My Note: A hearing is set on this matter tomorrow in the Delaware Chancery Court on Mr. Knowles Motion for Summary Judgment, and API's Cross-Motion for Summary Judgment. Amazing that the API Board of Directors opposes the vote, and wishes of a vast majority of their shareholders. Some people never learn! I would ask the THz community help support the API shareholders (including myself) in their fight, for what in my opinion, is fair, just and right! (Note that I received this document in a PDF format, and the formating here is a little off, and there may be some typo's generated in the transfer, for which I apologize.)
EFiled: Nov 06 2013 09:39AM EST
Transaction ID 5450545 Case No. 9064
IN THE COURT
OF CHANCERY OF THE STATE OF DELAWARE
CHARLES M. KNOWLES, JR. ,
Plaintiff,
v.
ADVANCED
PHOTONIX, INC.,
a Delaware
Defendant.
VERIFIED COMPLAINT FOR DECLARATORY RELIEF
Charles M. Knowles, Jr. ("Knowles"), by
undersigned counsel, hereby brings this action against
Advanced Photonix, Inc. ("API" or the "Company"). Knowles
alleges, upon knowledge as to
himself and his own acts and upon information and belief as to all other
matters, as follows:
SUMMARY OF ACTION
1. Knowles seeks summary declarations
pursuant to Section 111 of the Delaware
V 1
2
2. Knowles further seeks a
declaration that broker non-votes, which may be counted
for purposes of quorum,
must be disregarded for purposes of proposals to amend the bylaws of
API,
and thus have no effect on the vote results.
3. Finally, Knowles seeks a
declaration, pursuant to DGCL § 225(b), that as a result
of the vote of
stockholders at the Company's last annual meeting, held on August 23, 2013, the
stockholders
adopted the stockholder proposal to amend the Company's bylaws to allow
stockholders
to nominate director candidates for inclusion in the Company's proxy materials.
THE
PARTIES
4. Plaintiff Charles M.
Knowles, Jr., 124 Golfmeadows Lane ,
Chapmanville , WV
25508,
owns 522,563 shares of the Class A Common Stock of Advanced Photonix, Inc.
5. Defendant Advanced
Photonix, Inc. is a Delaware
place of business at
2925 Boardwalk, Ann
Arbor ,
Michigan
engaged in the
development and manufacture of optoelectronic devices and value-added sub-
systems and systems. API
Class A Common Stock is traded on the New York Stock Exchange
under
the symbol "API".
JUTRISDICTION
6. This
Court has jurisdiction over this matter as it arises under 8 Del.
225(b).
BACKGROlJND
I. API
STOCKHOLDERS HAVE NOT HAD THE CHOICE TO VOTE FOR
ANYONE
OTHER THAN
INCUMBENT BOARD MEMBERS FOR THE PAST
EIGHT YEARS.
7. Each
year, during the Annual Meeting of Stockholders, API stockholders elect the
six
members of the API Board of Directors, who serve for a one-year tenn
2
available
for a vote to serve on the Board of Directors must be recommended by the API
Nominating
and Governance Committee and approved by the API Board.
8. At
the recent API Annual Meeting of Stockholders, all nominees for a vote to
serve on the board were incumbent directors. In fact, the Nominating and Governance
Committee
has not "nominated" a new director since 2005, approximately eight
years ago -
despite
substantial efforts by certain API stockholders to provide options.
9. By letter dated January
11, 2011, from General (ret) Robert H. "Doc" Foglesong
("Dr.
Foglesong") to Richard D. Kurtz, API Chairman of the Board and CEO, (a
true and correct
copy of which is set
forth as Exhibit B), Dr. Foglesong asked to be considered for a position as a
member
of the Board of the Company.
10. On or about April 18,
2011, Knowles submitted his request that Dr. Foglesong be
considered as a nominee
available for a vote to serve on the API Board (a true and correct copy
of which is set forth as Exhibit C). Knowles knows Dr. Foglesong to be a fellow API
stockh~lder who, among other things,
is a retired General of the United States Air Force, holds a
PhD in chemical
engineering, is a former president of Mississippi State
University
board
of directors of several corporations and is a member of the Council of Foreign
Relations.
11. Despite
recommending such a worthy nominee, API provided no response or
acknowledgment
regarding the two nominations of Dr. Foglesong.
12. On
or about March 9, 2012, Knowles again submitted a request that Dr.
Foglesong
be considered as a nominee to serve on the API Board (a true and correct copy
of
which
is set forth as Exhibit D).
13. By letter dated April
16, 2012, (a true and correct copy of which is set forth as
Exhibit
E), Lance A. Brewer ("Brewer"), the Chairman of the Nominating and
Governance
3
Committee, acknowledged
that "Dr. Foglesong's appointment was considered (and rejected) by
the Nominating Committee
and the Board last year, and will be reconsidered in connection with
the preparations for the
Conlpany's Annual Meeting of Stockholders to be held later this year."
Note
that Knowles did not request the "appointment" of Dr. Foglesong;
rather, Knowles
requested
that Dr. Foglesong be included as a nominee.
14. By
letter dated May 23, 2012 (a true and correct copy of which is set forth as
Exhibit F), Brewer again
noted, "The appointment of Dr. Dr. [sic] Foglesong was considered
(and rejected) by the
Nominating Committee and the Board last year, and will be reconsidered in
connection
with API's upcoming Annual Meeting of Stockholders to be held later this
year."
15. Both the April 16, 2012
and the May 23, 2012 letters from Brewer noted that Dr.
Foglesong would be
reconsidered in connection with the preparations for the Company's Annual
Meeting
of Stockholders in 2012.
16. During a telephone
conversation between Knowles and Brewer in June 2012 to
assess why Dr. Foglesong
was considered and rejected in 2011, Brewer stated that "He did not
remember
Dr. Foglesong being considered in 2011."
17. By
letter dated July 11, 2012 (a true and correct copy of which is set forth as
Exhibit
G), API advised Knowles that no compelling case had been made to change the
composition
of the Board, and thus, his proposed nomination was rejected.
18. On or about July 27,
2012, Knowles sent an email message to Richard D. Kurtz
requesting
a copy of the minutes of the 2011 meeting of the Nominating and Governance
Committee during which
the request to include Dr. Foglesong as a nominee was considered (a
true
and correct copy of which is set forth as Exhibit H).
4
19. By letters dated August
10, 2012 (a true and correct copy of which is set forth as
Exhibit I), API and its
counsel wrote to Knowles. API's counsel addressed Knowles' "various
actions...to
advance the candidacy of Dr. Fogelson [sic] as a member of the Company's
Board..." API's
counsel also advised Knowles to seek legal counsel, noting a panoply of
potential
violations of the federal securities laws and applicable Delaware
Finally, API's counsel,
on behalf of the Company, informed Knowles that his request to access
the minutes of the
meeting of Nominating and Governance Committee during which the request
to include Dr. Foglesong
as a nominee was considered (noted above) was denied, and instead,
referred
Knowles to the process under DGCL § 220 to access the books and records he
sought.
20. As
a result, the existing members of the API Board of Directors remained immune
from
challenge.
II. KNOWLES SEEKS IMPROVED
CORPORATE GOVERNANCE.
21. Knowles sought to
improve corporate governance by seeking a vote to anlend the
API
bylaws at the Company's Annual Meeting scheduled for August 2013. The amendment
would
give stockholders that own at least one percent of API stock for at least one
year the
ability to nominate
directors to the API board of directors and to have those nominees included
in the Company's proxy
materials. In addition, Knowles proposed an amendment to the bylaws
designed to hannonize
API's bylaws with DGCL § 112.
22. Candidates
for election to the API board of directors are selected by the
Nominating and Governance Committee of the Board of
Directors. The Nominating and
Governance
Committee may consider candidates recommended by stockholders, but such
candidates
will not become nominees for election to the Board unless approved by the
Nominating
Committee.
5
23. Despite recommendations submitted to the Nominating and
Governance
Committee by
stockholders, no one other than incumbents serves on the API Board of Directors
of the Company. That
has been the case since 2004, as 2005 was the last time a non-incumbent
nominee was
available for stockholder vote. As noted above, Knowles himself has nominated
candidates for inclusion as a nominee
without success.
24. To improve corporate governance and access by
stockholders, Knowles timely
submitted a stockholder proposal,
"Proposal 6," which stated:
That Section 6 of
the Corporation's bylaws be amended to include the following
subsection (4):
If this Corporation
solicits proxies with respect to an election of directors, it shall include in its proxy
solicitation materials (including any form of proxy it distributes), at the
Corporation's
expense, one or more individuals nominated by a nominating stockholder,
in addition to
individuals nominated by the board of directors. For the purpose of this
subsection (4), a "nominating stockholder" shall mean one or more
persons who have
held, directly or in
street name, at least one percent (1 %) of the Corporation's issued and outstanding common
stock for at least one year prior to the date of the stockholder's nomination. The
provisions of this subsection (4) may only be amended by a vote of the stockholders.
III. BOARD OPPOSES KNOWLES.
25. In the Company's Proxy Materials filed with the U.S.
Securities and Exchange
Commission
("SEC"), API expressed its strong opposition to Proposal 6. The Board
of Directors,
who together with the
executive officers own approximately 3,984,569 shares of API,
unanimously
recommended a vote against Proposal 6, although they noted that the stockholder
proposal did not violate either Delaware law or any SEC
or NYSE rules or regulations applicable
to the Company.
26. On August 21, 2013, API filed Definitive Additional
Materials to "clarify" and
"correct"
statements made by Knowles in a July 11, 2013 letter. (A true and correct copy
of the
6
Definitive Additional
Materials, as obtained from www.sec.gov, is attached hereto as Exhibit 1.)
The Board's August 21
letter demonstrates management's vehement opposition to Proposal 6.
IV. VOTE
REQUIRED UNDER THE API BYLAWS.
27. Article 1, Sec. 4, of
the API bylaws, relating to voting, states that:
Sec.
4. VOTING. At all meetings of the stockholders, all questions,
the manner of deciding
which is not specifically regulated by statute, shall be determined by
a majority vote of the shares entitled to vote on such matters present in
person or by proxy, other than the
election of directors, which shall be determined by a plurality of votes of the
shares
entitled to vote on the election of directors present in person or by proxy. (emphasis
added).
28. Thus,
Proposal 6 of the API Annual Meeting required a majority vote of those
present
at the meeting.
29. Despite the above-cited
provision of the API bylaws, the Company stated in the
Preliminary Proxy
Statement that, "Proposal must receive the "FOR" vote of a
majority of the
shares of Common Stock
outstanding (which constitutes the whole capital stock of the Company)
entitled
to vote at the 2013 Annual Meeting. Abstentions and broker non-votes will have
the
same effect as a vote
against the proposal."
30. By
letter dated July 5, 2013, (a true and correct copy of which is set forth as
Exhibit K), Knowles,
through counsel, advised the Company that its preliminary proxy statenlent
on file with the SEC
inaccurately stated the required vote to approve Proposal 6.
31. By
letter dated July 9, 2013, (a true and correct copy of which is set forth as
Exhibit L), API, through
counsel, advised that, "the Company disagrees with your reading of the
Company's
By-laws and does not believe that there is any conflict between the By-law
provisions
you cite." Moreover, API noted that "the voting standard for the
adoption of your
client's proxy access
proposal is correctly stated in the Compcmy's preliminary proxy materi81s
as the affirmative vote
of a majority of the Company's outstanding shares."
7
v. THE ANNUAL MEETING.
32. On August 23,2013, the
Company held its 2013 Annual Meeting of Stockholders
(the
"2013 Annual Meeting"), where the Company's stockholders voted on six
proposals,
including
Proposal 6, the proposal to amend the Company's bylaws to allow stockholders to
nominate
director candidates for inclusion in the Company's proxy materials, if properly
presented at the 2013 Annual Meeting. (A true and
correct copy of the 2013 Proxy Statement, as
obtained
from www.sec.gov, is attached hereto as Exhibit M.)
33. According
to the Company's Current Report filed on Form 8-k on August 26,
2013 ("August 26
Form 8-K," a true and correct copy of which, as obtained from www.sec.gov,
is
attached hereto as Exhibit N), there were 11,970,378 votes in favor and
3,538,820 votes
against Proposal 6. As
noted in the Company's Proxy Materials filed with the SEC, the Board of
Directors and the
executive officers - who strongly opposed Proposal 6 - own 3,984,569 shares
of stock (slightly more
than the votes against). While the Board was not in favor on Proposal 6,
three times the number
of shares were in favor; that is, nearly 12 million shares cast their vote in
accordance with their
stated opposition, then one could assume that non-insider stockholders
approved
Proposal 6 by a margin of 12 million shares to zero.
34. Applying Article 1, Sec.
4, of the API bylaws Proposal 6 was approved by the
stockholders of API. The
vote occurred during the API 2013 Annual Meeting ("At all meetings
of
the stockholders... "), the vote at issue relates to Proposal 6, the
manner of which is not
specifically
regulated by statute (" ...all questions, the manner of deciding
which is not
specifically regulated
by statute... "), for which stockholders present voted in favor by a margin
of over 3-to-l ("
... shall be determined by a majority vote of the shares entitled to vote on
such
8
matters present in
person or by proxy"), and which is not for the election of directors
("...other
than
the election of directors ... ").
VI. BOARD TAKES THE POSITION THAT PROPOSAL 6 REQUIRES MORE
THAN MAJORITY.
35. As
announced in the August 26 Form 8-K, management concluded that the
stockholders rejected
Proposal 6, which requested that the Board amend the Company's bylaws
to
allow stockholders to nominate director candidates for inclusion in the
Company's proxy
materials.
36. Management
noted that:
Approval
of this proposal required the affirmative vote of a majority of the shares outstanding
and entitled to vote on this proposal at the 2013 Annual Meeting. Shares represented by
abstentions or broker non-votes on this proposal had the effect of a vote against the matter.
37. The API Board maintains
that Proposal 6 failed, even though 11.97 million votes
were cast in favor of
allowing stockholders that own 1%
or more of the common stock during the
prior year a right to
nominate a candidate for the Board of Directors, and only 3.54 million votes
were cast against it.
Stockholders at the annual meeting favored Proposal 6 by a margin of over
3-to-1.
38. Rather
than accept that an overwhelming number of stockholders voted in favor
of Proposal 6, management
sought to reinterpret the voting threshold for Proposal 6.
39. Management
appears to hold that the vote for Proposal 6 is based on the total
number
of shares outstanding rather than the votes cast at the Annual Meeting.
Management
appears to point to
Article IX, Sec. 1, which states:
ARTICLE
IX, AMENDMENTS, Sec. 1. HOW AMENDED. These bylaws may be altered, amended,
repealed or added to by an affirmative vote of the stockholders representing a majority
of the whole capital stock entitled to vote at an Annual Meeting
or
at a Special Meeting called for that purpose provided that written notice shall
have been sent to each stockholder or mailed to him at his post office address
of known, at
9
least 10 days before
the date fixed for such meeting. The notice shall set forth the
alterations, amendments or changes which
are proposed to be made in such bylaws or in
lieu thereof shall
set forth a brief summary of the changes to be effected therein. If,
however, all the
stockholders shall be present at any regular or Specia1 Meeting, these bylaws may be
amended by a unanimous vote without any previous notice. Notwithstanding the above, these bylaws
may be altered, amended, repealed or added to
by the affinnative vote taken at a
regular or Special Meeting of the Board of Directors.
40. Based
on Article IX, Sec. 1, and as noted in the
Company's August 26 Form 8-K,
the API Board holds
that the vote of a majority of the shares outstanding and entitled to vote is
required to approve Proposal 6.
VII. TO DECLARE DEFEAT OF PROPOSAL 6, API BOARD COUNTS BROKER
NON-VOTES IN ITS FAVOR.
41. The
Board further concluded that broker non-votes will have the same effect as a
vote against Proposal 6. In every other question
before the stockholders at the API 2013 Annual
Meeting, it appears that broker non-votes
had no effect on the outcome of the election as brokers
are not entitled to vote on such
proposals in the absence of instructions from the beneficial owner.
42. API's attempt to use broker non-votes to count in favor of
the Board is
incongruous with the principles of Delaware corporate law,
Federal securities law and the listing
rules of the NYSE. Simply stated, API's
actions are an affront to stockholder suffrage.
43. Indeed,
as stated in the Company's proxy materials:
Under NYSE MKT rules,
only the proposal to ratify the appointment of BDO as our independent registered public accounting
firm for the fiscal year ending March 31, 2014 is considered a discretionary
item for which your bank or broker will have discretionary voting power if you
do not give instructions with respect to tills proposal at least ten days prior to the Annual Meeting date, while the
proposal to elect directors, the Say-on-Pay
Proposal, the
Say-When-on-Pay Proposal, the Equity Plan Proposal, and the Proxy
Access Proposal are
non-discretionary matters for which specific instructions from beneficial owners are required.
44. Following enactment of the Dodd-Frank Wall Street Refonn
and Consumer
Protection Act,
national securities exchanges adopted rules prohibiting members from voting
uninstructed shares
on matters related to significant - or non-routine - matters as determined by
10
the rules of the SEC.
The NYSE amended its Rule 452, and corresponding Section 402.08 of the
Listed Company Manual,
to implement the Dodd-Frank Act's requirements.
45. With
the exception of the appointment of the independent accounting firm, all
proposals at the API
Annual Meeting are non-discretionary. Broker non-votes had no effect as to
all
non-discretionary matters, except as to the matter opposed by the Board,
Proposal 6 - the
Proxy Access Proposal.
As to Proposal 6, the Board maintained that broker non-votes had the
same effect as a vote
"against" the proposal.
VIII.
INTERPRETATION OF THE BYLAWS.
46. The API Board holds that
the vote of a majority of all the shares outstanding and
entitled
to vote is required to approve Proposal 6.
47. Management's
interpretation of Article IX is
in direct
conflict with the words in
Article
I of the API bylaws.
48. Delaware
corporation and the
general rules of contract interpretation apply.
49. Consistent
with contract interpretation, Article IX, Sec. 1, should be read 'in
context
and in conjunction with Article I, Sec. 4, as requiring the majority vote of
quorum
present
at a meeting of stockholders.
50. Article
IX, Sec. 1, states that the bylaws may be amended by "an affirmative
vote"; that is,
more "for" votes than "against" plus "abstain"
votes.
51. Article
IX, Sec. 1, goes on to define the subset of the vote: ''the stockholders
representing a majority of the whole
capital stock entitled to vote"; that is another way of saying
quorum
entitled to vote.
52. Read together, Article
IX, Sec. 1, approval requires the "for" votes of a majority
of votes cast "at
an Annual Meeting or at a Special Meeting."
11
53. Such a reading is
consistent with other provisions in the bylaws, including Article
I, Sec. 4, which
requires a majority vote of the shares entitled to vote on such matters present
in
person or by proxy for
all questions (other than the two categories stated therein, none of which
is Article IX) at all
meetings of the stockholders.
COUNT I
Declaratory
Judgment (DGCL § Ill
54. Plaintiff repeats and
realleges the allegations set forth above as if fully set forth
herein.
55. As
demonstrated by API's disclosures in the August 26 Form 8-K, the API Board
(incorrectly)
believes that a vote of a majority of all shares outstanding and entitled to
vote is
required
to approve Proposal 6.
56. An actual and
justiciable legal controversy exists as to the vote threshold required
for
a bylaws amendment.
57. Knowles is entitled to a
declaration, pursuant to API's bylaws, that at all meetings
of the stockholders, all
questions - including proposals to amend the Company's bylaws - shall
be determined by a
majority vote of the shares entitled to vote on such matters present in person
or
by proxy, except as to the election of directors or as to matters for which the
manner of
deciding is otherwise
specifically regulated by statute.
COUNT
II
Declaratory Judgment (DGCL § Ill
58. Plaintiff
repeats and realleges the allegations set forth above as if fully set forth
herein.
12
59. As demonstrated by API's
disclosures in the August 26 Form 8-K, the API Board
(incorrectly) believes
that a vote of a majority of all shares outstanding and entitled to vote is
required
to approve Proposal 6.
60. An actual and justiciable legal controversy exists as to the
vote threshold required
for
a bylaws amendment.
61. The Board's incorrect
reading of Article IX of the API bylaws serves to
disenfranchise API
stockholders; thus, such a reading is contrary to Delaware
policy.
62. Knowles is entitled to a
declaration that Article IX, Sec. 1, is unreasonable,
invalid and void to the
extent it is read to require the vote of a majority of all outstanding shares.
63. Knowles is entitled to a
declaration that Article IX, Sec. 1, read in context and in
conjunction with Article
I, Sec. 4, requires the majority vote of a quorum present at a meeting of
stockholders.
COUNT III
Declaratory
Judgment (DGCL § 111) - Broker Non-Votes
64. Plaintiff repeats and
realleges the allegations set forth above as if
fully set forth
herein.
65. Broker non-votes may not
have an effect on the vote results of Proposal 6.
66. The Board (incorrectly)
counted broker non-votes as votes against Proposal 6.
67. An actual and
justiciable legal controversy exists as to whether broker non-votes
may affect the vote
results of Proposal 6 by counting as votes against it.
68. Knowles is entitled to a declaration that broker
non-votes, which may be counted
API, and thus have no
effect on the vote results.
13
COUNT IV
Declaratory Judgment
(DGCL § 225(b)) - Stockholder Vote on
Proposal 6
69. Plaintiff repeats and realleges the
allegations set forth above as if fully set .forth
herein.
70. On August 23, 2013, the Company held its
2013 Annual Meeting of Stockholders,
where the Company's stockholders voted
on, among other things, Proposal 6, a stockholder
proposal to amend the Company's bylaws to
allow stockholders to nominate director candidates
for inclusion in the Company's proxy
materials.
71. The
votes cast in respect to Proposal 6 were 11,970,378 - "for,"
3,538,820
"Against," 371,529 -
"Abstain," and 12,281,996 - "Broker Non-Votes."
72. Yet,
API announced that the stockholders rejected the stockholder proposal
requesting that the Board amend the
Company's bylaws to allow stockholders to nominate
director candidates for inclusion in the
Company's proxy materials.
73. An actual and justiciable legal controversy
exists as to whether Proposal 6 was
approved or rejected.
74. Knowles
is entitled to a declaration that the stockholders approved Proposal 6,
which received the requisite votes in
favor.
WHEREFORE,
Plaintiff respectfully requests that this Court enter an order:
A. declaring
that at all meetings of the stockholders, all questions - including
proposals to amend the Company's bylaws -
shall be determined by a majority vote of the shares
entitled to vote on such matters present
in person or by proxy, except as to the election of
directors or as to matters for which the
manner of deciding is otherwise specifically regulated by
statute;
14
B. declaring
that Article IX, Sec. 1, read in context and in conjunction with Article I,
Sec. 4, requires the majority vote of a
quorum present at a meeting of stockholders;
C. declaring that broker non-votes, which may be counted for
purposes of quorum,
must be disregarded
for purposes of proposals to amend the bylaws of API, and thus have no
effect on the vote results;
D. declaring that the stockholders of API approved Proposal
6, the proposal to
amend the Company's
bylaws to allow stockholders to nominate director candidates for
inclusion in the
Company's proxy materials, at the API Annual Meeting held on August 23, 2013;
E. awarding
Plaintiff its costs and disbursements in this action, including reasonable
attorneys' fees; and
proper.
F.
granting Plaintiff such other and further
relief as this Court may deem just and
PROCTO~ I-IEYMAN LLP
lsi Samuel T Hirzel
Kurt M. Heyman (# 3054) Samuel T. Hirzel
(# 4415)
Dawn Kurtz Crompton (# 5579) 300 Delaware Avenue, Suite 200
(302) 472-7300
Attorneys for Plaintiff
OF COUNSEL:
LOCKE LORD LLP
Marlon Q. Paz
(202) 220-6909
Dated: November
6,2013
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