Governance

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?