Collusion by SM&A and City National Bank to Manipulate SM&A Board Proxy Contest, Asserted by Company's Largest Shareholder and F
May 08 2008 - 3:45PM
PR Newswire (US)
- Sudden Change of SM&A Credit Agreement with City National
Bank Is an Attempt to Manipulate Shareholders and Consistent with
Present Board's Failure of Sound Corporate Governance - NEWPORT
BEACH, Calif., May 8 /PRNewswire/ -- Steven S. Myers, the largest
shareholder, founder and former CEO of SM&A (NASDAQ:WINS)
asserted today that SM&A and City National Bank have colluded
to include in SM&A's credit facility an illegitimate default
provision designed solely to skew the upcoming election and
intimidate SM&A's shareholders into voting for the incumbent
board. SM&A announced on May 6 that it had entered into a new
credit agreement with City National. While this agreement was the
sixth agreement in a series of revolving credit agreements with the
bank, it inexplicably included a new default provision which will
be triggered if a mere minority of the board changes in a contested
election. According to a letter delivered today by Mr. Myers's
attorneys to the Chairman and CEO of City National Corporation, a
copy of which is reprinted below, this novel clause serves
absolutely no legitimate business purpose. As the Board is fully
aware, as of the end of each of the last five years, there were no
outstanding borrowings under the revolving credit facility with
City National. Mr. Myers stated, "I am not surprised that the
incumbent Board of Directors, now desperate about the proxy
contest, would so blatantly breach its fiduciary duties and resort
to such conduct. Unfortunately, this Board's common practice is to
turn a blind eye to sound corporate governance-the effect of which
has been the debilitating destruction of shareholder value. "I am
shocked, however, that City National Bank would participate in
SM&A's conduct. In view of its role, I am calling on the Board
to immediately join in my demand that City National Bank
permanently waive the new default provision and issue appropriate
press releases informing SM&A shareholders of this waiver and
expressing regret for its previous actions. "It is the shareholders
at SM&A who have the ultimate ability to determine the future
of their investment in this company. We urge you to vote FOR our
director nominees - Ken Colbaugh, Al Nagy, Redge Bendheim and
myself - by voting the GOLD proxy card." The full text of the
letter to City National Corporation is as follows: [K&E
letterhead] May 8, 2008 VIA EMAIL, FEDERAL EXPRESS OVERNIGHT AND
REGULAR U.S. MAIL Russell Goldsmith Chairman and Chief Executive
Officer City National Corporation City National Center 400 North
Roxbury Drive Beverly Hills, CA 90210 Re: May 1, 2008 Credit
Agreement between SM&A and City National Bank Dear Mr.
Goldsmith, This Firm represents Steven S. Myers, the largest
shareholder of SM&A and its founder, retired chairman and chief
executive officer. As you may know, Mr. Myers has launched a proxy
contest against SM&A in which he has nominated himself and
three other independent nominees to the SM&A Board of
Directors. The election will take place at SM&A's Annual
Meeting of Shareholders scheduled for May 23, 2008 (the "Annual
Meeting"). I am writing because we have reason to believe that City
National Bank may have conspired with SM&A in an unlawful
scheme designed to intimidate SM&A's shareholders and skew the
upcoming election. As I will outline in this letter, it is apparent
that SM&A and City National Bank have colluded and conspired to
include in their contract an illegitimate default provision
designed solely to intimidate SM&A's shareholders into voting
for the incumbent board. The fact that Cathy L. McCarthy, who is
the President and CEO of SM&A and a member of the incumbent
Board, also happens to be a member of the Orange County Advisory
Board of City National Bank, only confirms the fact that City
National Bank and SM&A are actively conspiring to skew the
upcoming election for the SM&A Board of Directors. Such a
blatant act to mislead SM&A shareholders in light of an ongoing
proxy contest impinges upon the shareholder franchise and
interferes with the effectiveness of a shareholder vote. The
involvement by City National Bank in such a scheme calls into
question the bank's integrity and ethics. Beginning in 2003,
SM&A executed a series of revolving credit agreements with City
National Bank. The agreements provided for a credit facility in the
principal amount of $10 million, renewable on April 30 of each
year. For the years 2003, 2004, 2005, 2006 and 2007, the terms of
each of these credit agreements, including the "Events of Default,"
were essentially the same. Critically, none of the "Events of
Default" specified in the 2003, 2004, 2005, 2006 or 2007 credit
agreements had anything to do with the composition of SM&A's
Board of Directors. Consistent with SM&A's and City National
Bank's practice over the last five years, the 2007 revolving credit
agreement expired on May 1, 2008 and the parties renewed it on the
same day. In this instance, however, SM&A and City National
Bank made one significant change to the terms of the credit
agreement. Specifically, the May 1, 2008 Credit Agreement, which,
as all involved were aware, was executed in the midst of the proxy
contest concerning the election of the SM&A Board of Directors,
contains the following provision that makes a change in SM&A's
Board composition an "Event of Default" under the Credit Agreement:
8.1.10: [An Event of Default occurs if] [t]he individuals who, as
of the date of the agreement, constitute the [SM&A's] Board of
Directors (the "Incumbent Board") cease for any reason to
constitute at least 75% of the Board of Directors; provided,
however, that any individual who becomes a director subsequent to
the date of this agreement whose election, or nomination for
election by the [SM&A's] shareholders, was approved by a vote
of at least a majority of the directors then compromising the
Incumbent Board shall be considered as though such individual were
a member of the Incumbent Board. (emphasis added) I have enclosed a
copy of the May 1, 2008 Credit Agreement for your convenience.
Needless to say, this is the first time any agreement between
SM&A and City National Bank contained a provision that even
mentioned composition of SM&A's Board of Directors, let alone
made a change in Board composition an "Event of Default." There is
absolutely no legitimate business purpose for the new "Event of
Default" that was grafted onto SM&A's most recent credit
facility. To the contrary, the timing and content of Section 8.1.10
of the credit facility make clear that this novel provision was
inserted for the sole purpose of attempting to intimidate
SM&A's shareholders into voting for the incumbent Board. We are
not surprised that the incumbent Board of Directors would so
blatantly breach its fiduciary duties and resort to such unlawful
conduct. (Indeed, that is precisely why Mr. Myers launched his
proxy contest in the first instance.) We are shocked, however, that
City National Bank would aid and abet SM&A's unlawful conduct.
Section 8.1.10 is unlike any "Event of Default" we have ever seen
or heard of in a credit facility. We are aware of certain credit
facilities in which an event of default is triggered if a majority
of the directors are no longer "continuing directors." But here,
SM&A and City National Bank took the remarkable step of
lowering the threshold for continuing directors to 25%, such that
the election of a minority slate to the Board in a contested
election would constitute an event of default. This was no
coincidence. In the upcoming election for the SM&A Board of
Directors, Mr. Myers and his nominees seek four of the nine
SM&A Board seats -- less than a majority, but more than 25%. To
ensure that SM&A shareholders learned of Section 8.1.10, on May
6, 2008 -- less than three weeks before the shareholder vote --
SM&A filed a current report on Form 8-K with the Securities and
Exchange Commission that highlighted this newly-crafted default
provision. While the new Credit Agreement is approximately 20 pages
long, the 8-K goes out of its way to focus on the default
provision: "One event of default is [sic] three or more of the
incumbent Board of Directors cease to be members of the Board of
Directors." We demand that City National Bank take immediate action
to remedy its unlawful conduct. In particular, City National Bank
must permanently waive the default provision in the May 1, 2008
Credit Agreement concerning a 25% change in board composition. Mr.
Myers is calling the Board of Directors of SM&A to join him in
his effort to have this provision waived permanently. In addition,
City National Bank must issue appropriate press releases informing
SM&A shareholders of this waiver and expressing regret for its
previous actions. If City National Bank fails to take these actions
by the close of business on Monday, May 12, 2008, it will expose
itself to substantial legal liability, including the prospects of
class-action lawsuits that will seek punitive damages. Sincerely,
/s/ Eric F. Leon Eric F. Leon cc: General Counsel City National
Bank Steven S. Myers Stephen Fraidin Joel A. Blanchet Kirkland
& Ellis LLP Every Vote Counts - Vote the GOLD PROXY CARD TODAY!
Proxy Material from Steven S. Myers has already been distributed to
all shareholders including a GOLD PROXY CARD. Mr. Myers urges all
shareholders to vote only the GOLD PROXY CARD. If you have any
questions, or need assistance with voting, please contact:
Georgeson Inc. Toll Free (800) 561-3837 SM&A, based in Newport
Beach, Calif., provides competition management and program support
services to major industrial customers in the Aerospace &
Defense, Information Technology, Telecommunications, and other
industries. Media Contact: Robert Siegfried Kekst and Company
212-521-4800 THIS PRESS RELEASE IS FOR GENERAL INFORMATIONAL
PURPOSES ONLY. IT DOES NOT PERTAIN TO THE SPECIFIC INVESTMENT
OBJECTIVE, FINANCIAL SITUATION, SUITABILITY, OR THE PARTICULAR
NEEDS OF ANY SPECIFIC PERSON WHO MAY RECEIVE THIS PRESS RELEASE,
AND SHOULD NOT BE TAKEN AS ADVICE ON THE MERITS OF ANY INVESTMENT
DECISION. THE VIEWS EXPRESSED HEREIN REPRESENT THE OPINIONS OF
STEVEN S. MYERS, AND ARE BASED ON PUBLICLY AVAILABLE INFORMATION
WITH RESPECT TO SM&A (THE "ISSUER"). EXCEPT FOR THE HISTORICAL
INFORMATION CONTAINED HEREIN, THE MATTERS ADDRESSED IN THIS PRESS
RELEASE ARE FORWARD-LOOKING STATEMENTS THAT INVOLVE CERTAIN RISKS
AND UNCERTAINTIES. YOU SHOULD BE AWARE THAT ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE CONTAINED IN THE FORWARD-LOOKING
STATEMENTS. MR. MYERS ASSUMES NO OBLIGATION TO UPDATE THE
FORWARD-LOOKING INFORMATION. MR. MYERS RESERVES THE RIGHT TO CHANGE
ANY OF HIS OPINIONS EXPRESSED HEREIN AT ANY TIME AS HE DEEMS
APPROPRIATE. MR. MYERS DISCLAIMS ANY OBLIGATION TO UPDATE THE
INFORMATION CONTAINED HEREIN. MR. MYERS HAS NOT SOUGHT OR OBTAINED
CONSENT FROM ANY THIRD PARTY TO USE ANY STATEMENT OR INFORMATION
INDICATED IN THIS PRESS RELEASE OR THE PRESENTATION REFERRED TO
HEREIN AS HAVING BEEN OBTAINED OR DERIVED FROM STATEMENTS MADE OR
PUBLISHED BY THIRD PARTIES. ANY SUCH STATEMENT OR INFORMATION
SHOULD NOT BE VIEWED AS INDICATING THE SUPPORT OF SUCH THIRD PARTY
FOR THE VIEWS EXPRESSED HEREIN. NO WARRANTY IS MADE THAT DATA OR
INFORMATION, WHETHER DERIVED OR OBTAINED FROM FILINGS MADE WITH THE
SEC OR FROM ANY THIRD PARTY, IS ACCURATE. EACH OF MR. MYERS,
KENNETH W. COLBAUGH, ALBERT S. NAGY AND REDGE E. BENDHEIM
(COLLECTIVELY, THE "PARTICIPANTS") IS DEEMED A PARTICIPANT IN THE
SOLICITATION OF PROXIES DESCRIBED IN THIS PRESS RELEASE.
INFORMATION REGARDING THE PARTICIPANTS AND THEIR DIRECT OR INDIRECT
INTERESTS, BY SECURITY OWNERSHIP OR OTHERWISE, IS AVAILABLE IN THE
DEFINITIVE PROXY STATEMENT ON SCHEDULE 14A FILED BY MR. MYERS WITH
THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 2008. ALL
STOCKHOLDERS OF THE ISSUER ARE ADVISED TO READ THE DEFINITIVE PROXY
STATEMENT AND OTHER DOCUMENTS RELATED TO THE SOLICITATION OF
PROXIES BY MR. MYERS FOR USE AT THE 2008 ANNUAL MEETING OF
STOCKHOLDERS OF THE ISSUER BECAUSE THEY DO AND WILL CONTAIN
IMPORTANT INFORMATION. THE DEFINITIVE PROXY STATEMENT AND FORM OF
PROXY HAVE BEEN MAILED TO STOCKHOLDERS OF THE ISSUER. STOCKHOLDERS
OF THE ISSUER MAY OBTAIN COPIES OF THE DEFINITIVE PROXY STATEMENT
AND OTHER RELEVANT DOCUMENTS AT NO CHARGE ON THE SEC'S WEB SITE AT
http://www.sec.gov/. IN ADDITION, MR. MYERS WILL PROVIDE COPIES OF
THE DEFINITIVE PROXY STATEMENT WITHOUT CHARGE UPON REQUEST.
DATASOURCE: Steven S. Myers CONTACT: Robert Siegfried of Kekst and
Company, +1-212-521-4800, for Steven S. Myers
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