DIALECTIC
CAPITAL MANAGEMENT FILES DEFINITIVE PROXY STATEMENT
AND SENDS LETTER TO
CALIFORNIA MICRO DEVICES STOCKHOLDERS
Urges
Stockholders to Elect New, Highly Qualified Director Nominees
Whose
Interests are Aligned with Stockholders
New York, NY, August 4, 2009 –
Dialectic Capital Management, LLC (“Dialectic”) announced today
that it has filed with
the Securities and Exchange Commission definitive proxy materials in connection
with the 2009 annual meeting of stockholders of California Micro Devices
Corporation (“CMD” or the “Company”) (NasdaqGM: CAMD) to be held on September
17, 2009. Dialectic also has sent a letter to the Company’s
stockholders urging them to elect three highly qualified and experienced
director nominees, John Fichthorn, J. Michael Gullard and Kenneth Potashner, by
signing, dating and returning the GOLD proxy card. The Dialectic
group is the second largest stockholder of the Company and beneficially owns
2,025,011 shares, representing approximately 8.8% of the Company’s outstanding
common stock.
The full
text of the letter follows:
August 4,
2009
SUPPORT
DIALECTIC NOMINEES FOR CALIFORNIA MICRO DEVICES BOARD
CURRENT
BOARD’S INTERESTS ARE NOT ALIGNED WITH STOCKHOLDERS
Dear
Fellow Stockholders:
We are
seeking your support to elect our three highly qualified and experienced
nominees to the Board of Directors of California Micro Devices Corporation
(“CMD” or the “Company”) at the Company’s September 17, 2009 annual
meeting. The Dialectic Group owns 2,025,011 shares, representing 8.8%
of the Company’s outstanding common stock, and is the Company’s second largest
stockholder. We have made repeated attempts to work cooperatively and
constructively with the Company to achieve our objective of creating a Board
that would truly represent the best interests of all
stockholders. Unfortunately, the Board has failed to seriously
address our concerns, and we are engaging in this election contest as a last
resort.
We
believe:
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the
incumbent Board’s minimal equity ownership (only 88,200 shares) has
created a large gap between Board and stockholder interests, which needs
to be addressed by stockholder representation on the
Board
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the
Board has overseen a stagnant business strategy and dramatic deterioration
of stockholder value, requiring immediate
change
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the
Dialectic Group’s nominees will bring a sense of urgency and fresh
perspective to the boardroom
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our
nominees have the operational and financial expertise currently lacking
from the Board
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We firmly
believe a reconstituted Board is vital to the Company’s future success and are
therefore seeking to elect three independent and experienced directors to
represent the interests of all CMD stockholders.
We are not seeking control of the
Company.
Rather, we want to ensure accountability at the Board level by
electing directors who can evaluate the opportunities and challenges at CMD with
an ownership mentality and an open mind.
Our interests are clearly aligned
with yours.
THE CURRENT BOARD HAS FAILED
TO TAKE DECISIVE ACTION
IN THE FACE OF MANAGEMENT’S
INABILITY TO CREATE
A SUSTAINABLE BUSINESS
MODEL
In the
eight years since Robert Dickinson was named CEO, the Company’s enterprise value
has fallen from $82.7 million to less than $10 million and its accumulated
deficit has more than doubled from $31.3 million to $65.6 million. We
believe this decline in value is a direct consequence of the inability of
management, under the direction of the current Board, to capitalize on the
Company’s early success with Chip-Scale-Packaging technology, respond to
competitive dynamics within the protection industry and implement a sustainable
business model. In our view, under the current Board, CMD has been a
rudderless ship whose hopes are precariously pinned to the uncertain business of
a few large, top-tier customers. We have already seen the failure of
that business strategy with the decline of CMD’s Motorola business back in 2006,
which precipitated a string of losses in eight of the Company’s 12 most recent
fiscal quarters.
While CMD
stockholders have suffered through deteriorating revenues and continued losses,
the Company’s most direct competitors have fared significantly
better. Semtech Corporation (SMTC) and ON Semiconductor
Corporation
(ONNN),
which we believe are the Company’s closest comparables in the Electrostatic
Discharge space, have built durable businesses and meaningfully outperformed the
Company. Revenues at SMTC and ONNN have expanded at five-year compound annual
growth rates (CAGRs) of 10.1% and 10.9%, respectively, while CMD has grown at
just 0.29% annually. Since CMD’s Motorola business began to decline,
the Company’s stock price has also lagged far behind these
competitors:
In the
face of this underperformance, the Board has shown complacency and has been
unwilling to hold management accountable for the Company’s dismal
results. We believe the Board’s inaction is in large part due to the
directors’ minimal equity ownership in the Company and a lack of fresh ideas at
the Board level.
We
believe the election of the Dialectic Group’s nominees to the Board is the best
option to bring a sense of urgency and accountability.
WE BELIEVE THAT BOARD AND
MANAGEMENT INTERESTS ARE NOT PROPERLY ALIGNED WITH THOSE OF
STOCKHOLDERS
We
believe the evident misalignment of interests between stockholders, on the one
hand, and the Board and management, on the other, is at the heart of the
Company’s problems and demands immediate change at the Board
level. Together, the Board and senior management directly own only
88,200 shares, or 0.38% of CMD’s outstanding shares. This number is
particularly striking when viewed in light of disclosure in the Company’s proxy
statement that, under the Company’s employee stock purchase plan,
during fiscal 2009 alone, other
Company employees purchased over 250,000 shares
. Why is it
that the Board and management do not display the same degree of confidence and
support of the Company as its other employees?
While the
Board members have chosen not to invest alongside their employees and other
stockholders, they have chosen to engage in a number of poor corporate
governance practices that have served to entrench and isolate them from
stockholders. These tactics include implementing a poison pill
without stockholder approval, depriving stockholders of the ability to call
special meetings and funneling stockholder concerns through Mr. Dickinson, the
Company’s only non-independent director.
The Board
would have you believe that we have posed “obstacles” to their consideration of
our nominees to serve on the Board. In reality, given their
insulation from stockholders and poor corporate governance track record, it is
the current directors who continue to pose obstacles to stockholder
representation on the Board.
WE BELIEVE THE CURRENT BOARD
HAS ACTED TO BENEFIT ITSELF AND MANAGEMENT AT THE EXPENSE OF
STOCKHOLDERS
The
Board’s recent actions continue to foster a corporate culture that, in our view,
is detrimental to existing stockholders. Management’s proxy statement
for the 2009 annual meeting highlights a number of the Board’s questionable
executive compensation decisions, which we believe are particularly indefensible
in view of the continued decline in the Company’s financial
performance. Specifically:
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For
fiscal 2010, the Board simply decided to maintain the current base
salaries of the Company’s executive officers despite the economic
downturn. We find it incomprehensible that, given the Company’s
dismal financial performance and the current economic environment, in
which many companies have slashed compensation, the Board (one of whose
members is a compensation consultant!) could have made such a decision
without the benefit of any analysis
whatsoever.
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The
Board made what it calls “minor” modifications to the Company’s bonus plan
for fiscal 2009 and 2010, providing for a portion of management bonuses
(20% for fiscal 2009 and 25% for fiscal 2010) to be determined at the
discretion of the Board. In previous years, bonuses were
determined solely on the basis of objective financial
targets. The result? Despite the fact that no
bonuses were paid to the Company’s senior management for fiscal 2008, as
financial targets were missed, and the Company’s financial performance
continued to decline in fiscal 2009, the Company’s top executives received
bonuses for fiscal 2009.
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In
addition, the Board modified the bonus plan for fiscal 2009 and 2010 to
provide for quarterly, rather than annual, bonus
payments. There is also no provision for recalculating these
bonuses should there be a restatement of the Company’s financial
statements. We believe this quarterly bonus structure
encourages the manipulation of financial results and rewards fluctuations
in results rather than sustained
performance.
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The
Board continues to hand out lucrative option packages to senior
management, granting options to purchase a total of 325,000 shares in each
of fiscal 2008 and fiscal 2009, and determining to grant the same awards
in fiscal 2010, again without apparent regard for the Company’s
deteriorating financial performance and without tying the vesting of these
options to future performance.
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In
connection with the appointment of Jon Castor to the Board on July 7, 2009
and in obvious anticipation of our election contest, the Board amended the
vesting of options to provide that if a newly-appointed director stands
for election but is not elected to the Board prior to the vesting of the
first tranche of the director’s option, that tranche would be accelerated
and vest in full. That the Board is so willing to hand out
dilutive options to a director for such limited service to stockholders
speaks volumes as to its philosophy on the value of equity-based
compensation.
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The
Board doubled, to 18 and 12 months, respectively, the length of time that
the CFO and other vice presidents of the Company would receive severance
pay in the event of a change in control, allegedly to correct an
inconsistency between the treatment of these executives and the
CEO. We find the timing of this action, which came after we had
proposed a sale of the Company and nominated our slate of directors, to be
highly suspicious.
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Ask
yourselves
: Are these the actions of a Board that is concerned
with improving the Company’s financial performance and maximizing stockholder
value? We believe these actions clearly demonstrate that the Board’s
primary concern is protecting its and managements’ own interests at the expense
of stockholders.
WE BELIEVE THE CURRENT BOARD
SHOULD NOT BE ENTRUSTED WITH THE COMPANY’S FUTURE
Is this
the Board you want determining the future direction of your
Company? The Company has said on a number of occasions that it is
seeking to pursue acquisitions of other businesses. The Company
itself is on record as stating that it has “no recent successful experience in
making such acquisitions…”, which is clearly an understatement. The
only acquisition consummated by the Company during Mr. Dickinson’s eight years
as CEO is the Arques Technology transaction, completed in fiscal 2007 for a
purchase price of just $8.4 million. Less than two years later, the
Company wrote off all $5.3 million in goodwill recorded for that
acquisition. The risks of an ill-fated acquisition are heightened by
the fact that the Board and management collectively hold approximately 2.9
million underwater stock options, which we believe encourages the pursuit of
high-risk/high-reward strategies that are not in the best interests of
stockholders.
We
cannot afford to allow the Company to make another costly mistake under the
direction of the current Board.
THE DIALECTIC GROUP’S
NOMINEES WILL BRING EXPERIENCE AND ACCOUNTABILITY TO THE
BOARD
In our
view, CMD needs new Board members with a fresh perspective to develop and
execute a successful turnaround of the Company and provide accountability to
stockholders. Two of our nominees have extensive operational and
board experience in the technology sector. We also believe it is
critically important to augment these candidates with direct stockholder
representation to promote Board action that is in the best interests of all
stockholders:
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John
Fichthorn co-founded Dialectic Capital Management, LLC, an investment
management firm and CMD’s second largest stockholder, in
2003. Mr. Fichthorn has been a technology-focused investor
since 1997.
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J.
Michael Gullard is a General Partner at Cornerstone Management, Inc., a
professional turn-around and restructuring firm. Mr. Gullard
has 35 years of financial, general management and venture capital
experience in the technology industry, notably at Telecommunications
Technology, Inc. and Intel Corporation. Mr. Gullard serves on
the Board of Directors of Alliance Semiconductor Corporation, DynTek,
Inc., JDA Software Group Inc., Planar Systems Inc. and Proxim Wireless
Corporation and has valuable experience working cohesively with incumbent
directors following a successful election
contest.
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Kenneth
Potashner has served as Chairman of the Board of Newport Corporation, a
leading global supplier of advanced-technology products and systems, since
September 2007 and as a member of its Board of Directors since
1998. Mr. Potashner has over 20 years of experience as a
successful technology company executive, including with Maxwell
Technologies, Inc., a manufacturer of ultracapacitors, microelectronics,
power systems and high voltage capacitors, and SONICblue Incorporated, a
supplier of digital media appliances and
services.
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In
addition to adding much needed operational experience and accountability to the
Board, we believe the election of the Dialectic Group’s nominees will send a
strong message to management and the remaining directors that stockholders
demand that the Board represent their best interests.
THE DIALECTIC GROUP’S
NOMINEES ARE COMMITTED TO
REPRESENTING ALL STOCKHOLDERS’
INTERESTS
The
primary objective of the Dialectic Group’s nominees is to ensure that the
Company’s capital is allocated in the most efficient manner possible in order to
maximize returns to stockholders. Our nominees, with the interests
and input of stockholders in mind, will explore any viable strategic options to
achieve this goal. We believe this illustrates the primary difference
between the Dialectic Group’s nominees and the incumbent
directors. The Dialectic Group’s nominees are committed to
representing stockholders’ interests and responding to your
concerns. As the Company’s second largest stockholder, our
interests are aligned with yours to maximize stockholder value.
On the
other hand, the current Board seems more preoccupied with reacting to
stockholders rather than responding to them. The latest example of
this misguided approach is the appointment of Jon Castor to the
Board. We have called on the Board to include a representative of a
significant stockholder (not just of Dialectic, as the Board falsely claims) on
the Board to correct the obvious misalignment of Board and stockholder
interests. What did the Board do? Instead of appointing a
true stockholder representative, the directors themselves chose a new member,
not recommended by any stockholder, who holds ZERO shares. We believe
Mr. Castor’s appointment does little to address the fundamental issues we have
raised or bring a fresh perspective to the Board. Apparently, Mr.
Castor agrees with us. When we asked Mr. Castor, prior to his
appointment to the Board, about his views regarding stockholder representation
on the Board, Mr. Castor said there were “more pluses than minuses” and that he
“like[s] input from smart people who have a stake in the game.”
It
is time for a change. You have the opportunity to vote for directors
who will be proactive and will represent your best interests in the boardroom,
not their own.
VOTE THE GOLD PROXY CARD
TODAY
We urge all stockholders to elect our
director nominees on the enclosed GOLD proxy card today.
Vote
for much needed change at CMD by signing, dating and returning the enclosed
GOLD
proxy card or you
may vote by telephone or Internet if you own through a bank or
broker. We urge stockholders to discard any proxy materials received
from CMD and to vote only the
GOLD
proxy card.
Thank you
for your support,
/s/ John
Fichthorn
John
Fichthorn
To
elect the Dialectic Group’s nominees, we urge all stockholders to sign and
return the
GOLD
Proxy whether or not you have already returned a white proxy sent to you
by the Company.
The
Dialectic Group urges all stockholders not to sign or return any white
proxy
sent
to you by the Company.
Instead,
the Dialectic Group recommends that you use the
GOLD
Proxy and vote by mail or if you own your shares through a bank or a
broker, you may vote by telephone or Internet.
If
you have already returned the white proxy, you can effectively revoke it
by voting the
GOLD
Proxy. Only your latest-dated proxy will be
counted.
If
you have any questions or need assistance in voting the
GOLD
Proxy, please contact our proxy solicitor, Okapi Partners, at the
toll-free number or email address listed below.
Call
Toll-Free: 1-877-285-5990
Or
Email: info@okapipartners.com
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About
Dialectic Capital Management, LLC
Dialectic
Capital Management, LLC is a hedge fund sponsor based in New York, New
York. It manages a multi-sector long/short equity fund.
CERTAIN
INFORMATION CONCERNING PARTICIPANTS
Dialectic
Capital Management, LLC (“DCM”), together with the other participants named
herein, has made a definitive filing with the Securities and Exchange Commission
(“SEC”) of a proxy statement and accompanying GOLD proxy card to be used to
solicit votes for the election of a slate of director nominees at the 2009
annual meeting of stockholders of California Micro Devices Corporation, a
Delaware corporation (the “Company”).
DCM
ADVISES ALL STOCKHOLDERS OF THE COMPANY TO READ THE PROXY STATEMENT AND OTHER
PROXY MATERIALS IN CONNECTION WITH THE ANNUAL MEETING BECAUSE THEY CONTAIN
IMPORTANT INFORMATION. SUCH PROXY MATERIALS ARE AVAILABLE AT NO CHARGE ON THE
SEC’S WEB SITE AT HTTP://WWW.SEC.GOV. IN ADDITION, THE PARTICIPANTS IN THE
SOLICITATION WILL PROVIDE COPIES OF THE PROXY MATERIALS WITHOUT CHARGE UPON
REQUEST. REQUESTS FOR COPIES SHOULD BE DIRECTED TO THE PARTICIPANTS’ PROXY
SOLICITOR, OKAPI PARTNERS, AT ITS TOLL-FREE NUMBER: 1-877-285-5990.
The
participants in the proxy solicitation are DCM, Dialectic Capital Partners, LP
(“DCP”), Dialectic Offshore, Ltd. (“DOF”), Dialectic Antithesis Partners, LP
(“DAP”), Dialectic Antithesis Offshore, Ltd. (“DAO”), John Fichthorn, Luke
Fichthorn, J. Michael Gullard (“Mr. Gullard”), Kenneth Potashner (“Mr.
Potashner”) and Bryant Riley (“Mr. Riley”) (collectively, the “Dialectic
Group”).
As of the
date hereof, DCP beneficially owns 318,631 shares of common stock of the
Company, DOF beneficially owns 186,780 shares, DAP beneficially owns 582,453
shares and DAO beneficially owns 937,147 shares. As of the date
hereof, DCM (as the investment manager of each of DCP, DOF, DAP and DAO) and
John Fichthorn and Luke Fichthorn (as the managing members of DCM) are deemed to
be the beneficial owners of the (i) 318,631 shares owned by DCP, (ii) 186,780
shares owned by DOF, (iii) 582,453 shares owned by DAP and (iv) 937,147 shares
owned by DAO. As of the date hereof, Messrs. Gullard, Potashner and
Riley do not directly own any shares.
Each
member of the Dialectic Group, as a member of a “group” with the other Dialectic
Group members for the purposes of Section 13(d)(3) of the Securities Exchange
Act of 1934, as amended, is accordingly the beneficial owner of the shares of
common stock of the Company beneficially owned in the aggregate by the other
members of the Dialectic Group. Each member of the Dialectic Group
disclaims beneficial ownership of such shares, except to the extent of his or
its pecuniary interest therein.
Contact
:
B. Riley & Co.,
LLC
Salomon
Kamalodine
310-689-2217