Role of board a. Hire and fire CEO

• let CEO run day to day due to lack of information
• if VC board is engaging day to day, important to understand why? Lack of trust or forgot they're not the CEO

b. Make strategic decisions

c. Decide upon compensation

CEO engagement model with board a. Highlight how board meetings will be run b. Engagement model with execs c. Communication of feedback to CEO

• ----- USA specific ------ Business Judgement Rule (BJR)
• Judged on the process of decision making and not the outcome of decision making
• Make sure to approve minutes from previous board meeting BJR means burden of proof lies with the plaintiff

Entire Fairness If bad faith allegation emerges then burden of proof lies with the accused If proven guilty, duty of loyalty is violated and personal liability kicks in.

Trados case Management Incentive Programme carve out due to acquisition Two reasons why BJR didn't work a. Liquidation preferences conflict with common stockholders b. VC time opportunity cost model

For executive on board representing common, if they get asymmetric and material proceeds not accessible by common, then they are in conflict

Lessons from Trados case

• Assume you'll be under entire fairness
• Hire banker for quotes and fairness opinion
• Think through MIP carefully
• Make sure board acknowledges fiduciary responsibility and has common shareholders at the back of mind Pull up clause to let investors retain some liquidation preferences

Lessons from Bloodhound case

• Even if financing internally, get external price validation
• Don't tie stock option grants too close to internal financing. Get compensation consultant