The proxy fight is on at Solitron! Activist investment firm Eriksen Capital Management has declared war on CEO Shevach Saraf and the rest of managment of Solitron. Solitron has hired an investment relation firm to send shareholders a letter containing management view of Eriksen and its nominees. Management actions show that they are afriad they're going to lose this proxy fight to Eriksen. Since October 2014, Eriksen Capital has been hitting its head against the wall trying to get the company restructure its board and hire a new CEO. Managment has fought Eriksen every step of the way refucing to change anything and attacking Eriksen Capital and the firm founder Eriksen. Eriksen Capital, in its preliminary proxy statement, outlines the action of Saraf and the board over the last 20 years. The investment firm went into detail on how managment has been using the company has its own piggy bank. Eriksen explain through CEO Saraf compensation packages for the last 20 years has allowed him to take 45% of the company's economic gains.
Eriksen Capital summary of facts:
- In 1992 Shevach Saraf was named president and CEO of Solitron Devices (SODI, Financial). The company was in Chapter 11 bankruptcy at the time. He was granted a very generous package that granted him a good salary, 10% ownership of the company at no cost to him, and 10-year options to purchase 8% of the company.
- Based on SEC filings, Saraf became CEO in December 1992. During the quarter Saraf was hired (12/1992 through 2/1993), shares traded as high as $8.12 and as low as $3.43 per share, adjusted for the reverse stock split. Solitron’s share price as of June 30, 2015 was just $4.47 per share. Thus under Saraf’s 22½ years of leadership, Solitron shareholders total return would range between a loss of 41% and a gain of 39%, including dividends. In comparison the Russell 2000 index, which covers small cap stocks, has risen over 669% since January 1, 1993 through June 30, 2015. Clearly, Solitron’s board has some serious performance issues that they are probably embarrassed to discuss.
- Prior to Saraf becoming CEO in late 1992 the company made contributions to its 401k and Profit Sharing Plan to help employees in preparing for their retirement. Since becoming CEO, Saraf has received over $1.6 million in profit related bonuses, in addition to his generous salary. During that time, the company has made zero contributions to the 401k and Profit Sharing Plan for its employees.
- For nearly 20 years, from 1993 to 2013, CEO Shevach Saraf and the board did not hold annual meetings even though Delaware corporate law requires it. From 1996 to 2013 the only directors were Saraf and two others appointed solely by him after his own term had already expired, and, based on a careful search of SEC filings, it seems clear none were presented to shareholders for affirmation.
- In 2000, CEO Saraf’s personally selected, never-shareholder-approved, expired-term directors voted to approve an employment agreement granting Saraf 15% of Solitron’s earnings in excess of a fixed $250,000 per year. The employment agreement also granted the CEO an automatically renewing five-year contract along with generous change in control benefits.
- In 2000, CEO Saraf’s personally selected, never-shareholder-approved, expired-term directors granted a massive stock option plan, without shareholder approval, primarily for Saraf’s benefit. By our calculations 64% of options granted went to CEO Saraf, and 12% to the other directors.
- CEO Saraf’s personally selected, never-shareholder-approved, expired-term directors granted these massive options to him at ridiculously low prices. The first grant issued in December 2000 was for 10% of the company’s shares and was priced at just one-third of book value. The second grant issued in May 2004 to replace the original 1992 grant, was for 8% of the company’s shares and was priced at a substantial discount to book value.
- In 2007, CEO Saraf’s personally selected, never-shareholder-approved, expired-term directors approved a second 700,000 share option plan without shareholder approval. Thankfully Solitron has not issued shares on it, but they did recently file with the SEC in order to do so. One of our requests to the board was that they put the plan up for shareholder approval at this year’s annual meeting. They refused. Wonder why?
- CEO Saraf’s option grants under the 2000 Stock Option Plan had 10-year expirations from the date of the grant. Just prior to expiration, the board changed the grants to having no expiration even though the plan expressly forbade such action. While Section 10(a) of the 2000 Stock Option Plan grants the board the right to extend an option grant, it expressly states “that in no event shall the aggregate option period with respect to any Option, including the initial term of such Option and any extensions thereof, exceed (10) years.” No amendments to the plan were ever filed, and we would add that an attorney representing Solitron stated in a letter to us that “I understand that the 2000 Stock Option Plan has not been amended since the date of its public filing.”
Eriksen outline in its prelimary proxy statement how Saraf was granted 10% of shares at his hiring for free. A few years later he was through option granted another 18% of shares plus 15% of the company's profits in excess of $250,000 per year. When you add this all up, he has taken home 45% of Solitron economic gains since becoming CEO in 1992. This doesn't include his annual salary of over $300,000 per year.
