iRhythm Technologies, Inc.
Extract: Charter Amendment (Plain English Desc) from a DEF 14A on 04/29/2020   Download
SEC Document
SEC Filing

PROPOSAL NO. 2
APPROVAL OF AMENDMENTS TO OUR CERTIFICATE OF INCORPORATION TO PHASE OUT THE CLASSIFIED STRUCTURE OF OUR BOARD OF DIRECTORS

Background

Under our Certificate of Incorporation, our Board of Directors is currently divided into three classes, with members of each class holding office for staggered three-year terms. We are asking you to adopt and approve amendments to our Certificate of Incorporation to phase out the present three-year, staggered terms of our directors and instead provide for the annual election of directors. After careful consideration, the Board of Directors approved, declared advisable, and recommended that our stockholders approve at the Annual Meeting, a plan to declassify the Board of Directors.

Rationale for Phasing Out the Classified Structure of Our Board of Directors

The Board of Directors took into consideration arguments in favor of and against continuation of the classified board structure and determined that it is in the best interests of the Company and its stockholders to declassify the Board of Directors. The Board of Directors considered the advantages of maintaining the classified board structure in light of our current circumstances, including that a classified board structure enhances the continuity and stability of the Board of Directors and helps our company attract and retain committed directors who are able to develop a deeper knowledge of our business and the environment in which we operate and focus on long-term strategies. A classified board structure also provides protection against certain abusive takeover tactics and more time to solicit higher bids in a hostile takeover situation because it is more difficult to change a majority of directors on the Board of Directors in a single year. While the Board of Directors continues to believe that these are important considerations, the Board of Directors also considered potential advantages of declassification in light of our current circumstances, including the ability of stockholders to evaluate directors annually. A structure which requires annual elections for the entire Board of Directors is perceived by some institutional stockholders as increasing the accountability of directors to all stockholders. After carefully weighing all of these considerations, the Board of Directors approved and deemed advisable the proposed amendment to the Certificate of Incorporation and recommended that the stockholders adopt the amendment by voting in favor of this proposal.

Proposed Amendment

The following description of the proposed amendment is a summary and is qualified by the full text of the proposed amendment, which is attached to this Proxy Statement as Appendix A.

If the proposed amendment to our Certificate of Incorporation is adopted and approved by the stockholders, the classified structure of the Board of Directors would be phased-out commencing with the 2021 Annual Meeting and would result in the Board of Directors being declassified (and all members of the Board of Directors standing for annual elections) commencing with the 2023 Annual Meeting of stockholders. If the proposed amendment is not adopted, none of the changes described in Appendix A will be made to our Certificate of Incorporation. The Board of Directors reserves the right to abandon the proposed amendment at any time prior to the effectiveness of the Certificate of Amendment to be filed to effect the proposed amendment.

The proposed amendment to our Certificate of Incorporation would not change the unexpired three-year terms of directors elected prior to the effectiveness of the amendment (including directors elected at this Annual Meeting). Accordingly, the three-year term for directors elected at the 2018 Annual Meeting would expire at the 2021 Annual Meeting, the three-year term for directors elected at the 2019 Annual Meeting would expire at the 2022 Annual Meeting, and the three-year term for directors elected at this Annual Meeting would expire at the 2023 Annual Meeting. The phasing-out of the classified structure of the Board of Directors pursuant to the proposed amendment would commence at the 2021 Annual Meeting. First, director nominees standing for election at the 2021 Annual Meeting would be elected to serve a one-year term. Then, director nominees standing for election at the 2022 Annual Meeting would be elected to serve a one-year term. Finally, beginning with the 2023 annual meeting, all directors would be elected to serve one-year terms and would stand for election at each subsequent annual meeting. The table below summarizes the implementation of the declassification of the Board of Directors pursuant to the proposed amendments:



Annual Meeting YearLength of Term for Directors ElectedYear such Term Would Expire
2020
3 years
2023
2021
1 year
2022
2022
1 year
2023
2023 and after
1 year
Full Board Elected Annually
17



Approval of this Proposal No. 2 will also constitute stockholder approval of an amendment to Article V, Section 5.3 of the Certificate of Incorporation to provide that directors may be removed in the manner provided in Section 141(k) of the DGCL so that, once the Board of Directors is no longer classified, any director may be removed without cause by the affirmative vote of a majority of our common stock outstanding and entitled to vote, all as set forth in Appendix A.