CORPORATE GOVERNANCE GUIDELINES
1. Basic Responsibilities of Board Members. The fundamental responsibility of members of the Company’s Board of Directors is to promote the best interests of the Company and its stockholders by overseeing the management of the Company’s business and affairs. In doing so, Board members have two basic legal obligations to the Company and its stockholders: (a) the duty of care, which generally requires that Board members exercise appropriate diligence in making decisions and in overseeing management of the Company, and (b) the duty of loyalty, which generally requires that Board members make decisions based on the best interests of the Company and its stockholders and without regard to any personal interest.
2. Conflicts of Interest and Corporate Opportunities. If a Board member develops an actual or potential conflict of interest with the Company, he or she should report the conflict immediately to the Chairman of the Board and Chief Executive Officer and the Chairman of the Nominating & Governance Committee. A significant conflict must be resolved, or the Board member should resign. If a Board member (or any member of his or her immediate family) has a personal interest in a matter before the Board, he or she must disclose to the full Board the material facts as to his or her relationship or interest. If a Board member becomes aware of a corporate opportunity that could benefit the Company, he or she must first present the opportunity to the Board of Directors for consideration and not attempt to personally profit from the opportunity unless the Company declines to pursue it.
3. Delegation to Committees. The Board of Directors may exercise its authority through Board committees in accordance with the Company’s bylaws.
4. Chairman of the Board and Chief Executive Officer. The Board selects the Company’s CEO and Chairman in the manner that it determines to be in the best interests of the Company.
5. Size and Classification of Board. The Company’s bylaws provide that the Board of Directors shall consist of not fewer than four members (with the exact number to be determined by the Board), divided into three classes (as nearly equal in number as possible) having staggered terms of three years each. The Board should be neither too small to maintain the needed expertise and independence, nor too large to function effectively. The Board of Directors currently believes that the optimal number of Board members is between four and six, allowing, however, for changing circumstances that may warrant a higher or lower number from time to time.
6. Selection of New Director Candidates. The Board of Directors has a duty to the Company’s stockholders to identify the most qualified candidates to serve as Board members. The Board is responsible for recommending director candidates for election by the stockholders and for electing directors to fill vacancies or newly created directorships. The Board has delegated the screening and evaluation process for director candidates to the Nominating & Governance Committee, which will identify, evaluate and recruit highly qualified director candidates and recommend them to the Board.
7. Board Membership Criteria. The Nominating & Governance Committee is responsible for establishing and reviewing with the Board annually the criteria for Board membership. Candidates nominated for election or reelection to the Board of Directors should possess the following qualifications:
- Substantial experience with technology companies. This experience may be the result of employment with a technology company or may be gained through other means, such as financial analysis of technology companies
- The highest level of personal and professional ethics, integrity and values;
- An inquiring and independent mind;
- Practical wisdom and mature judgment;
- Expertise that is useful to the Company and complementary to the background and experience of other Board members, so that an optimal balance of Board members can be achieved and maintained;
- Willingness to devote the required time to carrying out the duties and responsibilities of Board membership;
- Commitment to serve on the Board for several years to develop knowledge about the Company’s business;
- Willingness to represent the best interests of all stockholders and objectively appraise management performance; and
- Involvement only in activities or interests that do not conflict with the director’s responsibilities to the Company and its stockholders.
8. Majority of Independent Directors. The Board of Directors will have a majority of members who meet the applicable independence requirements of the NASDAQ and any other applicable law, rule or regulation. The Board will affirmatively determine on an annual basis, and the Company will disclose as required, as to each Board member whether he or she is independent. The Board will make each such independence determination following the receipt of the recommendation and findings of the Nominating & Governance Committee.
9. Extending Invitation to Potential Director to Join Board. The invitation to a prospective Board member to join the Board of Directors will be extended, on behalf of the Board, by the Chairman of the Board and Chief Executive Officer of the Company.
10. Mandatory Offer of Resignation. The Company expects that (a) Board members who are also officers of the Company to submit to the Board of Directors a letter of resignation as a director upon any termination of employment as an officer of the Company, and (b) Board members who are not officers of the Company to submit a letter of resignation to the Board of Directors upon any change in that Board member’s principal business or other activity in which the Board member was engaged at the time of his or her election. In each case, the Nominating & Governance Committee will review whether the termination of employment or new principal business or other activity is consistent with the criteria for Board membership, and will recommend a course of action to the Board of Directors.
11. Term Limits and Mandatory Retirement. The Board does not believe that arbitrary term limits or retirement ages are appropriate. The absence of term limits and mandatory retirement allows the Company to retain Board members 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 as a whole.
12. Limit on Number of Other Directorships and Other Commitments. Service as a member of the Company’s Board of Directors is a significant commitment in terms of both time and responsibility. Accordingly, each Board member is encouraged to limit the number of other public company boards on which he or she serves and be mindful of his or her other existing and planned future commitments, so that such other directorships and commitments do not materially interfere with his or her service as an effective and active member of the Company’s Board. Board members must advise the Chairman of the Board and Chief Executive Officer and the Chairman of the Nominating & Governance Committee in advance of accepting an invitation to serve on another public company board.
13. Scheduling Board Meetings. The Chairman of the Board and Chief Executive Officer, in consultation with other Board members, will determine the timing and length of Board meetings. The Board expects that five regular meetings per year at appropriate intervals are in general desirable for the performance of the Board’s responsibilities. In addition to regularly scheduled meetings, special Board meetings may be called upon appropriate notice at any time to address specific needs of the Company.
14. Selecting Agenda Items for Board Meetings. The Chairman of the Board and Chief Executive Officer will establish the agenda for each Board meeting. Each Board member is free to suggest the inclusion of items on the agenda, request the presence of or a report by any member of the Company’s management, or raise at any Board meeting subjects that are not on the agenda for that meeting. The Board will review, from time to time, the Company’s long-term strategic direction.
15. Meeting Attendance and Preparation. Board members are expected to attend all Board meetings and meetings of committees on which they serve, to spend the time needed to review materials in advance of such meetings, to participate in such meetings, and to meet as frequently as necessary to properly discharge their responsibilities. In advance of each Board meeting and Board committee meeting, Board members will receive the proposed agenda and other materials important to the Board’s understanding of the matters to be considered.
16. Board Access to Management and Employees and Outside Advisors. The Board has complete and open access to any member of the Company’s management, any employee, and any outside advisor. In addition, members of the Company’s senior management routinely attend Board meetings and Board committee meetings and, together with other managers, brief the Board and its committees on particular topics.
17. Board Access to Independent Advisors. The Board of Directors and each Board committee have the authority, to the extent they deem necessary or appropriate to carry out their respective duties, to retain independent legal, financial or other advisors and to approve each such advisor’s fees and other retention terms.
18. Executive Sessions of Non-Management Directors. Non-management Board members will meet without management present at least quarterly in executive sessions and at such other times as they may deem necessary or appropriate.
19. Types and Responsibilities of Committees. The Board of Directors will at all times have an Audit Committee, a Compensation and Stock Option Committee, and a Nominating & Governance Committee. Each committee will have a charter that sets forth the purpose and responsibilities of the committee.
20. Assignment of Committee Members. The Board of Directors, upon the recommendation of the Nominating & Governance Committee, will appoint committee members. In making its recommendation to the Board, the Nominating & Governance Committee will consider several factors, such as (a) each Board member’s desires, tenure and subject-matter expertise, (b) the need for both continuity and fresh ideas and perspectives, and (c) applicable Securities and Exchange Commission, Internal Revenue Service, NASDAQ and other legal requirements.
21. Independence and Qualification. Each member of the Audit Committee, Compensation and Stock Option Committee and Nominating & Governance Committee will meet the applicable independence and qualification requirements of the NASDAQ, the Securities Exchange Act of 1934, and any other applicable law, rule or regulation.
22. Limit on Number of Outside Audit Committee Memberships. Given the significant time demands and responsibilities of serving on a public company audit committee, no member of the Audit Committee may serve on more than two other public company audit committees.
23. Committee Meeting Frequency, Length and Agendas. The Chairman of each Board committee, in consultation with the committee members and appropriate members of management, will (a) determine the frequency and length of committee meetings, and (b) develop the agenda for each committee meeting.
24. Board Compensation. The Board of Directors, upon the recommendation of the Compensation and Stock Option Committee, will establish the form and amount of compensation paid to non-management Board members. Board members who are also employees of the Company receive no additional compensation for serving on the Board of Directors. In making its recommendation to the Board, the Compensation and Stock Option Committee will consider that Board members’ independence may be jeopardized if Board compensation exceeds appropriate levels, if the Company makes substantial charitable contributions to organizations with which a Board member is affiliated, or if the Company enters into material consulting arrangements with (or provides other indirect forms of compensation to) a Board member or an organization with which a Board member is affiliated.
25. Formal Evaluation of Executive Management. The Compensation and Stock Option Committee will conduct an annual performance review of the Chairman of the Board and Chief Executive Officer. The Nominating & Governance Committee will oversee the processes by which the Chairman of the Board and Chief Executive Officer and executive management are evaluated.
26. Succession Planning and Management Development. The Nominating & Governance Committee, in consultation with the Chairman of the Board and Chief Executive Officer, will make an annual report to the Board of Directors on succession planning. The entire Board will work with the Nominating & Governance Committee and the Chairman of the Board and Chief Executive Officer to evaluate potential successors to the Chairman of the Board and Chief Executive Officer and other members of executive management. The Chairman of the Board and Chief Executive Officer will at all times make available his recommendations and evaluations of potential successors, along with a review of any development plans recommended for such individuals.
27. Orientation of New Directors; Continuing Education. New Board members will be expected to go through an orientation process that will include providing the new Board members with comprehensive information about the Company’s business and financial performance, as well as the policies, procedures and responsibilities of the Board and its committees. New Board members also will meet with senior management and will have the opportunity to visit Company facilities.
28. Annual Performance Evaluations. The Nominating & Governance Committee will establish appropriate performance criteria and processes for, and implement and oversee, an annual performance evaluation of each Board member, each committee of the Board, and the Board of Directors as a whole. The Nominating & Governance Committee will report the results of these evaluations to the Board of Directors and identify opportunities to improve the effectiveness of the Board and its Committees.
Press and Analyst Relations
David Morris, Vice President of Product
FalconStor Software Inc.
Brad Wolfe, CFO
FalconStor Software Inc.
Company Whistleblower Hotline
To report a concern, visit falconstor.alertline.com or call: US, Canada, or US Territories: 877-874-8416
International: First dial the access code for your country and then, when prompted, dial 888-690-3865
701 Brazos Street, Suite 400 Austin, Texas 78701