SARBANES OXLEY AFTER THREE YEARS MARKKULA CENTER Mark Bertelsen November 4, 2005

Today’s Environment  Sarbanes Oxley is here to stay “Stop complaining and get on with it”  Management Accountability and Shareholder Empowerment/Activism: Recent news articles HP and Pfizer require majority vote for directors  Role of ISS “Don’t propose anything to shareholders that ISS doesn’t support”  GovernanceMetrics International (GMI) Governance is an international issue Privileged and Confidential

Continuing Themes  Transparency  Management Accountability  Shareholder Improvement/Activism  Board Independence  Role Board Committees  Time Commitment and more informed decision- making  Wall Street Journal Test compliance with the letter and spirit of the law Privileged and Confidential

Observations From 12/04 SEC/PCAOB Conference  Financial reporting is management’s tool for communicating with investors  Minimum compliance is not enough Disclosure rules are the floor, not the ceiling  Audit Committees need to be strong, active and independent  Effective monitoring by other gatekeepers’ such as independent accountants, lawyers, and bankers  Overtime, the benefits of SOX reforms will outweigh the costs  Importance of strong internal controls  Senior management must promote and reward ethical conduct  Executive Compensation: Transparent disclosure Reasonableness standard Privileged and Confidential

Cost/Impact of Compliance  SEC estimate of $1.24 billon vs. AEA estimate of $35 billion for 404 compliance  Audit fees for Fortune 1000 increased, on average, 103%  Companies below $100 million in revenues spent 2.55% of revenues on compliance vs. 0.06% for companies with over $5 billion in revenues  Role of PCAOB PCAOB budget for 2006 is $137 million Powerful with Minimal legislative oversight; senate has no say on Chair  Companies below $200 million in revenues had highest 404 failure rate in calendar 2004 (43% of adverse opinions) Privileged and Confidential

Small Company Relief  404 compliance extended for small issuers first fiscal year ending on or after July 15, 2007  More time to file SEC reports  COSO proposal  SEC subcommittee proposal Privileged and Confidential

Institutional Shareholders  Impact of ISS “Recommendation”  Current and evolving positions: Majority vote for Directors Annual election of Directors Poison Pills Options  Executive compensation/performance compensation  Board-Shareholder communications Privileged and Confidential

Securities Act Reform  Manner and speed of communication, e.g., use of internet, web casts, etc  1934 Act reporting more timely and robust  More frequent SEC review of 1934 Act filings  More frequent use of registered offerings Communications in registered offerings Categories of issuers: seasoned issuer vs. unseasoned issuer Privileged and Confidential

Other Developments  Impact on Capital Markets  Going private transactions and being acquired rather than IPO  Risk Management  Disney  Siebel Privileged and Confidential

Impact on Boards and Management  Is there enough clarity about what is expected?  Going beyond director independence  Risks to entrepreneurialism and creativity  Developing a new recipe with respect to corporate trust and integrity, and the principal elements are: Transparency Responsibility Accountability Privileged and Confidential