PROPOSAL TWO: AMENDMENT TO THE CERTIFICATE OF INCORPORATION OF THE
COMPANY TO DECLASSIFY THE BOARD
The Board is proposing to amend the Company’s Certificate of Incorporation to declassify the terms of office of the directors. Currently, the Board is divided into three classes under its current Certificate of Incorporation. Each class consists, as nearly equal in number as possible, of one-third of the total number of directors, with members of each class being elected every three years to a three-year term. At each Annual Meeting of Shareholders, the term of one of the three classes expires and only that class of directors is subject to reelection by the Shareholders.
In July 2019, in accordance with best governance practices, the Board approved, subject to Shareholder approval, amendments to the Company’s Certificate of Incorporation to eliminate the classified Board. The Board also adopted amendments to the Bylaws of the Company to declassify the Board, contingent upon Shareholder approval to amend the Company’s Certificate of Incorporation. The proposal would allow for the annual election of all directors commencing immediately with the 2020 Annual Meeting.
Approval of the amendment to the Certificate of Incorporation requires the affirmative vote of at least two-thirds of the outstanding shares of the Company’s stock entitled to vote.
Background of the Proposal
In making the decision, the Board weighed the merits of both a classified Board and an annually-elected Board. In conducting its evaluation, the Board considered the advantages of a classified Board structure, such as promoting Board stability and continuity, providing a greater opportunity to protect the interests of Shareholders in the event of an unsolicited takeover offer and reinforcing a commitment to long-term value creation for the Shareholders. In recent years, however, there has been concern that classified boards have the effect of reducing the accountability of directors to Shareholders because classified boards limit the ability of Shareholders to evaluate and elect all directors on an annual basis. The view has also been expressed that the election of directors is a primary means for Shareholders to influence corporate governance policies and to hold directors accountable for implementing those policies. In addition, opponents of classified board structures assert that a classified structure for the election of directors Shareholders from presenting and voting for a competing slate of nominees, which can impact shareholder value. As a result, it has become an emerging best governance practice that all Board members be elected concurrently on an annual basis.
After full consideration, the Board has decided that it is an appropriate time to propose eliminating the Company’s classified Board structure and to submit to the Shareholders at the 2020 Annual Meeting a binding proposal to make the necessary amendments to the Company’s Certificate of Incorporation in order to declassify the Board. If adopted, this proposal will allow Shareholders the opportunity to register their views on the performance of the entire Board annually. Accordingly, the Board has determined that eliminating the classified Board structure is in the best interests of the Company and its Shareholders.
The elimination of the Company’s classified board structure will require amendments to the Company’s Certificate of Incorporation, as well as the Company’s Bylaws (with such Bylaw amendments adopted by the Board contingent upon the requisite shareholder approval to amend the Certificate of Incorporation). The full text of the proposed amendments to the Company’s Certificate of Incorporation is set forth in Annex A to this Proxy Statement, where the Company has shown the changes to the relevant sections with deletions indicated by strike-outs and additions indicated by underlining. If the proposed amendments to the Certificate of Incorporation are approved by the requisite vote of the Shareholders at the Annual Meeting, the declassification of the Board will occur immediately, with all of the Company’s directors standing for re-election for a one (1)-year term at the 2020 Annual Meeting.