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1234 JONES DRIVE MCLEAN, VIRGINIA 22102 __________ __, 2008 To the Board of Directors of Acme Software, Inc. Dear Board Member: This will serve as formal notice that a regular meeting of the Board of Directors of Acme Software, Inc. (the “Company”) will be held at the offices of the Company in McLean, Virginia at 11:00 a.m. on ________ ___, 2008. [We also plan to have a Board dinner the evening prior to the meeting at ___ p.m. at _________. We hope that all of you will be able to attend.] [Since this is our kick-off meeting following the Series A financing, we expect this meeting to last somewhat longer than our future meetings. After we take up a series of formal Board actions, key members of the management team will provide various operational reports to the Board, after which we plan to have a strategy session, focused on _______ and _______.] Enclosed please find a proposed agenda for our meeting along with management reports and the proposed resolutions that we expect to discuss at the Board meeting. If you have any questions, please feel free to call me on my cell at (____) ____-_____. If you are unable to attend the meeting in person, please let us know and we will arrange a call-in number. Very truly yours,
John Smith Chief Executive Officer DISTRIBUTION: cc: _________, _______ Venture Partners _________, _______ Venture Partners ____________, CFO Andy Lustig, Cooley Godward Kronish LLP
EXHIBITS: Tab A: Agenda Tab B: Proposed Resolutions Tab C: CEO Report Tab D: Sales Report / Sales Pipeline Tab E: Technology / Product Report Tab F: Draft Audit Committee Charter Tab G: Draft Compensation Committee Charter Tab H: Draft Compensation Guidelines Tab I: Draft Investment Policy Tab J: Interim Financials / 2008 Budget Tab K: Organizational Chart [Note: the attached compensation committee charter and audit committee charter are just samples and are very streamlined for early stage, private companies and are not suitable for public or pre-public companies; the attached investment policy and compensation guidelines are samples for illustrative purposes; some venture capital firms have policies or guidelines they favor.]
[Note: this notice is usually accompanied by Powerpoint slides containing the various operational reports to be presented by key members of the executive team. We can provide samples of these Powerpoint slides. You should distribute all or most Board materials by email to Board members and observers at least 48 hours prior to the meeting if at all possible to allow review in advance of the meeting.]
[Note: most venture capital firms will expect you to make it a regular practice to have an executive session with Board members and invited guests only that excludes the management team. During this session, formal actions would typically be taken and personnel matters discussed. The agenda below provides for this to occur at the beginning of the meeting so that you can then invite in the rest of the team after you wrap up; if you do it in the reverse order, keep in mind that you will have to ask executives to leave the meeting which sometimes is less desirable. Also, after adjournment, if there is a syndicate, many venture capital firms like to have an informal, investor-only session and so the agenda below anticipates this.]
AGENDA REGULAR MEETING
BOARD OF DIRECTORS
ACME SOFTWARE, INC. ______ __, 2008 11:00 a.m. McLean, Virginia EXECUTIVE SESSION I. II. III. • • • • • • GENERAL SESSION IV. • Operational Matters CEO Report (________) • General Overview • Market Overview • Personnel / Hiring Plans / Organizational Chart Operations Report (_________) Financial Report (__________) Sales Report (_____________) Technology / Product Development Report (_________) Call to Order Approval of Previous Minutes Board Resolutions / Formal Actions Approval of Option Grants (including discussion of IRS Rule 409A) Creation of Compensation Committee and Audit Committee Set date for 2008/2009 Board meetings Series A financing – post-closing matters Approval of Compensation Guidelines/Bands Approval of Investment Policy
• • • • V.
INVESTOR ONLY SESSION
ACME SOFTWARE, INC. STOCK OPTION GRANTS The Board next discussed granting [incentive] [and/or] [nonstatutory] stock options to certain [key] employees [and/or consultants] of the Company pursuant to its 20__ Equity Incentive Plan (the “Plan”). In determining the fair market value of the Company’s Common Stock on the date hereof, the Board considered the following factors: (1) (2) The Company has no material trade or business that it, or any predecessor to it, has conducted for a period of ten (10) years or more. The Board has no reasonable anticipation that the Company will undergo a change in control event within the next ninety (90) days or make a public offering of securities within the next one hundred eighty (180) days. The Company’s Common Stock is not subject to any put, call, or other right or obligation of the Company or other person to purchase such stock (other than a right of first refusal upon an offer to purchase by a third party that is unrelated to the Company or the award recipient and other than a right or obligation that constitutes a lapse restriction as defined in §1.83–3(i) of the Internal Revenue Code of 1986, as amended). The Board has received and reviewed a presentation, with accompanying analysis and supporting data, prepared by the Company’s management regarding the valuation of the Company and the Company’s Common Stock, and has taken into consideration the material facts and circumstances known to the Board as of the date hereof, including but not limited to [include all that apply: (a) the earnings history and financial performance of the Company, (b) the current prospects and expected operating results for the Company (including but not limited to the present value of the anticipated future cash-flows of the Company), (c) the value of tangible and intangible assets of the Company, (d) recent material events in the Company’s operations (such as the resolution of material litigation or the issuance of a patent), (e) the market value of stock or equity interests in similar corporations and other entities engaged in trades or businesses substantially similar to those engaged in by the Company and whose stock or equity interests can be valued through nondiscretionary, objective means (such as through trading prices on an established securities market or an amount paid in an arm's length private transaction), (f) recent arm’s length transactions involving the sale or transfer of the Company’s Common Stock or other equity interests, (g) control premiums or discounts for lack of marketability, and (h) and such other items as the Board deemed material as
of the date of its determination in order to determine in good faith the fair market value of a share of the Common Stock of the Company]. (5) [The members of the Company’s management who prepared the above referenced presentation and the accompanying analysis and supporting data each have at least five years of relevant experience in business valuation or appraisal, financial accounting, investment banking, private equity, secured lending, or other comparable experience in the Company's line of business or industry.]
After discussion, upon motion duly made, seconded and unanimously approved, it was: RESOLVED, that the Board hereby grants [incentive] [and/or] [nonstatutory] stock options to purchase shares of the Company’s Common Stock pursuant to the Plan to the individuals and in the amounts as set forth on Exhibit A to these resolutions; RESOLVED, that, based on a determination of the applicable criteria under IRS Rule 409A, the exercise price of such options will be __________ ($__________) per share, which the Board hereby determines, after due consideration of the factors set forth above, to be the fair market value of the Company’s Common Stock on the date hereof; RESOLVED, that the options granted hereby will vest and become exercisable as to ____% of the total number of shares on the first anniversary of the Vesting Commencement Date, as indicated on Exhibit A to these resolutions, and as to ___% each month thereafter over the following ___ years, such that the options will be 100% vested on the __________ anniversary of the Vesting Commencement Date, subject to the optionee’s continued service on each such date;1 [RESOLVED, that, notwithstanding the foregoing vesting schedule, the options granted hereby will become vested and become exercisable as to ____% of the then-unvested shares subject to the options upon the termination of the optionee’s service either without Cause or for Good Reason (as each such term is defined in the [Plan] [optionee’s employment agreement with the Company dated ________]), provided such optionee executes a binding release of claims;2] [RESOLVED, that, notwithstanding the foregoing vesting schedule, the options granted hereby will become vested and become exercisable as to ____% of the then-unvested shares subject to the options upon a Change of Control (as defined in the [Plan] [optionee’s employment agreement with the Company dated ________]);3]
Sample vesting only—be sure to set forth correct vesting schedules. If there are different schedules for different persons, consider putting the vesting schedules on the Exhibit. Sample vesting only—be sure to set forth correct accelerated vesting schedules. If there are different schedules for different persons, consider putting the vesting schedules on the Exhibit.
RESOLVED, that all of the foregoing grants of options will be made pursuant to [an Incentive Stock Option] [and/or] [a Nonstatutory Stock Option] Agreement in substantially the form previously approved by the Board, [and as attached hereto as Exhibit ____,] with such ministerial changes as the Company’s [General Counsel][Chief Executive Officer] will deem necessary or appropriate; [RESOLVED, that, notwithstanding the post-termination exercise period set forth in the form of option agreement previously approved by the Board, the options granted hereby will be exercisable for ___ months following a termination of the optionee’s service either without Cause or for Good Reason (as each such term is defined in the [Plan] [optionee’s employment agreement with the Company dated ________]), provided such optionee executes a binding release of claims;4] RESOLVED, that the options granted hereby and the Common Stock issuable upon exercise of the options will be offered and sold in accordance with applicable state and federal securities laws; and RESOLVED, that the officers of the Company be, and each of them hereby is, authorized and directed, for and on behalf of the Company to take such further action and execute such additional documents as each may deem necessary or appropriate to carry out the foregoing resolutions. COMPENSATION AND AUDIT COMMITTEES RESOLVED, that the charter for the Compensation Committee of the Board of Directors be, and it hereby is, revised and adopted in substantially the form attached hereto as Exhibit B; RESOLVED, that the charter for the Audit Committee of the Board of Directors be, and it hereby is, revised adopted in substantially the form attached hereto as Exhibit C; RESOLVED, that such charters will be deemed resolutions of the Board of Directors; RESOLVED, that such charters describe the full power and authority of the respective committees; RESOLVED, that such committees will have full power and authority to take any and all actions deemed necessary, appropriate or incidental to discharging the authority delegated to such committees by these resolutions or to fulfilling the purposes of these resolutions;
Sample vesting only—be sure to set forth correct accelerated vesting schedules. If there are different schedules for different persons, consider putting the vesting schedules on the Exhibit. Sample extended exercise period only—be sure to set forth correct post-termination exercise periods. If there are different periods for different persons, consider putting the periods on the Exhibit.
RESOLVED, that the authority hereby conferred will remain in force until revoked by the Board of Directors of the Company; RESOLVED, that effective as of the date hereof, the Compensation Committee will be comprised of ______________ and ________, to serve on such committee until their successors are duly elected and qualified or until their earlier death, resignation or removal; RESOLVED, that effective as of the date hereof, the Audit Committee will be comprised of ________________ and ________________, to serve on such committee until their successors are duly elected and qualified or until their earlier death, resignation or removal; and RESOLVED, that the directors and officers of the Company be, and they hereby are, authorized and directed to take such action and to execute such documents as each may deem necessary and appropriate to carry out the intent of the foregoing resolutions. APPROVAL OF INVESTMENT POLICY WHEREAS, the Board of Directors has determined that it would be advisable to adopt an investment policy to establish parameters to be followed for the investment of excess cash of the Company. RESOLVED, that the investment policy attached hereto on Exhibit D is hereby ratified, confirmed and approved in all respects. MISCELLANEOUS RESOLUTIONS RESOLVED, that the officers of the Company, and any of them, are each hereby authorized and directed to execute all documents and to take such action as any of such officers may deem necessary or advisable in order to carry out and perform the purposes of the foregoing resolutions. RESOLVED, that any actions prior to the date of the foregoing resolutions hereby taken by the person elected as the officers of the Company that are within the authority conferred thereby are hereby ratified, confirmed and approved as the acts and deeds of this Company.
EXHIBIT A ACME SOFTWARE, INC. LIST OF OPTIONS GRANTED UNDER THE 2007 EQUITY INCENTIVE PLAN ________ __, 2008
Vesting Commencement Date
EXHIBIT B ACME SOFTWARE, INC. CHARTER OF COMPENSATION COMMITTEE EFFECTIVE: ____________ __, 2008 PURPOSE: The purpose of the Compensation Committee of the Board of Directors of ACME SOFTWARE, INC., a Delaware corporation (the “Company”) will be to (i) administer the Company’s various stock option plans (the “Stock Plans”), (ii) establish and review the salary, bonuses, employee benefits and other employee compensation of any nature for management of the Company and (iii) perform such other functions as will be deemed necessary or convenient related to the foregoing. COMPOSITION: The Compensation Committee will be comprised of up to three members of the Board (unless the Board determines otherwise by resolution). The members of the Compensation Committee and its Chairperson will be appointed by and serve at the discretion of the Board. FUNCTIONS AND AUTHORITY: The operation of the Compensation Committee will be subject to the Bylaws of the Company, as in effect from time to time, and Section 141 of the Delaware General Corporation Law. The Compensation Committee will have the full power and authority to carry out the following responsibilities:
1. Administer the Stock Plans, as the same may be amended and in effect from time to time; provided, that the Board of Directors reserves the power to administer the Stock Plans at such times as the Board determines to be appropriate. 2. Grant stock options and stock equivalents under the Stock Plans, provided, that each grant will satisfy all the applicable terms of the Stock Plan as in effect at the time of grant. 3. To review and make recommendations regarding material salaries, incentives and other forms of compensation paid to officers and other key employees of the Company. 4. To review and make recommendations regarding the various incentive compensation and benefit plans of the Company. 5. To review on a periodic basis the operation of the Company’s executive compensation programs to determine whether they are properly coordinated and to establish and periodically review policies for the administration of executive compensation programs.
6. To perform such other functions and have such other powers as may be necessary or convenient in the efficient discharge of the foregoing. 7.
so. MEETINGS: The Compensation Committee will hold at least one regular meeting per year and additional meetings as the Chairperson or Compensation Committee deem appropriate. The officers of the Company may attend any meeting of the Compensation Committee, except for portions of the meetings where such person’s presence would be inappropriate, as determined by the Committee Chairperson. MINUTES AND REPORTS: Minutes of each meeting of the Compensation Committee will be kept and distributed to each member of the Compensation Committee, members of the Board who are not members of the Compensation Committee and the Secretary of the Company. The Chairperson of the Compensation Committee will report to the Board from time to time, or whenever so requested by the Board. To report to the Board from time to time, or whenever it will be called upon to do
EXHIBIT C ACME SOFTWARE, INC. CHARTER OF AUDIT COMMITTEE EFFECTIVE: _________ __, 2008 PURPOSE: The purpose of the Audit Committee of the Board of Directors of ACME SOFTWARE, INC., a Delaware corporation (the “Company”) generally is to oversee and interact with the Company’s independent auditors and to review the Company’s audited financial statements. COMPOSITION: The Audit Committee will be comprised of up to three members of the Board (unless the Board determines otherwise by resolution). The members of the Audit Committee and its Chairperson will be appointed by and serve at the discretion of the Board. FUNCTIONS AND AUTHORITY: The operation of the Audit Committee will be subject to the Bylaws of the Company, as in effect from time to time, and Section 141 of the Delaware General Corporation Law. The Audit Committee will have the full power and authority to carry out the following responsibilities: 1. To recommend annually to the Board of Directors the firm of certified public accountants to be employed by the Company as its independent auditors for the ensuing year, which firm is ultimately accountable to the Audit Committee and the Board, as representatives of the Company’s stockholders. 2. To review the engagement of the independent auditors, including the scope, extent and procedures of the audit and the compensation to be paid therefor, and all other matters the Audit Committee deems appropriate. 3. To evaluate, together with the Board, the performance of the independent auditors and, if so determined by the Audit Committee, recommend that the Board replace the independent auditors. 4. To have familiarity, through the individual efforts of its members, with the accounting and reporting principles and practices applied by the Company in preparing its financial statements, including, without limitation, the policies for recognition of revenues in financial statements. 5. To assist and to interact with the independent auditors so that they may carry out their duties in the most efficient and cost effective manner.
6. To evaluate the cooperation received by the independent auditors during their audit examination, including their access to all requested records, data and information, and to elicit the comments of management regarding the responsiveness of the independent auditors to the Company’s needs. 7. To consult with the independent auditors and to discuss with the senior management of the Company the scope and quality of internal accounting and financial reporting controls in effect. 8. To perform such other functions and to have such power as may be necessary or appropriate in the efficient and lawful discharge of the foregoing. 9. To report to the Board of Directors from time to time, or whenever it will be called upon to do so. MEETINGS: The Audit Committee will hold at least one regular meeting per year and additional meetings as the Chairperson or the Audit Committee deem appropriate. The officers of the Company may attend any meeting of the Audit Committee, except for portions of the meetings where such person’s presence would be inappropriate, as determined by the Audit Committee Chairperson. MINUTES AND REPORTS: Minutes of each meeting of the Audit Committee will be kept and distributed to each member of the Audit Committee, members of the Board who are not members of the Audit Committee and the Secretary of the Company. The Chairperson of the Audit Committee will report to the Board from time to time, or whenever so requested by the Board.
EXHIBIT D ACME SOFTWARE, INC. SALARY & OPTION BANDS ________ __, 2008 LEVEL SALARY RANGE INITIAL OPTION GRANT
CFO, VPs Directors/Managers
200,000 140,000 120,000 100,000 90,000 60,000
25% 10%15% 0% 5% 10% 5%
326,899 (1.0%) 98,070 (.30%) 9,807 (.03%) 9,807 (.03%) 9,807 (.03%) 1,500 (.005%)
653,798 (2.0%) 196,139 (.60%) 49,035 (.15%) 49,035 (.15%) 49,035 (.15%) 7,519 (.023%)
408,624 (1.25%) 98,070 (.30%) 17,653 (.054%) 17,653 (.054%) 17,653 (.054%) 4,577 (.014%)
Sales Representatives** 50,000 Marketing Developers – Jr. to Sr. 50,000 40,000
Depending upon company and individual performance, employee can achieve 0% to 125% of target bonus. The upper range at any level should only be used in exceptional cases. ** Range includes lower level inside sales reps. Sales people will have a commission plan on top of salary. It is expected that commission rates will be approximately 7.5% of revenue. Commission payments will be made 50% upon receipt of acceptable order and 50% upon receipt of funds. Options will vest over four years with the first 1/4 vesting at the first anniversary of the grant. Thereafter, options will vest monthly for the remaining three years. Bonuses will be paid annually in January of the following year based upon meeting corporate and individual objectives. Model assumes approximately __ million common share equivalents and a company with __-__ people and $__M in revenues.
EXHIBIT E INVESTMENT POLICY GUIDELINES I. OBJECTIVES In order of importance the primary objectives of the ACME SOFTWARE, INC. (the “Company”) investment guidelines are as follows: PRESERVATION OF CAPITAL - In order to assure absolute preservation of capital, strict investment guidelines enclosed herein will be adhered to at all times. The objective of these guidelines will be to provide maximum investment return with no potential loss of principal. All investments will be held in a custodial account in the name of the Company. This will assure absolute safety of those investments from any adverse external events and provide the necessary fiduciary controls of any cash or investments by individuals approved by the Board. LIQUIDITY - Ongoing liquidity needs of the Company will be monitored regularly to assure cash flow requirements are met on a day-to-day, cyclical and long-term basis. A liquidity account will be established within the investment portfolio to assure same day availability of monies necessary to fund daily operations on a planned or as needed basis. INVESTMENT RETURN - Once the two aforementioned objectives have been explored and met then investments may be made from the Company approved list of investment securities, (enclosed herein). The minimum investment return objective will be to deliver the market return as provided by the guidelines set below. Investments will be diversified in order to minimize any risk of principal or inappropriate concentrations of investments with any one entity. In no manner can the principal funds invested be exposed to any potential loss when making investments on behalf of the Company. The Company investment guidelines have been instituted to meet the above objectives. The guidelines set forth herein have been created as a tool of management and should be interpreted as such. This tool is to be used to properly manage all investable cash balances to assure safekeeping of these assets. Any flexibility regarding addressing this subject must be derived from interpretation of these guidelines unless otherwise preapproved by the Board of Directors. The Company has adopted this written investment policy that establishes guidelines relating to diversification, credit ratings, and maturities with the stated purpose of conserving capital and maintaining liquidity until funds are used in the operations of the Company. II. LIQUIDITY GUIDELINES The management of the Company investable corporate cash position will be supported by the investments which provide ample liquidity without loss of principal. Daily liquidity is essential. Restrictions on liquidity are as follows:
A minimum of $200,000 or 5 days of required cash, whichever is larger, must be available on a daily basis and accessible on any business day until 2:00 PM Eastern time with no loss of principal. A minimum of $500,000 or 15 days of required cash, whichever is larger, must be available with no loss of principal within a thirty-day period of time. The remainder of the funds could be invested in securities with maturities no longer than one hundred eighty (180) days. Above liquidity requirements must be first met at all times when determining maturity parameters. Repositioning of these securities before their maturity, generating any potential gain or loss, is permitted for managing liquidity requirements only.
III. INVESTMENT RESTRICTIONS • • • • • All investments must be in U.S. Dollar denominated securities. Federal Agency securities must be rated AAA. Bank obligations are acceptable only from A1/P1 rated issuers with a capital base of $750 million + and a long-term rating of A1 or better. Repurchase agreements must 102% backed by U.S. Government securities of similar maturity. Non-Government investments are limited to high quality debt obligations which have at least one of the following quality ratings: P1 or better by Moody’s and A1 or better by Standard & Poors with long-term of investment grade or better. In certain instances with prior approval by the Company’s Board of Directors up to 25% of the portfolio can be invested in Non-Government investment rated A2/P2 or higher with long-term rating of investment grade or better with a six month maturity or less. Municipal obligations must carry MIG1/A1 short-term rating, with A long-term rating for State issuers and AA long -term ratings for local issuers. The portfolio must not hold more than 10% in any one issuer, except Treasury obligations. Investment maturities must not exceed one hundred eighty (180) days.
• • •
Approved Securities List U.S. Government Obligations U.S. Treasury Bills, Notes, and Bonds Federal Agency Securities Bank Obligations Certificate of Deposits Bankers Acceptances Repurchase Agreements Time Deposits Corporate Obligations Commercial Papers Medium-Term Notes Corporate Bonds Municipal Obligations Variable Rate Notes Revenue Anticipation Notes Tax Anticipation Notes Bond Anticipation Notes Money Market Funds Only funds with at least $1 billion in assets. IV. CREDIT QUALITY Trends for a given company or industry must be reviewed periodically by the assigned investment manager to assure continuing credit quality of investments and implementation of any appropriate portfolio adjustments to maintain this credit quality or percentage positions. V. MARKETABILITY All securities are to be purchased through investment banking and brokerage firms of high quality and reputation. In the unlikely event that securities must be sold before their maturity, the securities must be easily remarketed. VI. TRADING GUIDELINES Normal investing practice is to reinvest the funds on the day a security matures, to minimize lost interest. A daily transaction log is to be maintained and available for review at any time. All trading firms must generate a hard copy document for each transaction which is mailed to the investment manager on a timely basis, and then matched to the transaction log.
VII. CUSTODY ACCOUNT Assets are to be held in a segregated bank custody account in the name of the Company with the separate fiduciary account documents executed by either the CEO or CFO of the Company and the custodial bank. VIII. FIDUCIARY DISCRETION The Chief Financial Officer or individual appointed by the Board and his/her authorized employees are responsible for securing and managing investments and cash for operations. These individuals have full discretion to invest any excess capital to strict adherence to these guidelines. These guidelines are to be reviewed periodically with the Chief Financial Officer or Chief Executive Officer at least semi-annually, and revisions made consistent with objectives set forth here.
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