Dialectic Capital Management Sends Second Letter to California Micro Devices Stockholders
August 20 2009 - 7:30AM
PR Newswire (US)
Urges Stockholders to Support its Director Nominees, Whose
Interests are Truly Aligned with Stockholders NEW YORK, Aug. 20
/PRNewswire/ -- Dialectic Capital Management, LLC ("Dialectic
Capital") announced today that it has sent a letter to the
stockholders of California Micro Devices Corporation ("CMD" or the
"Company") (NasdaqGM: CAMD) 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 Capital 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 20, 2009 Dear Fellow Stockholders: Dialectic Capital
Management has been a stockholder of California Micro Devices
Corporation ("CMD" or the "Company") since 2006 and is its second
largest stockholder with 8.8% of the Company's outstanding common
stock. CMD's largest stockholder has recently voiced concerns
similar to those consistently raised by Dialectic regarding the
Board's poor corporate governance standards. We believe that the
Board has demonstrated, repeatedly, a desire to distance itself
from the legitimate concerns of its stockholders. We further
believe that CMD's June quarter results leave stockholders with
little to look forward to, are the culmination of seven years of
mismanagement and truly reflect that the existing Board has failed
to develop any viable plan to grow CMD's business. Dialectic
Capital has engaged in several attempts to negotiate a settlement
to add stockholder representation to the Board with the aim of
maximizing stockholder value and avoiding an election contest. Our
efforts have fallen on deaf ears. To be clear, our nominees will
join the Board with a mandate to fully and objectively explore all
strategic alternatives with one goal - the maximization of
stockholder value. Do not be mislead by the existing Board--we are
not seeking control of the Company. Given our significant ownership
in the Company, our interests are clearly aligned with yours. In
contrast, the Board and management only own a combined 88,000
shares of stock. CMD'S DEPLORABLE JUNE QUARTER RESULTS REFLECT
SEVEN YEARS OF INERTIA BY THE BOARD CMD's June quarter results
paint the picture of a dormant enterprise with declining revenues
and a lack of strategic initiatives to drive future growth. While
the semiconductor industry as a whole achieved a 17% percent
sequential rebound in revenues, CMD barely managed to expand
revenues 2% sequentially, posting its lowest sales figure in seven
years. We believe the Company's lagging position is a direct
consequence of the Board and management's inability to execute a
long-term strategic plan, as most recently exemplified by the
sudden decision to abandon the development of serial display
controllers. Consider that as recently as May 2008, management had
characterized serial display controllers as a "major growth
opportunity." Similarly, in April 2006, management trumpeted the
acquisition of Arques Technology as marking "an important milestone
in the evolution of California Micro Devices." Only 14 months
later, management began reversing its position. By December 2008,
management wrote off all of the goodwill associated with this
acquisition. The Arques Technology and serial display controller
debacles highlight a recurring theme: management has repeatedly
embarked on risky projects in an indecisive manner, failing to
deliver tangible results for stockholders. Meanwhile, the Board has
clearly failed to hold management accountable. Management's
"ownership" interest is concentrated in over 2.9 million
under-water stock option grants. We believe not having "skin in the
game" has caused the Company to follow a "quick buck" strategy,
funding losses with stockholder cash in the hopes of seeing one of
their high risk projects strike gold in time for them to exercise
their options. Unfortunately all their efforts have failed. THE
BOARD AND MANAGEMENT HAVE YET TO PROPOSE A COMPELLING PLAN TO GROW
THE BUSINESS In a research note reviewing CMD's June quarter
results, Needham sell-side analyst Vernon Essi concluded that:
"[W]e are increasingly skeptical there is a long-term growth plan
in place for CAMD as we believe it is experiencing revenue declines
in its core ESD product line and HB LED is not a strong enough
offset." Analysts are projecting that CMD will continue to lose
money at least through fiscal 2011 and that revenues will stagnate
in the sub-$50 million range. Unsurprisingly, the majority of
analysts are recommending against buying CMD stock, even as the
company trades with a dismal valuation. With the serial interface
display controller opportunity vanished, we believe that management
is resorting to various cosmetic "touch-ups" to give the illusion
of progress, including returning to positive cash flow by slashing
R&D and laying off workers at the bottom of a down-cycle. We
believe that these actions are indicative of a defensive management
team that is conceding its inability to reach profitability through
revenue growth and margin improvements. THE BOARD'S ACTIONS SHOW
THEIR LACK OF CONCERN FOR STOCKHOLDERS This Board has clearly opted
to remain unvested and has evidently taken numerous steps to
distance itself from stockholders, including: -- Depriving
stockholders of their ability to call special meetings -- Adopting
a poison pill, only to reverse course and suddenly redeem it in the
final days of an election contest due to the concern of losing the
vote of its largest stockholder, who openly denounced the Board's
poor corporate governance standards -- Relying strictly on the
Company's CEO, who is the target of stockholder discontent, to
function as the primary communication channel between stockholders
and the Board -- Adopting questionable compensation practices in
the face of dismal operating performances, including increasing the
frequency of bonuses, expanding golden parachutes and handing out
massive option grants -- Allowing Chairman Meyercord to serve on
every single Board committee while simultaneously making him an
integral part of the compensation setting process through his
private compensation consulting practice THE INCUMBENTS HAVE MADE
NUMEROUS FICTITIOUS CLAIMS TO DIVERT YOUR ATTENTION FROM THE TRUE
CHALLENGES FACED BY STOCKHOLDERS Fiction #1: "Clearly Dialectic
Capital's interests and agenda are not in the best interests of the
Company and are not aligned with those of CMD's other
stockholders." Fact #1: We are seeking minority representation on
the Board. Our goal is to have a stockholder(s) on the Board to
provide true stockholder oversight to ensure that future capital
allocation decisions and strategic decisions are made in the best
interest of long term stockholders. As the second largest
stockholder, our interests are evidently aligned with yours. The
same cannot be said of the incumbents, who own no meaningful amount
of stock. Fiction #2: Dialectic Capital has "declined to work
constructively with CMD to reach a settlement". Fact #2: Dialectic
Capital has worked tirelessly to avoid an election contest but is
unwilling to accept a settlement that does not provide for
meaningful stockholder representation. Our proposed settlement to
the Company should make this clear: We offered to keep the size of
the Board at 7 directors, with two stockholder representatives
(one, a Dialectic Capital nominee, and the other, a nominee of
another 5% or greater stockholder) replacing two of the incumbent
directors. Dialectic Capital believes that a Board of 9 directors
is too unwieldy for a company of CMD's size. Fiction #3: Dialectic
Capital is focused on the "quick buck" while the current CMD Board
has had a track record of success Fact #3: Dialectic Capital has
been a long term holder and first acquired stock in 2006. During
this 3 year period CMD management has failed to execute and has had
dismal financial performance including a revenue decline at annual
CAGR rate of (11.1%) from 2006 to 2009; a decrease in net income
from $4 million and $10 million in 2005 and 2006 to net losses of
$1.4 million and $15.0 million, respectively, during the last two
years; a decline in return on invested capital from positive 8.8%
in fiscal 2005 to negative 10.5% in fiscal 2009; and, finally,
CMD's market cap has gone from $132 million in 2006 to its current
market capitalization of $65 million. We do not qualify this as a
"track record of success." Neither should you. Fiction #4: David
Wong has suddenly become bullish on the stock recently because of
"CMD's decisive action to drive down costs in an effort to quickly
return to positive operating cash flow. . . and profitability" Fact
#4: David Wong has had an "outperform" on the stock consistently
since 10/03/07 except for a brief downgrade on 12/04/2008 near the
all-time low of $1.48. Accordingly, he has been consistently wrong
on CMD and cannot possibly represent a reliable, independent seal
of approval of management's strategy. Fiction #5: Dialectic
Capital's agenda is somehow dubious or consistently changing. Fact
#5: Dialectic Capital's goals and objectives are quite simple:
maximize stockholder value. We have stated we will consider all
alternatives to achieve that goal. We have from the beginning
conveyed our basic operational/strategic goals for the Company.
Dialectic Capital has always stressed rational capital allocation
and focused on achieving profitability. Fiction #6: "Dialectic
Capital in seeking three directors is not pursuing what we consider
stockholder representation but rather disproportionate dominance -
- a 9% stockholder should not control 43% of the board" Fact #6:
Dialectic Capital, as a stockholder of approximately 9%, is seeking
minority stockholder representation on the Board which is currently
exclusively controlled by stockholders who hold a combined 0.3% of
the stock. We wonder if the current Board understands what
"disproportionate dominance" truly means? Fiction #7: "Dialectic
Capital's Board nominees are not qualified" Fact #7: Dialectic
Capital has nominated three highly qualified individuals who will
provide financial expertise, corporate governance oversight and
operational expertise to the Board. In addition to serving on
several other boards of publicly traded companies, both Kenneth
Potashner and J. Michael Gullard have significant turnaround
experience. For example, when Mr. Gullard joined the board of
Transmeta Corporation as part of a settlement agreement in an
election contest he became an integral part of overseeing an
increase in Transmeta's stock value of more than 50% before the
company was sold. The experience and true stockholder perspective
our nominees bring will add value for all of CMD's stockholders. 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, 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: 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.
DATASOURCE: Dialectic Capital Management, LLC CONTACT: Salomon
Kamalodine of B. Riley & Co., LLC, +1-310-689-2217, for
Dialectic Capital Management, LLC
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