This excerpt taken from the GMCR DEF 14A filed Jan 25, 2007.
INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF COMPANY
Stockholders are being asked to approve an amendment to the Companys Certificate of Incorporation, as amended (the Certificate) to increase the number of authorized shares of Company common stock from 20 million shares to 60 million shares. On January 15, 2007, the Board approved this amendment, subject to stockholder approval, and directed that this amendment be submitted to a vote of the stockholders. The Board has determined that this amendment is in the best interests of the Company and its stockholders and recommends approval by the stockholders.
The Certificate currently authorizes the issuance of up to 20 million shares of Company common stock, each with a par value of $0.10 per share. As of the close of business on January 22, 2007, 7,718,090 shares of common stock were outstanding. In addition, as of the close of business on January 22, 2007, the Company had 1,074,153 shares of common stock subject to outstanding stock options and 509,462 shares reserved for issuance pursuant to future grants under the Companys current stock incentive plans. The Certificate also authorizes the issuance of 1,000,000 shares of preferred stock, none of which are currently outstanding. The proposed amendment will not increase or otherwise affect the Companys authorized preferred stock.
Purpose of Amendment
The Board believes it is in the best interest of the Company to increase the number of authorized shares of common stock in order to give the Company greater flexibility in considering and planning for future potential business needs. In particular, the Board would like to have sufficient number of shares of common stock available to effect a two-for-one stock split in the form of a stock dividend of one share of common stock for each share of common stock outstanding on the record date for such stock split, which has not yet been determined. The Board believes that a stock split would benefit the Company and its stockholders because it would be expected to place the market price of the Companys common stock in a range that is more attractive to investors, which may result in improved liquidity and enhanced trading volume for our common stock. However, the Board has not made a final determination with respect to a stock split nor has it set a definite record date for such a split. Any decision to effect a stock split would be based on market factors and other considerations. Without the approval by the stockholders of the Company to increase the number of authorized shares of the Companys common stock, the Board would be unable to authorize a 2-for-1 stock split and have a sufficient reserve of common stock remaining to consider and plan for future potential business needs.
Excluding the stock split discussed above, the Company has no current plan, commitment, arrangement, understanding or agreement regarding the issuance of the additional shares of common stock resulting from the proposed increase in authorized shares. The additional shares of common stock will be available for issuance by the Board for various corporate purposes, including but not
limited to, stock splits, stock dividends, grants under employee stock plans, financings, corporate mergers and acquisitions and other general corporate transactions. Having this additional authorized common stock available for future use will allow the Company to issue additional shares of common stock without the expense and delay of arranging a special meeting of stockholders.
Possible Effects of the Amendment and Additional Anti-takeover Consideration
If the amendment to the Certificate is approved, the additional authorized shares would be available for issuance at the discretion of the Board and without further stockholder approval, except as may be required by law or the rules of the Nasdaq Stock Market. The additional shares of authorized common stock would have the same rights and privileges as the shares of common stock currently issued and outstanding. The adoption of the amendment would not have any immediate dilutive effect on the proportionate voting power or other rights of existing stockholders. The proposed stock split, should it be effected, would reduce the Companys earnings per share but would not affect voting rights of current stockholders, as each stockholder would continue to hold the same percentage interest in the Company. However, to the extent that the additional authorized shares of common stock are issued in the future outside of the considered stock split, they may decrease existing stockholders percentage equity ownership and, depending on the price at which they are issued, could be dilutive to the voting rights of existing stockholders and have a negative effect on the market price of the common stock. Current stockholders have no preemptive or similar rights, which means that current stockholders do not have a prior right to purchase any new issue of common stock in order to maintain their proportionate ownership thereof.
The Company has not proposed the increase in the number of authorized shares of common stock with the intention of using the additional authorized shares for anti-takeover purposes, but the Company would be able to use the additional shares to oppose a hostile takeover attempt or delay or prevent changes in control or management of the Company. For example, without further stockholder approval, the Board could sell shares of common stock in a private transaction to purchasers who would oppose a takeover or favor the current Board. Although this proposal to increase the authorized number of shares of common stock has been prompted by business and financial considerations and not by the threat of any known or threatened hostile takeover attempt, stockholders should be aware that approval of this proposal could facilitate future efforts by the Company to oppose changes in control of the Company and perpetuate the Companys management, including transactions in which the stockholders might otherwise receive a premium for their shares over then current market prices. The Company could also use the additional shares of common stock for potential strategic transactions including, among other things, acquisitions, spin-offs, strategic partnerships, joint ventures, restructurings, divestitures, business combinations and investments, although the Company has no present plans to do so.
THE BOARD OF DIRECTORS OF THE COMPANY UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE FOR THE PROPOSAL TO AMEND THE COMPANYS CERTIFICATE OF INCORPORATION TO INCREASE THE AUTHORIZED SHARES OF COMPANY COMMON STOCK .