Approval of Amendment to the Charter to Reduce the Threshold Stock Ownership Requirement for Stockholders to Call a Special Meeting
After careful consideration, including discussions with many of our large stockholders, and upon the recommendation of the Corporate Governance and Public Policy Committee, our Board recommends that stockholders vote “FOR” the proposal to amend our Charter to reduce the threshold ownership requirement for stockholders to call a special meeting. This amendment would permit stockholders who own at least 10% of our outstanding capital stock in the aggregate to call a special meeting of stockholders. The current minimum stock ownership requirement to call a special meeting is 20% of our outstanding capital stock, as further detailed below.
Existing Ownership Threshold. Under our current Charter and By-Laws, one or more stockholders of record that together have continuously held, for their own account or on behalf of others, beneficial ownership of at least a 20% aggregate “net long position” of the Company’s outstanding capital stock for at least one year prior to the date such request is delivered have the ability to require the Company to call a special meeting of its stockholders. Stock ownership is determined under a “net long position” standard to provide assurance that stockholders seeking to call a special meeting possess both (i) full voting and investment rights pertaining to the shares and (ii) the full economic interest in (including the opportunity for profit and risk of loss on) such shares.
Amended Ownership Threshold. Pursuant to the proposed amendment to the Charter and the corresponding amendment to the By-Laws, the minimum ownership threshold would be reduced from 20% to 10%. No other provisions of the Charter or By-Laws would be amended in connection with this action.
Background. At the Company’s 2017 Annual Meeting of Stockholders (the “2017 Annual Meeting”), a stockholder proposal requesting that the Board “undertake such steps as may be necessary to permit written consent by shareholders…” received approximately 51% approval. In light of the outcome of the stockholder vote on this proposal, the Board and the Corporate Governance and Public Policy Committee considered possible amendments to the Company’s Charter and By-Laws in response. The Board and the Corporate Governance and Public Policy Committee considered adopting various forms of a mechanism to permit written consent by stockholders and also considered lowering the ownership threshold of the Company’s existing right for stockholders to call a special meeting. Taking no action was also considered.
The Company sought to engage with its top 25 stockholders to inform the Board and the Corporate Governance and Public Policy Committee of stockholder preferences as part of the process to determine the most appropriate action in response to the stockholder vote on the written consent proposal at the 2017 Annual Meeting. The stockholders in this group who agreed to speak with the Company are believed by the Company to have held approximately 49% of the Company’s outstanding stock as of December 31, 2017. The holders of a significant majority of the common stock represented in this group (approximately 31% of the Company’s outstanding stock as of December 31, 2017) expressed a preference for the Company to reduce its ownership threshold for stockholders to call a special meeting to a range between 10% and 15%. With this information, the Corporate Governance and Public Policy Committee recommended to the Board that the Charter and By-Laws be amended to reduce the minimum stock ownership requirement to call a special meeting to 10% of the Company’s outstanding capital stock. The Board approved the proposed amendment to the Charter, subject to stockholder approval. In addition, the Board will approve a corresponding amendment to our By-Laws, if and when the amendment to the Charter becomes effective.
The Board is strongly committed to good corporate governance and continues to support the practice of permitting stockholders to request special meetings, provided that the meeting is called by stockholders owning a significant percentage of the shares of the Company. The Board determined that it is consistent with best corporate governance practices and in the best interests of the Company and its stockholders to amend the Charter and the By-Laws to permit stockholders who hold 10% or more of the Company’s outstanding capital stock to call special meetings, subject to the procedures and other requirements as provided in the By-Laws.
The Board continues to believe that special meetings should only be called to consider extraordinary events that are of interest to a broad base of stockholders that cannot be delayed until the next annual meeting. The Board also believes that establishing a 10% ownership threshold to request a special meeting strikes a reasonable balance between enhancing stockholder rights and protecting against the risk that a small minority of stockholders, including stockholders with special interests, could call one or more special meetings that could result in unnecessary financial expense and disruption to our business. For every special meeting, the Company is required to provide each stockholder a notice of meeting and proxy materials, which results in significant legal, printing and mailing and administrative expenses, as well as other costs normally associated with holding a stockholder meeting. Additionally, preparing for stockholder meetings requires significant attention of the Company’s directors, officers and employees, diverting their attention away from performing their primary function, which is to operate the Company’s business in the best interests of the stockholders. Likewise, the Board believes that only stockholders with a true economic and non-transitory interest in the Company should be entitled to utilize the special meeting mechanism.
This description of the proposed amendment to the Charter is qualified by the full text of the amendment to Article Seventh, Section B, of the Charter, which is attached to this Proxy Statement as Annex B. In addition, this description of the proposed amendment to the By-Laws is qualified by the full text of the amendment to Article II, Section 3, of the By-Laws, which is attached to this Proxy Statement as Annex C. In both Annex B and Annex C, additions of text to our Charter and By-Laws, respectively, are indicated by underlining and deletions of text are indicated by strike-outs.
The proposed amendment to our Charter requires the affirmative vote of a majority of the outstanding shares of common stock entitled to vote on the subject matter. If this proposal to amend our Charter is approved by our stockholders, the resulting Charter will be filed with the Secretary of State of the State of Delaware shortly after the Annual Meeting. The Board will also approve the proposed corresponding amendment to the By-Laws if and when the amendment to the Charter becomes effective. If this proposal to amend our Charter is not adopted and approved, the corresponding amendment to the By-Laws will not become effective, and the current right of holders of record of at least 20% of the Company’s outstanding capital stock to call a special meeting will remain unchanged.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR PROPOSAL 4.