From ABOC.
Mitchell Saltz, VirTra, and the Smith & Wesson Academy
Proxy advisor Glass Lewis pointed to omissions by AOBC from its SEC filings of information related to director Mitchell Saltz, which had been identified in our report, as a partial basis for Glass Lewis’ recommendation that its clients withhold support from Saltz’s re-election.
In its recent response, AOBC makes several statements that contradict or are difficult to reconcile with publicly available information. For that reason, we believe that the burden is on AOBC to provide an account of events that is consistent with the facts highlighted below, or show that those facts are inaccurate.
Failure to Disclose as “Inadvertent Omission”
Our report pointed out that AOBC failed in both 2017 and 2018 to disclose in its proxy statement that AOBC director Mitchell Saltz serves on the board of VirTra Inc. (VTSI, “VirTra”), a provider of virtual reality-based high-tech weapons training systems and services, despite an SEC rule unambiguously requiring such disclosure. AOBC tries to pass off that failure as an “inadvertent omission,” stating, “ [The failures to disclose Saltz’ board service were due to] an inadvertent omission by Saltz in reviewing his biography for inclusion in the proxy statement of a directorship in VirTra Systems... ”
AOBC’s account of why it omitted Saltz’s VirTra directorship from two successive proxy statements is undermined by the following facts and circumstances.
A modicum of online due diligence on Saltz would have yielded his VirTra directorship. Biographies of Saltz from Bloomberg and MarketScreener, the top results in a Google search for his name, show Saltz as a director at four corporations, with the MarketScreen page indicating that he joined VirTra as a director in 2016. The publicly distributed October 2016 VirTra press release announcing his appointment to the Board highlighted his Smith & Wesson relationship as a major qualification for joining the VirTra board, as follows: 11
Mr. Saltz is a seasoned corporate executive and director with relevant experience in a variety of industries, including the firearms manufacturing and firearms safety and security products industries. He has served as a director of NASDAQ-listed firearms manufacturer Smith & Wesson Holding Corporation from 1998 and served as its Chairman of the Board and Chief Executive Officer from 1998 through 2003. Since Mr. Saltz assumed the role of CEO in 1998 and joined its board, Smith & Wesson has grown in size from a company with $70 million in annual revenue to a well-recognized firearms brand with $1.4 billion in market capitalization.
Saltz’s biography appeared in two proxy statements issued in August 2018: VirTra Inc.’s proxy statement, filed on August 17, and AOBC’s—minus the VirTra directorship—filed on August 24. This temporal proximity suggests that the VirTra and AOBC boards—presumably including Saltz in both cases—would have been reviewing and approving the proxy statements at roughly the same time. Saltz would have been reviewing his biographies for the two companies’ proxy materials during that time as well. The idea that Saltz forgot about his VirTra directorship during this period strains credulity, especially as Saltz’s forgetfulness would have had to extend to AOBC’s 2017 proxy statement as well—i.e. two years in a row.
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Modern Round: Two AOBC Directors Participate in Venture that Uses VirTra Technology
In 2014 Saltz, together with AOBC board chair Barry Monheit, founded Modern Round , a company that creates hybrid luxury lounge/restaurant/virtual shooting ranges (shown in the Bloomberg and MarketScreener biographies) using VirTra’s technologies; the first Modern Round site opened in 2016. Saltz and Monheit serve as chair and vice-chair of Modern Round’s board, respectively . In 2015, VirTra and Modern Round entered into an agreement in which VirTra obtained a 5% ownership stake in Modern Round, and each company, subject to certain conditions, would have the right to purchase up to 10% of the other . Monheit was quoted in the press release announcing the VirTra/Modern Round tie-up. 12 AOBC’s own board chair, then, almost certainly had actual knowledge of Saltz’s VirTra directorship.
The 2018 proxy statement biographies of both Saltz and Monheit refer to the VirTra technology used by Modern Round, but without naming VirTra . The biographies describe Modern Round as “a company formed to create and roll out nationally an entertainment concept centered around a virtual interactive shooting experience utilizing laser technology-based replica firearms and extensive food and beverage offerings,” without indicating VirTra’s role as a provider of key technology for the venture.
AOBC Code of Conduct and Ethics Requires Reporting of Even Potential Conflicts of Interest
Moreover, the AOBC Code of Ethics requires covered persons, including AOBC directors, to bring actual or potential conflicts of interest to the attention of AOBC’s CEO, CFO or General Counsel. As discussed more fully below, because VirTra was arguably a competitor of the Smith & Wesson Academy (the “Academy”)—an AOBC program offering firearms training to law enforcement and the military—Saltz should have interpreted the Code of Conduct and Ethics as requiring him to report the VirTra directorship to one of those executives as a potential conflict of interest, regardless of AOBC’s current insistence that no actual conflict exists.
The conflict policy is crystal clear on the obligation of covered persons to report even borderline cases that might create an appearance of conflict :
All Company directors, officers, and employees should conduct themselves accordingly and seek to avoid even the appearance of improper behavior in any way relating to the Company...Conflicts of interest may not always be clear-cut and further review and discussions may be appropriate. Any director or officer who becomes aware of a conflict or potential conflict should bring it to the attention of the Chief Executive Officer, the Chief Financial Officer, or the General Counsel as appropriate. 13
This above language is included in the updated Code approved and adopted by the Board of Directors on June 26, 2018. It is hard to imagine that Saltz was unaware of its strict provisions during the period in which AOBC was preparing its proxy for release just two months after the Board adopted those Code revisions.
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Given these myriad connections among Saltz, AOBC, Monheit and VirTra, it seems unlikely that neither Monheit, nor any other member of AOBC’s board or senior management team, would have been aware of Saltz’s VirTra directorship at the time the 2017 or 2018 AOBC proxy materials were being prepared, reviewed and approved.
AOBC should explain who on the board or management team had actual knowledge of Saltz’s VirTra directorship and whether AOBC uses any processes, other than simply relying on directors themselves, to ensure that director biographical information in its proxy statements is accurate.
AOBC Narrowly Characterizes Smith & Wesson Academy, Potentially Minimizing Overlap with VirTra and the Potential Competitive Threat
In its response, AOBC takes issue with the notion that VirTra competes with the Academy in order to establish that Saltz’s service on the VirTra board “is not a conflict of interest” and that the omission of that directorship from AOBC’s proxy statements was “immaterial” and “of no consequence.” AOBC draws a distinction between the “armorer training and transitional training” allegedly offered by the Academy and the “virtual-reality based firearms training simulators” VirTra offers. More specifically, AOBC claims that VirTra’s simulators “ do not provide and they do not replace the transitional training we provide in person to our law enforcement customers, and they do not provide training to armorers, certifying them to repair and maintain Smith & Wesson firearms.” While it is true that the Academy offered (before its apparent closure) many Smith & Wesson-specific training programs, a course-by-course review of the Academy’s offerings contradicts AOBC’s narrow characterization of the Academy’s purpose .
