Shareholder Proposal

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Shareholder Proposal

Proposal 4: Shareholder Proposal

Mr. John Chevedden has given notice of his intention to present a proposal at the 2018 Annual Meeting. Mr. Chevedden’s address is 2215 Nelson Avenue, No. 205, Redondo Beach, California 90278, and Mr. Chevedden represents that he has continuously owned no less than 100 shares of the Company’s common stock since October 1, 2016. Mr. Chevedden’s proposal and supporting statement, as submitted to the Company, appear below.

The Board of Directors opposes adoption of Mr. Chevedden’s proposal and asks stockholders to review the Board’s response, which follows Mr. Chevedden’s proposal and supporting statement below.

The affirmative vote of the holders of a majority of the shares of common stock present, in person or represented by proxy at the meeting and entitled to vote is required to approve this proposal.

Proposal [4] – Assured Shareholder Proxy Access

RESOLVED: Stockholders ask the board of directors to amend its proxy access bylaw provisions and any associated documents, to include the following changes for the purpose of decreasing the average amount of Company common stock the average member of a nominating group would be required to hold for 3-years to satisfy the aggregate ownership requirements to form a nominating group and to increase the possible number of proxy access director candidates:

No limitation shall be placed on the number of stockholders that can aggregate their shares to achieve the 3% of common stock required to nominate directors under our Company’s proxy access provisions.

The number of shareholder-nominated candidates eligible to appear in proxy materials will not be less than 2 when our board has less than 12 members. The number of shareholder-nominated candidates eligible to appear in proxy materials will not be less than 3 when our board has more than 12 members.

Even if the 20 largest public pension funds were able to aggregate their shares, they would not meet the current 3% criteria for a continuous 3-years at most companies according to the Council of Institutional Investors. This proposal addresses the situation that our company now has with proxy access potentially for only the largest shareholders who are the least unlikely shareholders to make use of it.

It is especially important to improve a shareholder right, such as proxy access, to make up for our management taking away an important shareholder right – the right to an in-person annual meeting. We did not even have an opportunity to vote on giving up this right.

For decades shareholders of U.S. companies had a once-a-year opportunity to ask a $6 million CEO and directors questions in person. Now our directors can casually flip their phones to mute during the annual shareholder meeting.

Our management is now free to run a make-believe meeting with Investor Relations devising softball questions in advance while tossing out serious shareholder questions. Then our $6 million CEO can simply read the scripted IR answers to a microphone – no opportunity for live audience feedback. There is no auditor present to see if IR is trashing incoming shareholder questions.

The lack of an in-person annual meeting means that a board meeting can be scheduled months after the virtual meeting – by which time any serious issues raised by shareholders under these adverse conditions will be long forgotten by the directors. Plus a virtual meeting guarantees that there will be no media coverage for the benefit of shareholders.

A virtual meeting is a complacency plan for our directors and top management. Top management has no incentive to avoid making mistakes for 365 days of the year out of concern that there will be an in-person accounting at the annual meeting. Shareholders can vote against the $6 million paycheck of a CEO who refuses to answer shareholder questions in-person and acts like in-person contact with shareholders is a nuisance.

Please vote to improve proxy access to help make up for top management stripping away an important shareholder right:

Assured Shareholder Proxy Access – Proposal [4]




In December 2015, the Board of Directors adopted a bylaw amendment granting proxy access to stockholders who meet certain stock holding and other eligibility requirements. The Company’s proxy access bylaw permits a stockholder, or a group of up to 20 stockholders, owning at least 3% of our outstanding shares of common stock continuously for at least three years, to nominate and include in our annual meeting proxy materials the greater of two director candidates or 20% of the total number of current director seats. The adoption of such a proxy access right is considered good corporate governance, and the terms of the Company’s proxy access right reflect prevailing market practice.

Aggregation Limit. The Company’s existing proxy access bylaw provides all stockholders, regardless of the size of their holdings, a meaningful and fair opportunity to nominate director candidates for inclusion in the Company’s proxy materials. We believe a 20-stockholder aggregation limit is particularly appropriate in light of the concentration of significant holdings of our common stock: as of September 30, 2017, over 63% of our outstanding common stock was held by 64 stockholders who, for at least three years, individually held the minimum average number of shares to participate in a group consisting of 20 stockholders. Under the Company’s proxy access bylaw any stockholder may combine with up to 19 other stockholders (provided they have all held their shares for at least three years) to meet the 3% holding requirement. Thus, the existing proxy access bylaw provides numerous opportunities for any stockholder to combine with as few as one like-minded stockholder to satisfy the bylaw’s ownership requirements. If the aggregation and ownership requirements for proxy access cannot be satisfied, other avenues are still available to a stockholder seeking change to the Company’s Board of Directors, including recommending director candidates for nomination by our Board of Directors as described in this proxy statement and nominating director candidates for election to the Board of Directors in accordance with the requirements of the Company’s advance notice bylaw.

The 20-stockholder aggregation limit included in the Company’s proxy access bylaw reflects prevailing governance practices in the marketplace. As of January 5, 2018, the vast majority (93%) of the 313 S&P 500 companies that have implemented proxy access have adopted an aggregation limit of 20 stockholders. In fact, many of the Company’s long-term stockholders have adopted a 20 stockholder aggregation limit as a standard for their own governance practices. The Council of Institutional Investors now also recognizes a 20-stockholder aggregation limit as the market standard in its publication of proxy access best practices.

The Company believes that the changes advocated by the proponent would increase the administrative burden on the Company to ensure the eligibility and procedural requirements have been satisfied by each stockholder in the aggregate pool. This burden would unduly strain Company resources without any corresponding benefits, which the Company believes would be detrimental to stockholder value.

In connection with our 2017 annual meeting, the proponent submitted, and we included in our proxy materials for the meeting, a similar proposal, which requested that we amend our proxy access bylaw to increase the aggregation limit to 50 stockholders. That proposal received only 23.3% approval, signaling that stockholders believed that the current 20-stockholder aggregation limit provides a fair and reasonable opportunity for all stockholders regardless of the amount of their holdings, while minimizing undue administrative burden, complexity, and expense.

Number of Director Nominees. Under the Company’s current proxy access bylaw, eligible stockholders may nominate two director candidates in all cases, even when the size of the Board falls below ten directors, and may nominate up to three director candidates if the size of the Board increases to 15 directors. At this annual meeting, the Board has nominated 11 directors to serve on the Board. The Board does not presently have plans to increase the size of the Board to the more than 12 directors that would permit for a minimum of three proxy access nominees under the proponent’s proposal, nor has the Company had 12 or more directors serving on the Board at any time during the past ten years. Notwithstanding this, we also believe the Company’s current proxy access bylaw, which requires a minimum of 15 directors before increasing the number of permitted nominees under the proxy access bylaw, is reasonable to maintain proportionality and reflect alignment with the interests of stockholders as a whole.

The proposal also addresses other matters unrelated to the subject of the proposal, such as the Company’s virtual shareholder meeting format. The Board’s position on virtual shareholder meetings is addressed in the Corporate Governance section of this Proxy Statement.

For the reasons stated above, and because the Board believes the current stockholder aggregation limit and number of permitted nominees set forth in the proxy access provisions continues to reflect prevailing market terms, the Board recommends a vote AGAINST the proposal.


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