Obagi Medical Products, Inc. (Nasdaq:OMPI), a leader in topical aesthetic and therapeutic skin health systems, responds to the letter dated February 10, 2012 concerning its Rights Plan and corporate governance matters.
On February 10, 2012, our Board of Directors received a letter related to its Rights Plan and certain corporate governance matters. After due consideration by the Board of Directors, the Company provides the following response.
As provided in our letter to stockholders dated January 10, 2012, the Rights Plan was designed to ensure that all of our stockholders receive fair and equal treatment in the event a stockholder or group of stockholders or other third party attempts to acquire a substantial interest in the Company’s common stock or attempts an unsolicited takeover of the Company. The purpose for adopting the Rights Plan is to encourage any potential acquirer to negotiate with our Board of Directors in good faith, which we believe maximizes value for our stockholders and guards against abusive tactics to gain control of the Company. In addition, as was disclosed in our SEC filings reporting the adoption of the Rights Plan, the Rights Plan will expire on December 23, 2012 unless its adoption is ratified on or prior to such date by our stockholders. As made clear by this expiration date construct, the Board fully intended, and continues to intend, to submit the Rights Plan to our stockholders at this year’s annual meeting for ratification. If our stockholders do not ratify the Rights Plan at this year’s annual meeting, then the Rights Plan will expire pursuant to its terms.
We also believe that it is important to note that our Rights Plan contains the following attributes which are considered best practices by stockholder advisory, risk management and corporate governance bodies:
- The Rights Plan expires upon the earliest of three years from the date of its adoption, one year from its date of adoption if not submitted to stockholders for ratification and the date of the annual meeting if our stockholders vote against its ratification.
- The Rights Plan includes a stockholder redemption feature pursuant to which 10 percent of the outstanding shares may call a special meeting to vote on rescinding the Rights Plan if our Board of Directors refuses to redeem the Rights Plan 90 business days after a qualifying offer is announced.
- The rights will only be exercisable 10 days after it is publicly announced that a person or group (with certain exceptions) has acquired a 20% or greater beneficial ownership stake in the Company’s common stock or 10 business days after a person or group has commenced a tender or exchange offer that would result in the person or group holding a 20% or greater beneficial ownership stake in the Company’s common stock.
- The Rights Plan does not contain any dead-hand, slow-hand, no-hand or similar feature that limits the ability of a future Board to redeem the rights.
For these reasons, we believe the Rights Plan reaches an appropriate balance between enabling our Board of Directors to use the Rights Plan to maximize stockholder value and the current best practices in corporate governance that give stockholders a voice in such process.