORPORATION
PROPOSAL 1(a):
"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 the 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."
PROPOSAL 1(b):
"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."
<PAGE>
PROPOSAL 1(c):
"ARTICLE II
CAPITAL STOCK
2.1 AUTHORIZED CAPITAL. The total number of shares which this Corporation
is authorized to issue is 22,000,000, consisting of 20,0000,000 of Common Stock
and 2,000,000 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 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 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 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
<PAGE>
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."
PROPOSAL 1(d):
"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 XII 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>
"ARTICLE XI
AMENDMENTS TO 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 Restated Articles of Incorporation as follows:
11.1 SUPERMAJORITY VOTING. Except as provided in Section 11.2 of this
Article, the 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.
11.2 MAJORITY VOTING. Notwithstanding the provisions of Section 11.1 of
this Article, if an amendment or repeal of a Section or Article of the
Restated Articles of Incorporation is approved by a majority of the
Continuing Directors as defined in Section 12.1 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."
PROPOSAL 1(e):
"ARTICLE XII
SPECIAL VOTING REQUIREMENTS
In addition to any affirmative vote required by law, by these 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.
12.1 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.
<PAGE>
(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.
12.2 VOTE REQUIRED FOR BUSINESS COMBINATIONS.
(a) Except as provided in subsection 12.2(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 12.2(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>
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:
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" (i) THE PROPOSED AMENDMENTS IN
PROPOSALS 1(a)-(e), (ii) THE NOMINEES IN PROPOSALS 2(a) AND (b), AND (iii)
RATIFICATION OF PRICE WATERHOUSE LLP IN PROPOSAL 3.
1. To approve proposed amendments to the Restated Articles of Incorporation
of the Company to provide for:
(a) Staggered terms for directors
FOR / / AGAINST / / ABSTAIN / /
(b) Removal of directors only for cause
FOR / / AGAINST / / ABSTAIN / /
(c) The creation of a class of Preferred Stock
FOR / / AGAINST / / ABSTAIN / /
(d) Special voting requirements for amending the Company's Bylaws and
Articles
FOR / / AGAINST / / ABSTAIN / /
(e) Special voting requirements for approving certain business
combinations
FOR / / AGAINST / / ABSTAIN / /
2 (a) IF PROPOSAL 1(a) 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
/ / 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.
-----------------------------------------------------------------
(b) IF PROPOSAL 1(a) IS NOT APPROVED, election of the following nominees
for Directors for one-year terms:
Maynard E. Brown, Wayne A. Case, David L. Dotlich, David M. Hudson,
Trevor Nelson, Dennis T. Pixton, John A. Rupp.
/ / 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.
-----------------------------------------------------------------
<PAGE>
3. Ratification of the selection of Price Waterhouse LLP as the independent
auditors of the Company for the fiscal year ending May 31, 1998.
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(a)-(e), "FOR" the election of the nominees for the
terms set forth in Proposal 2(a) (if Proposal 1 is approved) or "FOR" the
election of the nominees for the terms set forth in Proposal 2(b) (if
Proposal 1 is not approved), and "FOR" Proposal 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
