BioDelivery Sciences International, Inc.
Extract: Charter Amendment (Plain English Desc) from a DEF 14A on 06/17/2020   Download
SEC Document
SEC Filing
PROPOSAL 1

RATIFICATION OF DECLASSIFICATION AND MAJORITY VOTING CHANGE

Our Board has determined that it is in the best interests of the Company and our stockholders to ratify, pursuant to Section 204 of the General Corporation Law of the State of Delaware (the “DGCL”), the filing and effectiveness of amendments to our Certificate of Incorporation declassifying our Board and providing for majority voting in the election of directors. Those amendments were filed with the Delaware Secretary of State on August 6, 2018. Subsequently, a purported stockholder of the Company raised a question as to the validity of those amendments due to the manner in which the vote of stockholders on the proposal to adopt those amendments was tabulated (see “Legal Proceedings” below). Nevertheless, for the reasons set forth in the Proxy Statement for our 2018 Annual Meeting, and for the reasons set forth herein, our Board has determined that it is advisable and in the best interests of the stockholders to ratify those amendments such that the declassification of the Board and the implementation of the majority-voting standard for the election of directors will be effective retroactive to August 6, 2018.

Background

At the 2008 annual meeting of the Company’s stockholders, stockholders approved a proposal to adopt an amendment to the Company’s Certificate of Incorporation to create a classified board of directors comprised of three classes with staggered terms. Following stockholder approval, the Company amended the Certificate of Incorporation, filing an Amendment to the Company’s Certificate of Incorporation on July 25, 2008 with the Secretary of State of Delaware, which added a new Article “TWELFTH”,
which read as follows:

TWELFTH: The Board of Directors shall be divided into three classes, each such class as nearly equal in number as the then-authorized number of Directors constituting the Board of Directors permits, with the term of office of one class expiring each year. At the annual meeting of stockholders following approval of amendment to the Certificate of Incorporation, the stockholders shall elect the one class of Directors for a term expiring at the annual meeting of stockholders to be held in 2009, another class of Directors for a term expiring at the annual meeting of stockholders to be held in 2010, and another class of Directors for a term expiring at the annual meeting of stockholders to be held in 2011. Thereafter, each Director shall serve for a term ending at the third annual meeting of stockholders of the Corporation following the annual meeting at which such Director was elected. Members of each class shall hold office until their successors are elected and qualified. At each succeeding annual meeting of the stockholders of the Corporation, the successors of the class of Directors whose term expires at that meeting shall be elected by a plurality vote of all votes cast at such meeting to hold office for a term expiring at the annual meeting of stockholders held in the third year following the year of their election.” (the “2008 Article Twelfth”).

In 2018, the Board adopted resolutions approving an amendment to the Company’s Certificate of Incorporation, subject to stockholder approval, that (1) deleted Article TWELFTH of the Certificate of Incorporation in its entirety and replaced it with a new Article TWELFTH that, among other things, (i) provided for the declassification of the Board of the Company in phases, with the full declassification to be achieved in 2020 (the “Declassification Amendment”) and (ii) changed the voting standard for the election of directors to the Board from a plurality standard to the standard as set forth in the bylaws of the Company, which currently provides for a majority of the votes cast standard (the “Election Amendment” together with the Declassification Amendment, the “Amendments”).
In approving the Declassification Amendment, the Board considered the advantages and disadvantages of a classified board structure. A classified board structure allows a majority of the board to remain in place from year to year, which promotes continuity, stability, and encourages the board to plan for long-term goals. Further, at any one
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time, approximately two-thirds of the elected board has experience with the business and operations of the company it manages. Unless a corporation’s certificate of incorporation provides otherwise, directors on a classified board can only be removed with cause. The “for cause” removal requirement traditionally associated with classified boards can provide effective protection against unwanted acquisition offers or attempts to gain control. Despite some potential advantages, a classified board structure can be viewed as diminishing a board’s accountability to stockholders, because the structure does not enable stockholders to express a view on each director’s performance by means of an annual vote. Annual voting allows stockholders to express their views on the individual performance of each director and on the entire board of directors more frequently than with a classified board structure, which provides stockholders a more active role in shaping and implementing corporate governance policies. Moreover, many institutional investors believe that the election of directors is the primary means for stockholders to influence corporate governance policies and to hold management accountable for implementing those policies. Public companies with classified boards also face increased scrutiny from proxy advisory firms. After weighing the factors above, among other things, the Board of Directors determined that retaining a classified board structure is not in the best interests of the Company and its stockholders. For this reason, the Board of Directors approved the Declassification Amendment in 2018 and recently approved the ratification of the Declassification Amendment.
The Board also considered the advantages and disadvantages of the implementation of the Election Amendment. Under a plurality voting regime (which applied before the Election Amendment), no matter how stockholder votes are cast, directors will be elected. Even if a director receives a small portion of the votes cast, he or she will be elected if there is no opposing candidate. In cases where there are no opposing candidates, which is always the case outside of the context of a contested election, the candidates receiving the most votes are elected, without regard to whether those votes constitute a majority of the votes cast at the meeting. In an uncontested election where the number of nominees is equal to the available board seats, where plurality voting applies, every nominee that receives at least one affirmative vote in favor of his or her election will be elected. By requiring that directors receive a majority of the votes cast for their election in an uncontested election, a majority voting standard provides greater accountability to the Board in cases where the nominees are running unopposed. As a means of providing greater accountability through the annual election process, the Board approved the Election Amendment in 2018 and recently ratified the Election Amendment.
On August 2, 2018, at the 2018 Annual Meeting of Stockholders, the Board sought stockholder approval of the Amendments. On August 6, 2018, the Company, after determining that it had received the requisite vote of stockholders for the adoption of the Amendments based on the tabulation of the vote received at the time, filed a Certificate of Amendment to the Certificate of Incorporation (the “Certificate of Amendment”) with the Secretary of State of the State of Delaware to effect the Amendments. Upon the effectiveness of the filing of the Certificate of Amendment, the Company proceeded on the basis that the Declassification pursuant to the Declassification Amendment (the “Declassification”) as well as implementation of the majority voting standard for the election of directors pursuant to the Election Amendment (the “Majority Voting Change”) had become effective.
After consultation with counsel, the Board has determined that the Declassification Amendment and the Election Amendment was not adopted by the requisite vote of stockholders at the 2018 Annual Meeting in accordance with Section 242 of the DGCL. As a result, each of the Declassification, the Majority Voting Change, and the filing and effectiveness of the Certificate of Amendment, constituted a “defective corporate act” (as defined in Section 204(h) of the DGCL) due to such potential “failure of authorization” (as defined in Section 204(h) of the DGCL) arising out of the adoption of Amendments by stockholders.

The Board has determined that it is advisable and in the best interests of the Company and its stockholders to ratify the Declassification, the Majority Voting Change, and the filing and effectiveness of the Certificate of Amendment and, in connection therewith, to approve the filing of a certificate of validation in the form prescribed by Section 204 of the DGCL. Thus, on November 5, 2019, the Board approved resolutions ratifying such acts and the filing and effectiveness of the Amendments under Section 204 of the DGCL. A copy of the resolutions of the Board ratifying the Declassification, the Majority Voting Change and the filing and effectiveness of the Certificate of Amendment and authorizing related matters is attached to this Proxy Statement as Annex A.

Pursuant to DGCL Section 204, pursuant to, and in accordance with, Section 204 of the DGCL, the Board’s ratification of each of the Declassification, the Majority Voting Change and the filing and effectiveness of the
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Certificate of Amendment is subject to the approval of the stockholders of the Company. The approval of Proposal 1 requires the affirmative vote of the holders of a majority of the outstanding Common Stock entitled to vote thereon. Abstentions and broker non-votes will count as votes against Proposal 1.
Filing of a Certificate of Validation
If Proposal 1 is approved by our stockholders, we will file a certificate of validation with respect to the Amendments with the Delaware Secretary of State (the “Certificate of Validation”). The filing date of the Certificate of Validation with the Secretary of State of the State will be the “validation effective time” (as defined in Section 204(h) of the DGCL) with respect to the ratification of the Declassification, the Majority Voting Change and the filing and effectiveness of the Certificate of Amendment.
Retroactive Ratification of the Amendments
Subject to the 120-day period for bringing claims discussed below, when the Certificate of Validation becomes effective in accordance with the DGCL, it should eliminate any possible uncertainty as to whether the Declassification, the Majority Voting Change and the filing and effectiveness of the Certificate of Incorporation are void or voidable as a result of the potential failure of authorization described above, and the effect of the ratification will be retroactive to the filing of the Certificate of Amendment with the Secretary of State on August 6, 2018.
Time Limitations on Legal Challenges to the Ratification of the Amendments
If the ratification of the Declassification, the Majority Voting Change and the filing and effectiveness of the Certificate of Incorporation becomes effective, under the DGCL, any claim that (i) the Declassification, the Majority Voting Change and the filing and effectiveness of the Certificate of Incorporation are void or voidable due to a failure of authorization, or (ii) the Delaware Court of Chancery should declare in its discretion that the Declassification, the Majority Voting Change and the filing and effectiveness of the Certificate of Incorporation not be effective or be effective only on certain conditions, must be brought within 120 days from the filing date of the certificate of validation in respect of the Amendments with the Delaware Secretary of State. If Proposal 1 is approved, we intend to file the certificate of validation in respect of the Amendments promptly after the final adjournment of the Meeting.
The Consequences if Proposal 1 to Ratify the Amendments is Not Approved by Our Stockholders
If Proposal 1 is not approved by the requisite vote of our stockholders, the Amendments will not have been validly authorized. In that case, we intend to file a certificate of correction with the Delaware Secretary of State to reflect that the Certificate of Amendment had been erroneously filed and that the Amendments are not in full force and effect. In that case, our Board of Directors will be classified and the vote required to elect directors will be a plurality of the votes cast. In addition, our Board will take action to revoke other actions that were previously taken in connection with the Declassification and the implementation of the Majority Voting Change but are inconsistent with a classified board structure or plurality voting standard.