The Board of Directors (the “Board“) of Turtle Beach Corporation (the “Company“) is committed to the development of effective and transparent corporate governance practices and has adopted these Corporate Governance Principles and Guidelines to provide a framework for the Company’s governance. The Board will periodically review these principles and other aspects of the Company’s governance as the Board deems necessary.
Duties and Responsibilities of the Board of Directors
The fundamental responsibility of the directors is to exercise their business judgment on matters of critical and long-term significance to the Company in furtherance of what they reasonably believe to be in the best interest of the Company and its shareholders. The Company’s business is conducted by its employees, managers and officers, under the direction of the Company’s chief executive officer (“Chief Executive Officer“) and the oversight of the Board, to enhance the long-term value of the Company for its shareholders. The Board monitors the performance of the Chief Executive Officer and the senior management team to gauge whether the long-term interests of the shareholders are being served. Toward that end, the Board shall, acting directly or through committees, oversee the business and affairs of the Company, including, but not limited to, having the following duties and responsibilities:
- Reviewing and approving, as appropriate, the Company’s mission, strategic plans, financial objectives, and major initiatives;
- Overseeing the operation of the Company’s business to evaluate whether the business is being managed in accordance with the Company’s mission, strategic plan, financial objectives and policies as developed by the Board, the Chief Executive Officer and the senior management team;
- Overseeing the Company’s processes for assessing enterprise risk and the mitigation of such risk;
- Evaluating the performance and approving the compensation of the Board and the Chief Executive Officer and, with the advice of the Chief Executive Officer, evaluating the performance and approving the compensation of the Company’s principal senior executives;
- Developing the Company’s succession plans for the positions of Chairman of the Board (the “Chairman”) and Chief Executive Officer; and
- Ensuring that processes are in existence to maintain the Company’s integrity and reputation, including: (i) the integrity of financial statements filed with the Securities and Exchange Commission, (ii) compliance with Company policy, legal and regulatory requirements, (iii) the integrity of relationships with customers and suppliers, and (iv) the integrity of relationships with other Company stakeholders.
Composition of the Board of Directors
The Board believes that it should generally have no less than five (5) and no more than twelve (12) directors. The Board’s Nominating and Governance Committee will periodically review with the Board the particular characteristics or attributes that it believes would be most beneficial to the Company in potential Board members, while striving to maintain diversity of representation among its members. These characteristics include: (i) personal integrity and professional ethical standards along with the willingness to express independent thought, (ii) being committed to representing the long-term interests of the Company’s shareholders, (iii) practical wisdom and mature judgment, (iv) objectivity, (v) professional knowledge and business expertise and (vi) broad industry knowledge. Directors must be willing to devote sufficient time to carrying out their duties and responsibilities effectively, and should be committed to serve on the Board for an extended period of time. Directors should be prepared to offer their resignation in the event of any significant change in their personal circumstances that could adversely affect their ability to discharge their duties and responsibilities as directors of the Company, including a change in their principal job responsibilities.
Commitments of Members of the Board of Directors and Executive Officers
The Board does not believe that its members should generally be prohibited from serving on boards and/or committees of other organizations, and the Board has not adopted any guidelines limiting such activities. However, the Board believes that it is critical that directors have the opportunity to dedicate sufficient time to their service on the Company’s Board.
Prior to becoming a director of another company, a director shall notify the Chairman of the Nominating and Governance Committee, Chairman of the Board and Chief Executive Officer in an effort to avoid potential conflicts of interest and to address whether the aggregate number of directorships held by such director may interfere with his or her ability to carry out his or her responsibilities as a director of the Company. In the event that the Board determines that the additional directorship constitutes a conflict of interest or interferes with such director’s ability to carry out his or her responsibilities, such director, upon the request of the Board, shall either not accept the new directorship or offer his or her resignation to the Board. Although the Company does not impose a limit on outside directorships, as noted above, directors are expected to devote sufficient time and attention to carrying out their director duties and responsibilities and endeavor to ensure that their other responsibilities, including service on other boards, do not materially interfere with their responsibilities as directors of the Company.
In addition, the Chief Executive Officer and other executive officers of the Company must receive the Board’s approval prior to acceptance of an invitation to serve as a director of any publicly- or privately-held company. Further, as a general rule, an officer-director may not serve on the Board beyond the date he or she retires or resigns as a full-time officer.
Independence of Directors
If the Company ceases to qualify as a “controlled company” for purposes of and as defined under applicable NASDAQ rules, a majority of the directors will be required to be independent directors under NASDAQ rules.
To be considered independent under the NASDAQ listing rules, the Board must determine that a director does not have any direct or indirect material relationship with the Company that would interfere with the exercise of independent judgment in carrying out the duties and responsibilities of a director. The Board has established the following guidelines to assist it in determining director independence in accordance with the NASDAQ listing rules. Under these guidelines, a director is considered independent if he or she:
- Is not currently employed, nor at any time within the past three years, has been employed by the Company;
- Has not received, nor has an immediate family member received, compensation from the Company in excess of $120,000 during any twelve-month period within the past three years, other than (i) compensation for Board or Board committee service, (ii) compensation paid to an immediate family member who is an employee, other than an executive officer, of the Company, or (iii) benefits under a tax-qualified retirement plan or non-discretionary compensation;
- Does not have an immediate family member that is employed, nor at any time during the past three years, been employed by the Company as an executive officer;
- Is not, nor has any immediate family member been, a partner in, or a controlling shareholder or an executive officer of, any organization to which the Company made, or from which the Company received, payments for property or services in the current year or any of the past three years that exceeded 5% of the recipient’s consolidated gross revenues for that year, or $200,000, whichever is greater, other than (i) payments arising solely from investments in the Company’s securities, or (ii) payments under non-discretionary charitable contribution matching programs;
- Has not, nor has an immediate family member, been employed as an executive officer of another entity where at any time during the past three years any of the Company’s executive officers served on the compensation committee of such other entity; • Is not, nor is any immediate family member, a current partner of the Company’s independent auditor (the “Independent Auditor”), or was a partner or employee of the Independent Auditor who worked on the Company’s audit at any time during any of the past three years;
- Does not have any other relationships with the Company that may impair, or appear to impair, his or her ability to make independent judgments; and
- With respect to members of the Company’s audit committee, meets the additional independence requirements imposed under NASDAQ Rule 4350(d).
Directors have the affirmative obligation to inform the Board of any material changes in their circumstances or relationships that may impact their designation by the Board as “independent.” This obligation includes all business relationships between directors and members of their immediate family, and the Company and its affiliates or members of senior management and their affiliates, whether or not such business relationships are subject to the Board’s approval requirements. Directors will provide prior notice in writing to the Nominating and Governance Committee of any change in their occupation or any proposed service on the board of a public or private company or any governmental position. Annually, the Board will review all commercial, charitable, and educational relationships between the Company and its directors and include the appropriate disclosures in the Company’s annual proxy statement.
Committees of the Board of Directors
The Board has established committees to assist the Board in discharging its responsibilities, including the following standing committees: (i) Audit, (ii) Compensation, and (iii) Nominating and Governance. The Board may appoint other standing committees, as the Board from time to time deems appropriate. The Audit Committee shall be comprised solely of “independent” directors as defined by NASDAQ, Section 10A(m)(3) of the Securities Exchange Act of 1934, as amended (the “Exchange Act“), and all rules and regulations promulgated thereunder by the Securities and Exchange Commission (the “SEC“). The Compensation Committee and Nominating and Governance Committee shall be comprised of members that meet the requirements of applicable law, the rules set forth in the Bylaws and, if applicable, the rules promulgated by the SEC, NASDAQ or any other stock exchange or trading market on which the Company’s securities may be listed or approved for quotation.
The Audit Committee appoints and oversees the Company’s relationship with the Independent Auditor. The Audit Committee also oversees the Company’s financial reporting processes, including the application of accounting and reporting standards by the Company. The Compensation Committee oversees the Company’s compensation practices and approves its compensation programs and plans.
The Compensation Committee also reviews the Chief Executive Officer’s performance with the Board and recommends the Chief Executive Officer’s compensation to the Board for approval.
The Nominating and Governance Committee recommends candidates to fill Board vacancies and to otherwise be appointed or elected as directors. The Nominating and Governance Committee also advises the Board on nominees for Chief Executive Officer and other executive officer positions at the Company. In addition to these duties, the Nominating and Governance Committee oversees the Company’s corporate governance practices and recommends changes to these Corporate Governance Principles and Guidelines to the Board as it considers appropriate, as well as the annual self-evaluation process for the Board and its committees.
Each committee shall have a written charter of responsibilities, duties and authorities, which shall be reviewed periodically by the Board.
Each committee shall report to the Board with respect to its activities, findings, and recommendations after each meeting. Each committee shall have full power and authority to retain the services of such advisors and experts, including counsel, as the committee deems necessary or appropriate under the circumstances.
Director Orientation and Continuing Education
The Nominating and Governance Committee along with the Chief Executive Officer shall provide appropriate orientation for new directors, and shall periodically provide materials or briefing sessions for all directors on subjects that would assist them in discharging their duties and responsibilities.
Management shall make presentations to, or arrange educational programs for, the Board on different aspects of the Company’s business, which may include business strategy, risk management, financial reporting, products and services, industry trends and developments, corporate governance and other topics relevant to the discharge of their duties and responsibilities. Such presentations or sessions may be provided by management on its own initiative or at the request of, or in conjunction with, the Nominating and Governance Committee. Directors are encouraged to take advantage of any other available educational opportunities that would further their understanding of the Company’s business and enhance their performance on the Board.
Board Access to Senior Management
Directors shall have full and unrestricted access to the Company’s senior management and any relevant Company records. In addition, directors may request that any officer or other employee of the Company or the Company’s outside counsel or Independent Auditor meet with any members of, or consultants to, the Board or any of its committees. As a courtesy, directors will exercise sound judgment to endeavor to ensure that this access does not impede or interfere with the conduct of the Company’s business and is coordinated, where possible, through the Chief Executive Officer so as not to undermine normal lines of management authority.
Board Access to Independent Advisors
The Board and its committees, in their sole discretion, shall have the right at any time to retain independent financial, legal, executive search or other professional advisors to assist in the discharge of their duties and responsibilities. The Company shall provide funding to compensate such independent advisors retained by the Board or any of its committees for reasonable fees and expenses.
Board Interaction with Institutional Investors and Press
The Company views management as the Company’s primary contact with outside parties. From time to time however, directors may be asked by the Chairman, Chief Executive Officer, or other members of the management team to speak with outside parties, as appropriate. In the absence of such a request, directors should generally refrain from discussing proprietary information relating to Company matters with outside parties.
Meetings of the Board of Directors
The Board of Directors will hold annual, regular and special meetings in accordance with the Company’s bylaws and as it deems necessary. Board meetings will generally to be held at such times and places as are determined by the Board.
Except as otherwise provided in the Company’s bylaws, the Chairman of the Board shall be responsible for each Board meeting’s agenda. The Chairman will endeavor to distribute the agenda, as well as other meeting materials sufficiently in advance of each meeting to permit meaningful review. Each year, the Chairman will propose for the Board’s approval key issues of strategy, enterprise risk and corporate reputation to be scheduled and discussed during the course of the year. The Board will be invited to offer its suggestions and, as a result of this process, a schedule of major discussion items for each year will be established. Non-directors, including members of management, may be present at Board meetings at the invitation or with the approval of the Chairman.
The independent directors on the Board may meet in executive session as part of any regularly scheduled Board meeting. These sessions will provide the opportunity for discussion of such other topics as the independent directors may find appropriate, which discussion may be facilitated by the Chair of the committee most relevant to the topic. Following each such session, an independent director will meet with the Chairman and Chief Executive Officer for discussion of matters arising from the executive session.
Conflicts of Interest and Resolution and Reporting
The Board expects all directors, as well as officers and employees, to act ethically at all times and in accordance with the Company’s Code of Business Conduct and Ethics. Should an actual or potential conflict of interest arise for a director, the director shall promptly inform the Chairman of the Nominating and Governance Committee. In the event that a significant conflict exists and cannot be resolved, the director is expected to resign. All directors will recuse themselves from any discussion or decision affecting their own personal, business or professional interests. The Board shall resolve any conflict of interest issues involving the Chairman of the Board or a Board member without the participation of such potentially conflicted director, while the Board or a designated committee thereof, comprised of independent directors, shall resolve any conflict of interest issues involving any other officer of the Company.
Executive Management Succession Planning
The Board believes one of its most critical functions is the selection, retention, evaluation and compensation of a well-qualified and ethical Chief Executive Officer and senior management team and that they fit the Company’s culture, understand its business strategy and inspire others to follow their lead. Toward that end, the Nominating and Governance Committee will develop and annually review with the Board a management succession plan for the Chief Executive Officer and other senior executives tailored to reflect the Company’s business strategy and vision. The management succession plan will include creating profiles of ideal candidates based on the Company’s strategy and vision and a framework for the selection of candidates that can fulfill the Company’s future needs. The Board recognizes that the development of a talent-rich organization is a continuous and collaborative process.
In the event of the death, resignation, incompetence or incapacity of the Chairman of the Board and/or the Chief Executive Officer, the Chairman of the Nominating and Governance Committee will as soon as practicable call a meeting of the Nominating and Governance Committee to recommend to the Board the selection of a temporary or permanent replacement for either or both positions.
Executive Management Compensation Recoupment and Clawback Provision
In the event that the Company is required to restate its financial statements due to material non-compliance with any financial reporting requirements under the United States federal securities laws, the Board will take such action as it deems necessary to remedy the misconduct, prevent its recurrence and, if appropriate based on all relevant facts and circumstances, take remedial action against any responsible officers or employees in a manner it deems appropriate. In determining what remedies to pursue, the Board shall take into account all relevant factors, including whether the restatement was the result of negligence or intentional or gross misconduct. The Board will, to the fullest extent permitted by governing law, and as the Board deems necessary and appropriate, require reimbursement of any bonus or incentive compensation awarded to an officer or effect the cancellation of unvested restricted, deferred stock awards previously granted to the officer if and to the extent that: (i) the amount of the bonus, incentive compensation or stock award was calculated based upon the achievement of certain financial results that would not have been met had the financial results been properly reported, (ii) the officer or employee engaged in intentional misconduct that caused or partially caused the need for the restatement, and (iii) the amount of the bonus, incentive compensation or stock award that would have been awarded to the officer or employee had the financial results been properly reported would have been lower than the amount actually awarded. In addition, the Board, in its full and complete discretion, may dismiss the officer, authorize legal action for breach of fiduciary duty or take such other action to enforce the officer’s obligations to the Company as the Board determines fit the facts surrounding the particular situation.
Notwithstanding the foregoing, the Company shall not be obligated to pursue any recovery contemplated above if the Board determines that the recovery amount is de minimis to the Company or the expected cost of recovery will exceed the amount recovered. The Board may, in determining appropriate remedial action, take into account penalties or punishments imposed by third parties, such as law enforcement agencies, regulators or other authorities. The Board’s power to determine the appropriate punishment for the officer is in addition to, and not in replacement of, remedies imposed by such entities.
Shareholder Access to the Board of Directors
Any interested shareholders or other stakeholders who have concerns that they wish to make known to the Company’s non-management directors, may send any such communication directly to the attention of any non-management director at 100 Summit Lake Dr. Ste 100, Valhalla, NY 10595. All such shareholder and stakeholder communications will be reviewed by the non-management directors, who will determine an appropriate response or course of action.
Shareholder Recommendations for Candidates to the Board of Directors
The number of seats that are subject to shareholder election, which may be zero, and the deadline by which such recommendations must be received by the Company’s Secretary will be published each year in the Company’s annual proxy statement. Shareholder recommendations provided to the Company’s Secretary within the stated timeframe will be given appropriate consideration.
In the event a directorship is subject to shareholder election, shareholders wishing to recommend candidates to serve on the Company’s Board may do so by sending appropriate notice in accordance with the Company’s Bylaws, to the attention of the Company’s Secretary at the above address with the candidate’s (i) name, (ii) age, (iii) business address and residence address, (iv) principal occupation or employment, (v) class and number of Company shares beneficially owned, as well as (vi) a description of all arrangements or understandings between the nominating stockholder and the candidate, (vii) any other information relating to the candidate that is required to be disclosed in solicitation of proxies for the election of directors, and (viii) an acknowledgement from the candidate that he or she would be willing to serve on the Board, if elected.
Repricing of Stock Options
It is the policy of the Board not to reprice stock options issued by the Company by reducing the option’s exercise price. The Board favors equitable adjustment of an option’s exercise price in connection with a reclassification of the Company’s stock; a change in the Company’s capitalization; a stock split; a restructuring, merger, or combination of the Company, or other similar events in connection with which it is customary to adjust the exercise price of an option and/or the number and kind of shares subject thereto.
Annual Performance Evaluation
The Board and each of the committees will perform an annual self-evaluation. Each of the directors will be requested to provide his or her assessment of the effectiveness of the Board and the committees on which he or she serves. If determined by the Board to be desirable, the Board may retain independent corporate governance experts to assist the Board and the committees with the self-evaluations.
These Corporate Governance Principles and Guidelines were adopted by the Board on March 5, 2014 and will be effective as of March 5, 2014.