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Sample Proposal for Independent Board (QSII
1999)
An example of what can be done to establish an independent
board can be seen in a "binding" shareholder proposal for bylaw amendments
submitted in 1999 for another California company, Quality Systems, Inc., copied
below. In that case, many of the state and federal legal issues that could
be relevant to a shareholder's submission of a proposal for Farmer Brothers were
argued by management's attorneys and the
shareholder proponent's attorneys, and the
SEC decided to support the shareholder's position
that the company was required to include the proposal in its proxy statement.
(The proposal was never presented for a vote by shareholders.
After the SEC issued its letter, a settlement was
reached among dissident shareholders and management which established governance
conditions similar to those presented in the submitted proposal.)
This shareholder proposal and its supporting statement were
included as "Exhibit B" in a
June 24, 1999 SEC Form 13D/A filing for Quality Systems, Inc..
EXHIBIT B
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Quality Systems, Inc -- SHAREHOLDER PROPOSAL
WHEREAS, the board of directors should be an
independent body elected by
stockholders and owes fiduciary obligations to stockholders; and
WHEREAS, the Company's stockholders believe that an
increased role for
independent directors would help our Company improve its long-term financial
condition, stock performance and competitiveness;
NOW THEREFORE, BE IT RESOLVED that pursuant to Section
8 of Article V of
the Bylaws of Quality System, Inc. ("QSII" or the "Company"), the Company's
stockholders hereby amend Article III of the Company's Bylaws to add the
following Section 16, such amendment to become effective 30 days following
approval by holders of a majority of the outstanding shares of stock
entitled to
vote at the stockholders meeting at which this amendment is proposed:
SECTION 16 INDEPENDENT
BOARD OF DIRECTORS. At least seventy-five
percent (75%) of the directors on the Board shall be
Independent Directors.
At the end of each meeting of the Board, the
Independent Directors shall
meet in executive session, separately from other
directors, to discuss such
matters as they deem appropriate. The Independent
Directors shall elect the
Chairman of the Board, who shall be an Independent
Director. The
Independent Directors as a group shall constitute the
Nominating Committee
of the Board, which shall have sole responsibility for
recommending and
nominating candidates to the Board.
An "Independent Director"
is one who, at any time during the past five
years, has had (i) no familial relationship with any of
QSII's executive
officers or directors and (ii) no direct or indirect
financial relationship
with QSII or any affiliate other than as a director or
shareholder of the
Company, except those past relationships which are (a)
fully disclosed in
the Company's proxy statements, and (b) deemed
insignificant and non-
material by a majority of the other Independent
Directors. Notwithstanding
any other provision of these Bylaws, this Section 16
shall govern in the
event of any inconsistency with other provisions of
these Bylaws and may
not be altered, amended or repealed, except by approval
of the outstanding
shares (as defined in Section 152 of the California
General Corporation
Law).
Lawndale Capital Management, LLC is the third largest
investor in QSII. As
discussed in Lawndale's Schedule 13D and amendments thereto, Lawndale
believes
QSII's board lacks sufficient independence to take necessary actions to stop
poor managerial decision-making. Lawndale further believes that QSII's
corporate
governance practices have been inadequate and a major factor in QSII's poor
shareholder performance. Lawndale believes that a greater role for
independent
directors will improve QSII's corporate governance practices.
<PAGE>
EXHIBIT B (continued)
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Ultimately, Lawndale believes that shareholders can
more confidently rely
on the board if decisions about, for example, management changes, corporate
control contests, executive compensation and major lawsuits are made by an
independent board.
Lawndale requests your support for the above
resolution, which amends the
Company's Bylaws to increase the role of independent directors on the board.
Having a truly independent board is integral to shareholder confidence, and
ultimately enhancing QSII's long-term value.
This amendment would become effective 30 days following
approval by
stockholders. |
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