Board of Directors (BoD) Some Guidelines

1. Board of Directors (BoD) Some Guidelines This will need to be tailored to each company’s situation: it should be viewed as a starting point only CONFIDENTIAL

2. Board of Directors GuidelinesTable of Contents • A Key BoD Success Factor • BoD Overview • BoD Composition • Roles and Responsibilities • Directors’ • CEO’s • BoD Meetings • Calendar • “Mechanics” • Presentation Formats • Some Challenges • CEO’s Self Evaluation: The BoD Relationship • CEO Performance Review • Summary: BoD Truths and Tips • Appendix • NACD BoD Characteristics • Sample Monthly BoD Package • Sample Functional Review Presentation - Engineering • Berry Cash’s Perspective CONFIDENTIAL

3. Key Success Factor Since a company’s Board of Directors is one of the most strategic Resources at the CEOs disposal, it is imperative that the relationship is a strong one, based upon open and honest communication; robust debate, etc. The Harvard Business Review article,”What Makes Great Boards Great” underlines the CEO’s responsibility to ‘manage’ the BOD in such a way to ensure it is the most effective one possible. http://harvardbusinessonline.hbsp.harvard.edu/enterprise_implicit_login.jhtml?login=SEV020603&password=SEV020603 CONFIDENTIAL

4. BoD Overview CONFIDENTIAL

5. BoD Overview Board of Directors Value: The BoD Meeting BoD members can amplify the company executive team’s effectiveness. Startups live or die based on their ability to execute against their strategies. Ensuring BoD meetings are as effective as possible is an important component of your success. Focus discussions on the most important topics. Engage your BoD in driving the company and solving tough issues, making hard decisions. Work those issues, make decisions, don’t just disseminate information and assess execution against the plans (strategic and annual operating). It is also important to expose the BoD members to key members of the company’s management team. This is helpful both to the BoD as well as to the development of the team. This is an opportunity to engage the BoD in making tough decisions and to inform and educate your board members on your technology choices, company positioning, strategy, competitive challenges, partnering strategy, etc. Leverage the management team’s efforts. Schedule executive staff meetings just before a BoD meeting, so reports do not have to be prepared twice by the functional VPs and their teams. The BoD meeting is not a detailed operational review, nor is it an extended executive staff meeting. Pull together only those functional reports that pertain to the issues you wish to discuss at the board meeting. Examples of important issues might be a change in product direction, a new channel strategy, etc. However, do schedule formal reviews for each of the functional departments (Engineering, Marketing, Sales, HR, Finance, etc.) on rolling calendar. CONFIDENTIAL

6. BoD Overview (cont’d) The Board Package: A Meeting Primer, Not a Detailed Chronicle of Company Events There are a number of options for bringing your BoD up-to-speed on events since the last meeting. Informal contact with BoD members to discuss major issues throughout the year is the most effective means of ensuring that they are fully engaged and that the company gets the full benefit of their directorship. All directors hate to be surprised at the board meeting. The BoD package should arrive enough in advance of the meeting date to allow members an opportunity to review the company’s progress prior to that meeting. To enable time for this review, but also to ensure that the material is fully up to date, e-mail or Fed Ex a BoD package at least two days before the BoD meeting. Use the package as an opportunity to pre-brief the BoD members of specific topics scheduled for discussion at the meeting with which you would like assistance. Board Agenda Items It is critical that the CEO balances a presentation of short-term results (performance against plan goals, cash utilization, revenue generation, etc.) with a look at longer-term strategic issues. Remember you are in a partnership with your directors – a partnership based on trust, respect and open communications. Overtly seek your BoD’s feedback and guidance both inside and outside of the board meetings. In return, BoD members provide advice on company direction, make customer and partner introductions, help assess appropriate business models and financing strategies and assess new talent for the company. CONFIDENTIAL

7. BoD Composition CONFIDENTIAL

8. BoD Composition: Some Thoughts • Smaller is better • 5 members in early stage, 7 or more in later stage • Balance of company executives (common shareholder representatives), investors (preferred shareholder representatives), independents • Discourage observers unless they add significant value • Director recruitment • Good chemistry among BoD members is important – recruit accordingly • Map complementary attributes of BoD members to provide balance • Skills, strengths, backgrounds • Domain (industry) knowledge • Personal networks • Open communication ability • Audit and compensation committees are a must from ‘Day One’ • Supplement BoD with Technical Advisory Boards and/or Business Advisory Boards as needed CONFIDENTIAL

9. BoD Composition: Evolves Over Time • 7+ members • Heavily weighted to outside independents • Full range of committees • Focus: planning, financing, measuring, governance, personal network, marketing, industry knowledge • Quarterly meetings • Cash and stock compensation IPO/Public Company • 5-7 members • 2 company executives, 2 investors, 1 independent • Audit, compensation committees • Focus: planning, financing, measuring, governance, personal network marketing, industry knowledge • Regular meetings (every 4-6 weeks) • Very hands on • No cash compensation Venture Funded/ Private Company • Usually founders/management • No committees, very informal • Focus: Technology development, operational • Irregularly scheduled meetings • No cash compensation PreFunding/Private Company (c) 2002 The Catlin GroupCONFIDENTIAL

10. BoD: Roles and Responsibilities CONFIDENTIAL

11. Strategic Role Oversees, and participates in, planning process (strategic and annual operating plan) Consults with CEO and executive team: chaplains and cheerleaders Shares his/her personal networks Potential customers and partners Financing sources ‘Expert’ advice Other SRF portfolio company executives Sets objectives based on the company plan and provides a periodic CEO performance review Determines CEO and other management compensation Works with CEO to establish ethical standards and codes of conduct Legal/Fiduciary Responsibility Ensures corporate governance and oversight: primary responsibility is to company Approves key transactions, such as Sales of all or substantially all of a company’s assets Stock and option grants Amendments to the company’s charter documents All “material” transactions: different thresholds by stage of company: property leases, equipment leases, bank lines Approval and signature authority levels for executive team Mergers and acquisitions Directors’ Roles and Responsibilities • Establishes Audit & Compensation committees CONFIDENTIAL

12. CEO’s Role and Responsibilities • Is accountable to BoD • Ensures the board thoroughly understands the strategy, plan, culture, and team • Sets expectations and presents results • Defines the BoD’s roles, responsibilities, goals and objectives • Leverages competencies and attributes of individual BoD members • Creates BoD and company cultures based upon ongoing communication • Full participation • Open disclosure and interaction • Intellectual honesty • Acceptance of accountability • Absence of retribution • Drives his/her performance review • Owns the “mechanics” of the BoD meetings CONFIDENTIAL

13. BoD Meetings CONFIDENTIAL

14. Suggested BoD Meeting Calendar • Regular meetings (every 4-6 weeks) with ‘standard’ agenda that drives decision making • Quarterly • Strategic plan and annual operating plan objectives review • Audit and compensation committee sessions • Every six months • Positioning strategy (market vision, customer and market segmentation, competitive differentiation) • Technology/Product roadmaps • Customer review • Once per year (at a minimum) • Annual operating plan development/finalization • Board practices with legal counsel and auditor participation • Review of company policies and procedures CONFIDENTIAL

15. BoD Meeting “Mechanics” Pre-Meeting • Schedule meetings on a set regular schedule (frequency will vary depending on company stage) • Define the meeting objectives, publish an agenda • Distribute BoD package or outline at least two days prior to meeting date • Brief BoD members before the meeting on ‘problem’ topics • Solicit closed session topics Meeting • Start BoD meeting with a short BoD-only session to frame the meeting • Manage the meeting to allotted time • Present CEO summary at start of meeting • Agenda review • Highlights/Lowlights • Follow-up on action items from previous BoD meeting CONFIDENTIAL

16. BoD Meeting “Mechanics” (cont’d) Meeting (cont’d) • Ensure focus of meeting is to drive decisions on strategic topics • Ensure full board participation in all decisions such as • Funding strategy • Functional review (rotating basis) • Competitive updates • Partnering opportunities • Use ‘standard’ formats for presentations • Provide opportunity for broad exposure to, and discussions about, management team presentations • Report on existing milestones and set key milestones for the next [month] • Carve out enough time at the end of the meeting for a Board-only closing session Post Meeting • Solicit feedback from BoD on meeting (process and content) • Publish action items • Ensure action items are carried forward to next meeting • Staffing plan • Customer pipeline and feedback • Business model changes • Etc. CONFIDENTIAL

17. Monthly Board Package(sent to Directors prior to BoD Meeting) CONFIDENTIAL

18. Monthly BoD Package Table of Contents • BoD agenda • Financial Overview (see examples beginning at slide 41) • Functional Review • Stock Option Summary • Board Resolutions, etc. CONFIDENTIAL

19. Functional Reviews: Sample Presentation Outline (One per BoD Meeting on a rotating basis) Objective: To update Directors, to present issues for input and issues requiring BoD decisions CONFIDENTIAL

20. BoD Meeting Agenda – An Example CONFIDENTIAL

21. Functional Review Presentation Outlines – Examples (cont’d) CONFIDENTIAL

22. Functional Review Presentation Outlines – Examples (cont’d) CONFIDENTIAL

23. Functional Review Presentation Outlines – Examples (cont’d) CONFIDENTIAL

24. Some Challenges • Getting the BoD chemistry right – foundation for teamwork • Resolving dysfunctional behavior by BoD members • Communicating with BoD outside of board meetings • Ensuring full participation of all BoD members, in and outside of meetings CONFIDENTIAL

25. CEO’s Self Evaluation: The BoD Relationship CONFIDENTIAL

26. CEO’s Self Evaluation: The BoD Relationship CONFIDENTIAL

27. CEO’s Self Evaluation: The BoD Relationship (cont’d) CONFIDENTIAL

28. CEO Performance Review CONFIDENTIAL

29. CEO Performance Review Process • CEO drives his/her performance review process with BoD • CEO must ensure that entire board participates • A face-to-face CEO review meeting is a must • Core of review = CEO’s personal annual goals • Majority should be specific and measurable balanced with qualitative objectives • 3-5, in writing • Developed from, and traceable to, strategic and annual operating plans CONFIDENTIAL

30. CEO Performance Review: Sample Questions • Does the CEO demonstrate an ability to articulate his/her vision in a powerful and memorable way? Has he/she articulated an inspirational mission for the company? • Has the CEO developed a strategic plan for the company? • Does the CEO demonstrate a willingness and an ability to act with courage and conviction in increasingly challenging situations? • Does the CEO work in an open and principled way? (CEO’s who work in an open and highly principled way are hugely disappointed when others don’t play by the same rules.) Standards (ethical performance) are uncompromisingly high and they expect all employees to meet and exceed those standards. • Does the CEO demonstrate self direction? Is he/she able to look ahead and to move on quickly, not dwelling on things that haven’t gone well? • Does the CEO demonstrate a relentless drive to achieve world class results? Does he/she continually measure the business’s performance against the best in the industry? CONFIDENTIAL

31. CEO Performance Review: Sample Questions (cont’d) • Does the CEO deal with the ‘here and now’ as well as work future opportunities? • Does the CEO demonstrate an ability to articulate his/her vision in a powerful and memorable way? • Does the CEO demonstrate a commitment to the business through his/her work habits? • Does the CEO ego get in the way of results? • Does the CEO encourage his/her direct reports to air their ideological differences? • Does the CEO have a hard time admitting when he/she is wrong? • Has the CEO achieved the non-revenue metrics in last year’s plan? • Has the CEO achieved the revenue and cash flow metrics in last year’s plan? • Has the CEO developed a strategic plan for the company? CONFIDENTIAL

32. Summary CONFIDENTIAL

33. Summary: BoD Truths • The BoD is a strategic asset • The BoD is an all year round team member, not a once a month “seagull” • The CEO is held accountable for how effectively the team performs, including the BoD team • Planning, culture, and team concepts apply to the BoD as well as the rest of the company • The BoD composition will/should change over time • The CEO can’t let a dysfunctional BoD interfere with the company’s progress CONFIDENTIAL

34. Summary: BoD Tips • It is difficult to remove a recalcitrant Director, so choose wisely! • Interaction with the BoD should be continuous and should involve all members • Learn and use each and every individual BoD member’s strengths • Encourage BoD interaction without your presence • Encourage BoD to challenge your decisions • CEO never uses the BoD as an excuse for doing (or, not doing) something • Deal with problems immediately; don’t let them fester CONFIDENTIAL

35. Appendix • NACD BoD Characteristics • Sample Monthly Board Package • Sample Functional Review Presentation-Engineering • Berry Cash’s Perspective CONFIDENTIAL

36. NACD BoD Characteristics CONFIDENTIAL

37. Select, evaluate, and compensate top management Create a climate of full disclosure Receive updates on enterprise risk management Establish ethical standards Ensure management succession BoD Roles and Responsibilities: Top Functions of Boards • Review and monitor strategic plans/directions • Advise senior management • Review plans to enhance shareholder value • Oversee mergers and acquisitions • Monitor and critique financial plans *NACD report on “Effective Entrepreneurial Boards” In order of importance from top left to bottom right CONFIDENTIAL

38. BoD Composition: Importance of Director Attributes* • 4.8 Integrity, Accountability, Honesty • 4.3 Industry experience • 4.2 Useful contacts • 3.9 Independence • 3.8 Time availability • 3.7 Source of capital • 3.6 Functional experience • 3.5 Board experience • 3.3 Internal operations/infrastructure experience • 3.2 Name recognition *NACD report on “Effective Entrepreneurial Boards” 5 point rating scale:5 = extremely important to improve, 1=not important to change CONFIDENTIAL

39. Sample Monthly Board Package (Sent to Directors prior to BoD meeting) Objective: Provide detail of company’s financial performance for prior month as backdrop for BoD meeting discussions and to highlight key issues to be discussed, decisions to be made in the BoD meeting CONFIDENTIAL

40. Table of Contents • Functional Review • Business Development • Engineering • Finance & Administration • Marketing • Operations & Manufacturing • Sales • Board Resolutions, etc. • BoD agenda • Financial Overview - Current Quarter Financial Highlights - Year-to-date Financial Highlights - Current Quarter Operating Expenses - Year-to-date Operating Expenses - Year-to-date Cash Burn - Headcount Recap - Waterfall Charts • Cash Flow Forecast • Headcount Forecast • Revenue Forecast - Stock Option Summary CONFIDENTIAL

41. Current Quarter Financial Highlights CONFIDENTIAL

42. YTD Financial Highlights CONFIDENTIAL

43. Current Quarter Operating Expenses CONFIDENTIAL

44. YTD Operating Expenses CONFIDENTIAL

45. YTD Cash Burn CONFIDENTIAL

46. Headcount Recap CONFIDENTIAL

47. Cash Flow Forecast CONFIDENTIAL

48. Headcount Forecast CONFIDENTIAL

49. Revenue Forecast CONFIDENTIAL

50. Stock Option Summary CONFIDENTIAL