GUIDELINES OF XPONENTIAL, INC.
Authority and Responsibilities of the Board of Directors
All corporate authority resides with the Board of Directors as fiduciaries of the Company's shareholders, except for those matters reserved to the shareholders. The Board of Directors has retained oversight authority - defining and overseeing the implementation of and compliance with standards of accountability and monitoring the effectiveness of management policies and decisions in an effort to ensure that the Company is managed in such a way to achieve its objectives. The Board has delegated to management the authority to pursue the Company's objectives. Management, not the Board of Directors, is responsible for managing the Company.
Consistent with this division of authority, the primary responsibilities of the Board of Directors and its committees include:
1. Overseeing the conduct of the Company's business to determine whether it is being effectively managed, evaluating the performance of the Company and its senior management, and selecting, regularly evaluating and fixing the compensation of the chief executive officer and other members of management as it deems appropriate.
2. Monitoring fundamental operating, financial and other corporate strategies, as well as Corporate Governance Guidelines, major plans and transactions.
3. Providing advice and counsel to the chief executive officer and management.
4. Overseeing management in an effort to ensure that the assets of the Company are safeguarded through the maintenance of appropriate accounting, financial and other controls, and that the business of the Company is conducted in compliance with applicable laws and regulations and the highest ethical standards.
5. Evaluating the overall effectiveness of the Board of Directors, as well as selecting and recommending to shareholders qualified candidates for election to the Board of Directors.
These corporate governance guidelines are intended to embody the principles by which the Board of Directors operates in a single, formal document. These guidelines are not intended to be a code of regulations, but rather a statement of intention. This document will be changed from time to time as conditions warrant.
Selection and Composition of the Board of Directors
Independent directors currently constitute and will continue to constitute a majority of the Board of Directors. Following adoption of such rules, a director will be considered “independent” if he or she meets the requirements for independence set forth in the rules of The NASDAQ Stock Market and the Securities and Exchange Commission.
2. Selection Criteria for the Board of Directors
The nominating and governance committee has developed and recommended to the Board of Directors for adoption guidelines for selecting candidates for election to the Board of Directors and will periodically review such guidelines and recommend to the Board of Directors for adoption amendments to such guidelines that the committee deems necessary or appropriate.
The Company provides and regularly updates a director information book, which contains materials regarding the Company's business and operations, director compensation, and corporate governance matters. The Company also arranges for each new director to participate in an orientation process, including meetings with key personnel.
4. Continuing Education
The Board believes that each director should:
(a) Maintain leadership and expertise in the areas that caused the Board to select that director for membership;
(b) Develop and maintain a broad, current knowledge of all of the Company's businesses and critical issues affecting the Company; and
(c) Develop and maintain a broad, current knowledge about corporate directors' responsibilities, including general legal principles applicable to directors' activities in fulfilling those responsibilities.
5. Term Limits
The Board of Directors does not believe that it should establish term limits. Term limits have the disadvantage of causing the loss of the contribution of directors who have been able to develop, over a period of time, increasing insight into the Company and its operations and, therefore, provide an increasing contribution to the Board of Directors as a whole.
A retirement age of 70 is generally considered appropriate for the Company’s directors, but the Board of Directors may decide to defer retirement on an annual basis in appropriate circumstances after a director reaches age 70.
7. Succession Planning
The nominating and governance committee is responsible for developing and periodically reviewing succession plans for the directors. The nominating and governance committee will periodically report to the Board of Directors on these matters.
1. Number of Directors
The Company's articles of incorporation provide that the Board of Directors will consist of seven members, four elected by the holders of Series B Preferred Stock and three elected by the holders of Common Stock.
2. Board Committees
(a) The standing committees of the Board of Directors are the audit committee, the compensation committee, and the nominating and governance committee. Board committees receive their authority exclusively through delegation from the Board. The audit committee, the compensation committee and the nominating and governance committee have written charters that set forth the responsibilities of and other legal requirements applicable to, each committee. Each charter has been approved by the Board of Directors.
(b) The nominating and governance committee, in consultation with the Chairman of the Board, is responsible for recommending to the Board of Directors the assignment of Board members to Board committees. All standing committees will consist of independent directors. Consideration will be given to rotating committee members periodically, but rotation will not be mandatory.
(c) The committee chairperson, in consultation with the committee members, will determine the frequency and length of committee meetings. Directors may attend any Board committee meeting.
Board and Committee Operations
1. Annual Stockholders Meeting
Directors are expected to attend the annual meeting of the Company’s stockholders.
2. Board Meeting Materials Distributed in Advance; Other Information
In general, information and data that is important to the Board's or committee's understanding of the matters to be discussed at each meeting will be distributed in writing to the Board or committee members a reasonable amount of time before the Board or committee meets so that meeting time may be conserved and discussion time focused on questions that the directors have about the materials. Directors are expected to review meeting materials prior to the meeting. Management will seek to ensure that the information is complete and accurate, while making every attempt to see that this material is as brief as possible.
Directors will also routinely receive monthly financial statements, earnings reports, press releases, analyst reports, and other information designed to keep them informed of the material aspects of the Company's business and performance.
3. Board and Committee Meeting Attendance
Directors are expected to attend each regular and special meeting of the Board of Directors and of each committee of which the director is a member. The personal attendance of directors at Board and committee meetings is preferred. Although the Company's bylaws authorize members of the Board of Directors and members of any committee of the Board of Directors to participate in and act at a meeting through the use of telephonic or other communication equipment, the use of such equipment is discouraged.
4. Independent Advice
The Board or any Board committee has the authority to seek legal or other expert advice from a source independent of management, including the authority to approve the expert's fees and terms of retention.
5. Attendance of Non-Directors at Board Meetings
The Chairman of the Board will arrange for members of senior management to attend Board meetings from time to time who can make presentations on, and respond to questions about, meeting topics over which they have responsibility.
6. Access to Management and Employees
Directors have complete access to the Company's management and employees. The Board of Directors believes that any such contact should be reasonable in frequency and length and should not be distracting to the business operations of the Company. Any such contact, if in writing, should be copied to the Chairman of the Board.
7. Executive Sessions
The non-management members of the Board of Directors will periodically meet (but not less than four times annually) in executive session without management. The non-management members of the Board of Directors will also periodically meet (but not less than four times annually) in executive session with the chief executive officer, but without other members of management. Executive sessions of the non-management directors will be chaired by the chairperson of a Board committee selected annually on a rotating basis in the following order: executive compensation, audit and nominating and governance.
8. Board Interaction With Third Parties
The Board of Directors believes that management speaks for the Company. The chief executive officer is responsible for establishing effective communications with constituencies of the Company, including shareholders, employees, suppliers, customers, and communities in which the Company operates. This policy does not preclude directors from meeting with members of these constituencies, but it is suggested that any such meetings be held with management present.
Notwithstanding the foregoing, non-management directors will communicate directly with any interested party that wishes to make their concerns known to the non-management directors, without management present.
The nominating and governance committee is responsible for coordinating an annual self-evaluation of the performance of the Board of Directors and each of its committees. This evaluation will be discussed with the full Board of Directors.
2. Change in Professional Responsibilities
The nominating and governance committee and the Board of Directors should consider whether a change in an individual director's professional responsibilities directly or indirectly impacts that person's ability to fulfill his or her obligations as a director. To facilitate the consideration of the committee and the Board, any director experiencing such a change should submit a letter of resignation to the Board. After considering the impact, if any, of the change in the director's professional responsibilities, the nominating and governance committee will recommend to the Board whether to accept the resignation.
3. Board Compensation
The Board of Directors believes that the Company should offer cash compensation to directors for their service on the Board at a level that will attract director candidates who satisfy the Company's selection criteria for board members. The Board of Directors also believes that directors should be offered the right to receive equity-based compensation in lieu of part or all of, or in addition to, such cash compensation. The nominating and governance committee will periodically review the compensation arrangements in effect for the non-management members of the Board of Directors and recommend to the full Board any changes deemed appropriate.
4. Other Board Memberships
Independent directors are encouraged to limit the number of other boards on which they serve, taking into account the impact of such other directorships on attendance at, and the quality of participation in, meetings of the Board of Directors. Independent directors should advise the Chairman of the Board and the chairperson of the nominating and governance committee in advance of accepting an invitation to serve on another board. In addition, except as otherwise determined by the Board of Directors, no audit committee member shall simultaneously serve on the audit committee of more than two other public companies.
1. Executive Officer Evaluations
The compensation committee will oversee the evaluation of the performance of the executive officers of the Company. The evaluation should be based on the performance of the Company, accomplishment of short-term and long-term strategic objectives, development of management and other criteria determined by the committee. These evaluations should be used by the executive compensation committee in the course of its deliberations when considering the compensation of the executive officers.
2. Succession Planning
Succession planning, and selection of a successor, for the chief executive officer and the Company's other executive officers is ultimately the responsibility of the Board of Directors. The compensation committee is responsible for the periodic review of succession plans for the president and chief executive officer, the chief financial officer, and other executive officers of the Company. The compensation committee will periodically report to the Board of Directors on these matters.
3. Outside Board Memberships
The executive officers will seek the approval of the Board of Directors before accepting any outside board memberships. The Board generally discourages more than three corporate board memberships.
The Nominating and Governance Committee will reevaluate these guidelines periodically and recommend to the Board of Directors for adoption any revisions that it deems necessary or appropriate for the Board of Directors to discharge its responsibilities more effectively.