1. Governance Joseph Leo, Attorney 515-242-2462 leo@brownwinick.com Chris Sackett, Attorney 515-242-2470 sackett@brownwinick.com BrownWinick Attorneys at Law 666 Grand Avenue, Suite 2000 Des Moines, IA 50309 www.brownwinick.com

2. Governance Definition: –Governance generally is a set of rules that are applicable to a system of government or management. –Corporate governance is a more specifically a set of rules that are applicable to corporate entities.

3. Corporate Governance Generally Rules that apply to: –Who has the responsibility to make what decisions. –What are the standards of conduct that are applicable to each person.

4. Recent Developments in Corporate Governance Sarbanes Oxley Act of 2002 –New Securities and Exchange Act regulations regarding corporate disclosures. –Independent auditor requirements. –Collapse of the banking system and related reforms.

5. Basics of Corporate Governance Who makes what decisions on behalf of the company? –Owners/Shareholders –Directors/Managers –Officers Creates a hierarchy of decision-making.

6. Purpose of Corporate Governance Purpose = rules to efficiently and effectively operate the company. –Would be inefficient and ineffective for shareholders to make all decisions for the company. –Would not be appropriate for officers or directors to make certain large decisions at the risk of the shareholders. Also to provide standards of conduct for directors and officers.

7. Applicable Laws Both state and federal law apply. State law applicable to general rules of corporate governance and duties. Federal law applicable to certain “public” companies or other regulated companies.

8. State Law In Iowa, there are laws that govern: –Corporations –Limited liability companies –Partnerships For the most part, these are default rules. Can be altered by the company’s bylaws or other corporate governance agreements.

9. Governance Considerations Who will make what decisions? –This depends largely on the size of the company (now and in the future). –Also depends on how actively involved the owners/shareholders of the company are.

10. Shareholder Decisions Typical decisions that are allocated to shareholders: –Election of directors –Sale of all or substantially all assets –Merger –Liquidation of the company –Issuance of shares for less than a set price –Entering into contracts with directors/officers

11. Roles Role of the owner/shareholder Role of the board of directors Role of the officers

12. Standard of Conduct Duties applicable to directors and officers –Duty of care –Duty of loyalty –Duty of good faith and fair dealing

13. Indemnification Who pays when a director or officer is sued for acting on behalf of the company? Ability of the company to provide this indemnification –Who decides whether to indemnify or not? Director and Officer insurance policies Securities restrictions on indemnification

14. Sarbanes – Oxley Act of 2002 Landmark legislation –Reaction to corporate and accounting scandals New standards for all United States public companies

15. Significant Provisions Auditor independence Corporate Officer/Director responsibility Enhanced disclosure rules Significant criminal fraud accountability

16. Questions?