STATEMENT OF CORPORATE GOVERNANCE
(updated as of August 1, 2016)
The Company is not publicly traded. In preparation for a possible Initial Public Offering (IPO), amendments to certain provisions of this Statement of Corporate Governance have been prepared for adoption, if our shares become publicly traded. The proposed amendments, which much be approved by the Board of Directors at the appropriate time, are shown in italics following the current version of the statement.
This Statement of Corporate Governance has been established by the Board of Directors (the “Board”) of GFE Sustainable, Inc. (the “Company”), and is intended, in conjunction with the Company’s Amended and Restated Articles of Incorporation, Amended and Restated By-Laws (the “By-laws”), other corporate governance documents and all applicable laws, to be a flexible framework, as amended from time to time, within which the Board may conduct its business.
I. Board of Directors
The Board establishes broad corporate policies for the Company and its controlled or affiliated entities (referred to collectively as the “GFE GROUP”), sets the strategic direction for the GFE GROUP and oversees management with a focus on enhancing the interests of stockholders. The Board is also responsible for the corporate governance of the Company.
A. Size of the Board
The By-laws provide that the Board shall have the exclusive authority to determine the size of the Board from time to time; provided, however, the Board shall consist of not fewer than three (3) members.
B. Annual Elections; Majority Voting Policy
The By-laws provide that all Directors shall be elected annually at each annual meeting of stockholders. Each Director will hold office for a term of one year or until his/her successor is duly elected and qualified, subject to such Director’s earlier death, resignation, disqualification or removal.
Each Director of the Company shall be elected by a majority of the votes cast; provided that, if the election is contested, a plurality of the votes cast shall be sufficient. In its considerations of whether to accept the resignation of an incumbent Director who does not receive a majority of the votes cast in accordance with the Bylaws, the Board shall consider all such factors it deems relevant, which factors shall include, but not be limited to: (i) the stated reason that stockholders voted against a Director and whether such reason was based on actions authorized or approved by the full Board; (ii) a Director’s qualifications and contributions; (iii) the overall composition of the Board; (iv) the availability of other qualified Director candidates; and (v) whether the acceptance of the resignation would trigger a default or breach under a material agreement to which the Company is a party.
C. Independent Directors
If the Board is expanded to five (5) directors, at least two (2) Directors shall be independent directors. The Board will consider all relevant facts and circumstances in making a reasonable determination of independent status. The Board shall review at least annually and at other times as appropriate and determine the independence of each Director.
D. Meetings of the Board
Regular meetings of the Board shall be held at such times and places as determined by the Board and special meetings shall be held at other times as the Board may determine is appropriate. Directors are expected to attend meetings of the Board and meetings of the Board committees on which they serve. Meetings may be held in person or telephonically as the Board determines in its sole discretion.
E. Board Meeting Materials
To the extent practicable, Directors shall be provided with appropriate materials in advance of each meeting in order to permit prior review.
F. Executive Sessions of Non-Executive Directors
Directors who are not executives or employees of the Company (the “non-executive Directors”) shall meet in executive session without the participation of management in connection with each regular meeting of the Board, and at other times as they may determine is appropriate. If the non-executive Directors include Directors who are not independent, the independent Directors shall meet in executive session at least annually.
G. Strategic Planning
The Board reviews the Company’s long-term strategic plan at least annually and monitors implementation of the strategic plan throughout the year.
H. Board Leadership and Lead Director
The Board shall be responsible for establishing and maintaining the most effective leadership structure for the Company. To retain flexibility in carrying out this responsibility, the Board does not have a policy on whether the Chairman of the Board must be an independent member of the Board. However, if the Chairman is not an independent Director, upon a recommendation of the Nominating and Governance Committee, an independent, non-executive Director shall be designated by a majority of the independent, non-executive Directors of the Board to serve as Lead Director for a period of at least one year. The duties and responsibilities of the Lead Director shall be to:
- Preside over all meetings of the Board at which the Chairman is not present, including executive sessions of the non-executive Directors and the independent Directors;
- Communicate feedback from executive sessions to the Chairman, as appropriate;
- Serve as liaison between the Chairman of the Board and the independent Directors;
- Meet with the Audit Committee and/or the Compliance Steering Committee periodically;
- Approve information sent to the Board and meeting agendas for the Board;
- Approve meeting schedules to assure that there is sufficient time for discussion of all agenda items;
- Call meetings of the non-executive Directors and/or independent Directors, if desired;
- Participate in the Compensation Committee’s evaluation of the performance of the Chief Executive Officer (the “CEO”);
- Supervise the self-evaluations of the Directors in coordination with the Nominating and Corporate Governance Committee;
- Supervise the Board’s determination of the independence of its Directors; and
- Ensure his or her availability for consultation and direct communications, if requested by major stockholders.
- The Board shall review its leadership structure at least annually taking into account the responsibilities of the leadership positions and the Directors qualified to hold such positions. In conducting this review, the Board shall consider, among other things: (i) the policies and practices in place that provide independent Board oversight; (ii) the Company’s performance and the effect a particular leadership structure may have on that performance; (iii) the structure that serves the best interests of the Company’s stockholders and (iv) any relevant legislative or regulatory developments
I. Board Membership Criteria
The Nominating and Corporate Governance Committee of the Board (the “Nominating and Corporate Governance Committee”) is responsible for developing criteria for filling vacant Board positions, taking into consideration such factors as it deems appropriate. No single factor is determinative. Relevant considerations include the candidate’s education and background; his or her leadership and ability to exercise sound judgment; his or her general business experience and familiarity with the GFE Group’s businesses; and whether he or she possesses unique expertise or perspective which will be of value to the Company. No candidate should have any interests that would materially impair his or her ability to exercise independent judgment or otherwise discharge the fiduciary duties owed as a director to the Company and its stockholders. All candidates must be individuals of personal integrity and ethical character, and who value and appreciate these qualities in others. It is expected that each Director will devote the necessary time to the fulfillment of his or her duties as a Director. In this regard, the Nominating and Corporate Governance Committee will consider the number and nature of each Director’s other commitments, including other directorships. The Nominating and Corporate Governance Committee will seek to promote through the nominations process diversity on the Board of professional background, experience, expertise, perspective, age, gender, ethnicity and country of citizenship.
J. Outside Directorships
Without approval from the Board, the Chairman of the Board shall not be a member of the board of directors of more than two (2) public companies.
Without approval from the Board, other members of the Board shall not be a member of the board of directors of more than four (4) public companies; provided, however, that members of the Audit Committee shall not serve on the audit committees of more than two (2) public companies.
K. Change in a Director’s Occupation
The Board does not believe that Directors who retire or change the position they held when they became a member of the Board should necessarily leave the Board.
However, promptly following such an event, the Director must notify the Chair of the Nominating and Corporate Governance Committee and the Corporate Secretary of such event and the Nominating and Corporate Governance Committee may take such event into consideration when determining whether to re-nominate such Director.
L. Director Tenure and Retirement
The Company does not have established term limits or a set retirement age for Directors. The Company’s policy regarding Director tenure and retirement is determined on a case-by-case basis depending upon various factors, including the age, experience, qualifications and performance of the Director and his or her history of service on the Board.
M. Director Compensation
The Compensation Committee of the Board (the “Compensation Committee”) is responsible for reviewing the compensation of non-executive Directors for their service on the Board and its committees. The Compensation Committee shall periodically review director compensation against the Company’s peers and consider the appropriateness of the form and amount of director compensation and make recommendations to the Board for its approval concerning director compensation with a view toward attracting and retaining qualified Directors. Directors who are executives or employees of the Company shall not receive any additional compensation for serving as a Director.
N. Directors Emeritus
The Board may, from time to time, by majority vote, elect one or more of its former Directors to serve as a Director Emeritus for one or more consecutive one-year terms or until such Director Emeritus’ earlier resignation or removal by a majority of the Board for any reason or no reason. Directors Emeritus shall serve as consultants to the Board and may be asked to serve as consultants to committees of the Board.
Directors Emeritus may be invited to attend meetings of the Board or any committee of the Board and, if present, may participate in the discussions occurring at such meetings. Directors Emeritus shall not be counted for the purpose of determining whether a quorum of the Board or a committee of the Board is present and shall not have any of the responsibilities or liabilities of a Director, nor any of a Director’s rights, powers or privileges. Directors Emeritus will be entitled to receive fees for such service in such form and amount as recommended by the Compensation Committee and approved by the Board, and shall be reimbursed for reasonable travel and other out-of-pocket business expenses incurred in connection with attendance at meetings of the Board and its committees. Directors Emeritus shall remain subject to all GFE Group policies applicable to Directors, including, but not limited to, the GFE Group Standards of Business Conduct and the GFE Group Insider Trading and Confidentiality Policy. Reference in the By-laws to “Directors” shall not mean or include Directors Emeritus.
O. Non-Executive Director and Executive Officer Equity Ownership Requirements
The Compensation Committee of the Board has adopted equity ownership guidelines for executive officers. Non-executive Directors and executive officers are expected to have an appropriate equity ownership in the Company to more closely align their economic interests with those of other Company stockholders. Each non-executive Director shall be required to own equity securities of the Company (including deferred stock units, stock appreciation rights and restricted share units) equal in value to at least five (5) times the amount of the non-executive Director’s annual cash retainer for service on the Board within five (5) years of his or her first election to the Board. The Board will evaluate whether exceptions should be made in the case of any Director who, due to his or her unique financial circumstances, would incur a hardship in complying with this requirement.
P. Director Orientation and Continuing Education
New Directors are given an orientation regarding the GFE Group’s businesses, corporate governance and reporting procedures and are updated on such matters on a continuing basis. In addition, Directors are advised with respect to policies and procedures applicable to Board and committee meetings and the rights and responsibilities of Directors. Various information reports are sent to the Board in order to keep them informed of the GFE Group’s businesses. The Company also encourages Directors to attend appropriate outside continuing education programs, the costs of which will be reimbursed by the Company.
Q. Director Access to Management and Independent Advisors
Directors receive operating and financial reports of the Company and have access to senior management at Board and Committee meetings. The Board shall have the authority to retain, terminate and determine the fees and terms of consultants, legal counsel and other advisors to the Board as the Board may deem appropriate in its discretion.
R. Attendance at Annual Meeting of Stockholders
All Directors are encouraged to attend the Company’s Annual Meeting of Stockholders.
S. Board and Committee Self-Evaluations
The Nominating and Corporate Governance Committee, in coordination with the Lead Director, shall be responsible for conducting an annual review and evaluation of the Board’s conduct and performance based upon completion by all Directors of a self-evaluation form that includes an assessment, among other things, of the Board’s maintenance and implementation of the Company’s standards of conduct and corporate governance policies. The review shall seek to identify specific areas, if any, in need of improvement or strengthening and shall culminate in a discussion by the full Board of the results and any actions to be taken.
Each of the standing committees of the Board shall evaluate its performance at least annually and report to the Board on such evaluation.
T. Bonus Claw-back Policies
The Compensation Committee has adopted policies requiring the recoupment of performance-based bonus compensation paid to the named executive officers in the event of certain financial restatements or of other bonus compensation paid to executives in certain other instances. The policies require reimbursement to the extent permitted by governing law and any employment arrangements entered into prior to the adoption of the policies.
II. Board Committees
The Board has three standing committees:
1. Audit Committee;
2. Nominating and Corporate Governance Committee; and,
3. Compensation Committee.
Each of the standing committees of the Board has the authority to retain, terminate and determine the fees and terms of consultants, legal counsel and other advisors to such committees as such committee may deem appropriate in its discretion. Each of the standing committees of the Board will propose a charter for review and approval by the entire Board of Directors.
III. Chief Executive Officer Evaluation and Succession
The Compensation Committee is responsible for reviewing and approving goals and objectives relevant to the compensation of the Company’s CEO, evaluating the performance of the CEO in light of the goals and objectives and recommending to the Board the compensation of the CEO based on such evaluation. The Lead Director shall participate in the Compensation Committee’s evaluation of the performance of the CEO. The Board plans for succession to the position of CEO of the Company, which involves consideration of its policies and principles regarding selection and performance review of the CEO, and plans for succession in the event of an emergency or the retirement of the CEO. To assist the Board, the CEO shall provide the Compensation Committee and the Board with an assessment of members of senior management and their succession potential. The Compensation Committee shall report the results of these assessments to the Board. The Board shall review succession planning at least annually.
IV. Ethical Standards
The Board is committed to acting with the utmost integrity and expects the same of every employee at every level of the Company. The Board has adopted “Standards of Business Conduct.” The full text of the Standards may be found on the Company’s website. The Standards of Business Conduct confirm the Company’s policy to conduct its affairs in compliance with all applicable laws and regulations and observe the highest standards of business ethics. The Company intends that the spirit as well as the letter of those standards is followed by all Directors, officers and employees of the Company, its subsidiaries and divisions. This is communicated to each new Director, officer and employee and has already been communicated to those in positions at the time the Standards of Business Conduct were adopted. The Standards of Business Conduct deal with the following main areas:
a. equal opportunity and unlawful harassment;
b. health and safety of the workplace;
c. conflicts of interest;
d. business hospitality;
e. gifts to government officials;
f. improper benefit;
g. corporate assets and information;
h. Company property, including intellectual property;
i. confidential information;
j. document retention;
k. legal matters;
1. including its Annual Report which shall be distributed to all stockholders electing to receive it and which shall be available to all stockholders upon request;
l. financial records and public communications;
m. insider trading;
n. relationships with competitors and other trade practices;
o. good corporate citizenship;
p. anti-bribery and anti-corruption;
q. sanction laws and anti-boycott laws; and political activities and lobbying.
Employees are encouraged to raise any matters of concern with their supervisor or the relevant general counsel. The Standards of Business Conduct also apply to ensure compliance with stock exchange disclosure requirements and to ensure accountability at a senior management level for that compliance.
Directors must protect and hold confidential non-public information that comes to them, from whatever source, in their capacity as a Director of the Company, unless disclosure is authorized or required by law. Proceedings and deliberations of the Board and its committees are confidential.
VI. Code of Ethics for the CEO and Senior Financial Officers
To further promote ethical and responsible decision making, the Board has established a Code of Ethics for the CEO and senior financial officers that is incorporated by reference into the Company’s Standards of Business Conduct.
VII. Protection for Company “Whistleblowers”
The Company has established procedures which have been incorporated into the Company’s Standards of Business Conduct to facilitate the submission and review of complaints from employees regarding questionable accounting, internal controls or auditing matters on a confidential and anonymous basis. These procedures enable employees to make their concerns known without fear of retaliation and in the knowledge that procedures are in place to act upon their complaints.
VIII. Stockholder Communication
Stockholders play an integral part in corporate governance and the Board ensures that stockholders are kept fully informed through:
a. information provided on the Company’s website (www.gfesustainable.com);
b. if the Company’s shares become publicly traded, reports and other disclosures made periodically by the Company to the Securities and Exchange Commission and NASDAQ; and
c. notices and proxy statements of special and annual meetings.
It is the policy of the Company to facilitate communications of stockholders and other interested parties with the Board and its various committees. Stockholders may raise matters of concern at the annual meetings of stockholders. In addition, any stockholder or other interested party wishing to communicate with any Director, any committee of the Board or to the Board as a whole, may do so by submitting such communication in writing and sending it by regular mail to the attention of the appropriate party or to the attention of the Lead Director at GFE Sustainable, Inc., 8160 South Highland Drive, Suite 108, Sandy, UT 84093 or at the email address posted on the Company’s website at www.gfesustainable.com under “About Us – Corporate Governance”, where you will also find information on the Company’s processes for handling communications addressed to members of the Board.
IX. Communication with Third Parties
The Board believes that it is, in general, the responsibility of management to speak for the Company in communications to outside parties (e.g., investors, the press and industry associations). Directors should only engage in such communications at the request of or after consultation with management.
X. Corporate Governance Review
The Nominating and Corporate Governance Committee shall review this Statement no less than annually and shall recommend any changes to the Board for its approval.
IF OUR SHARES BECOME PUBLICLY TRADED, OUR STATEMENT OF CORPORATE GOVERNANCE SHALL BE AMENDED, MORE OR LESS IN THE FORM SET FORTH BELOW. PLEASE NOTE THAT THESE PROPOSED AMENDMENTS OR ANY OTHER AMENDMENTS MUST BE APPROVED BY A RESOLUTION OF THE BOARD OF DIRECTORS AT THE APPROPRIATE TIME
Section I. B. Annual Elections; Majority Voting Policy, in the second paragraph, clause (iii) shall be amended by adding the following at the end of the clause:
“, including whether accepting the resignation would cause the Company to fail to meet any Securities and Exchange Commission or listing requirements.”
Section I. C. Independent Directors, shall be amended by substituting the following for the first sentence:
“The Board shall be comprised of a majority of the Directors who qualify as ‘independent directors’ in accordance with the applicable provisions of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), the rules promulgated thereunder, and the listing standards of the NASDAQ Stock Market (“NASDAQ”), as they may be amended from time to time.”
Section I. J. Outside Directorships, shall be amended by adding “other” before each reference to “public companies”.
Section I. N. Independent Directors, shall be amended by substituting the following for the first sentence:
“Directors Emeritus shall remain subject to the reporting requirements of Section 16 of the Securities Exchange Act of 1934, as amended, and shall remain subject to all GFE Group policies applicable to Directors, including, but not limited to, the GFE Group Standards of Business Conduct and the GFE Group Insider Trading and Confidentiality Policy.”
Section I. O. Non-Executive Director and Executive Officer Equity Ownership Requirements, shall be amended by substituting the following immediately before the final sentence:
“Once a non-executive Director has met the minimum equity ownership requirement, such requirement shall remain satisfied as long as such non-executive Director retains the number of equity securities of the Company (including deferred stock units, stock appreciation rights and restricted share units) valued at the minimum threshold based on the NASDAQ closing price for the Company’s Common Stock as of the date such minimum threshold is initially met.”
Section II. Board Committees, shall be amended by adding the following paragraph at the end of the section:
“These committees are comprised entirely of Independent Directors, as currently required under the rules of the Exchange Act and NASDAQ listing standards, including heightened independence rules and standards applicable to the members of the Audit and Compensation Committees. Each committee is governed by a written charter approved by the Board.”
Section VIII. Stockholder Communication, the second bullet item shall be replaced by the following:
“reports and other disclosures made periodically by the Company to the Securities and Exchange Commission and NASDAQ; and