Stephen Brock Testimony to Nevada Legislature re Chancery Court – Presentation

1. Stephen Brock Chief Executive Officer Public Company Management Corporation Nevada Legislature Legislative Commission’s Subcommittee To Study the Benefits, Costs, and Feasibility of The Implementation of Courts of Chancery 9:00 AM May 28, 2008 Room 4401 Grant Sawyer Building 555 East Washington Avenue Las Vegas, Nevada

2. Stephen Brock Chief Executive Officer Public Company Management Corporation Areas of focus: • The revenue potential of an institutionalized business court; • The costs that would likely be incurred implementing such a court; and • A roadmap for the implementation of such a court. 2

3. Stephen Brock Chief Executive Officer Public Company Management Corporation • In fiscal year 2007, Nevada’s Commercial Recordings Division generated approximately $82.0 million in revenue directly related to entities formed and maintained on the record in the Secretary of State's office. • At the end of calendar year 2007, there were approximately 315,000 entities on file at that Division. • These numbers imply that the total revenue generated by each registrant averages roughly $260.00 per year. 3

4. Stephen Brock Chief Executive Officer Public Company Management Corporation • Nevada’s initial fee for registration of new entity is $50 for non-profit entity and $75 for for-profit entity. • Importantly, corporations may require a larger fee, up to $35,000, based on their capitalization. • Figures from the Nevada Secretary of State’s office indicate that our State’s average initial fee is currently $85 per registrant. 4

5. Stephen Brock Chief Executive Officer Public Company Management Corporation • Once organized, a fee for an initial list of officers is required and, thereafter, a fee for an updated list of officers due annually. • Annual fee is $25 for a non-profit entity and $125 for a for-profit entity. • Corporations may require a fee of up to $11,100 based upon capitalization. Figures supplied by the Secretary of State’s office indicate that, in fiscal year 2007, our State’s average recurring revenue fee was $177 per registrant 5

6. Stephen Brock Chief Executive Officer Public Company Management Corporation • This is where an institutionalized business court enters the picture… the predictability provided to businesses by a highly efficient business court can be a major factor in attracting large-capitalization companies to our State. • And larger capitalization companies generate substantially higher fees. 6

7. Stephen Brock Chief Executive Officer Public Company Management Corporation • The Commercial Recording Division’s total revenue figure has two components… initial and recurring. • It is this second component that can be so important because it recurs year-in and year-out with little effort of cost expended. • In fact, the Wall Street financial community refers to this sort of revenue stream as “recurring revenue.” • Wall Street values this type of revenue stream very highly because it is predictable and because it is highly profitable. 7

8. Stephen Brock Chief Executive Officer Public Company Management Corporation • This, again, is where an institutionalized business court enters the picture… the predictability provided to businesses by a highly efficient business court can be a major factor in retaining large-capitalization companies as registrants in Nevada. • And larger capitalization companies generate substantially higher fees. 8

9. Stephen Brock Chief Executive Officer Public Company Management Corporation • Wall Street understands that all revenue dollars are not created equal. • The Wall Street firms that assign ratings to our State’s bonds understand that recurring revenue streams are less risky, and that can result in a lower cost of capital for our State. • Over time, a lower cost of capital can save our State millions of dollars in interest payments. 9

10. Stephen Brock Chief Executive Officer Public Company Management Corporation • New service enhancements could generate substantial increases in 1) the number of new Nevada registrants, 2) the number of new Nevada registrants that are high capitalization companies, 3) the State’s customer retention rate, 4) average total revenue per registrant, and 5) average recurring revenue per registrant. • the Commercial Recording Division’s total annual revenue could dramatically from the recent $82 million with a business court system in place. be increased 10

11. Stephen Brock Chief Executive Officer Public Company Management Corporation The costs necessary to support this projected revenue increase are actually quite palatable from a return on investment standpoint… 11

12. Stephen Brock Chief Executive Officer Public Company Management Corporation • The State of Delaware’s Chancery Court, considered to be a key factor in that State’s dominance of the company registration market in the US, has a fiscal year 2008 operating budget of just $3.1 million, and that figure represents just 3.5% of Delaware’s total $89.1 million judiciary budget. • General fund revenue collections by the Delaware Department of State have increased 33.0% since 2000 to a new record of $701 million in fiscal year 2007. 12

13. Stephen Brock Chief Executive Officer Public Company Management Corporation • On the marketing side, I propose that the State implement an incentive program that directly funds marketing expenses out of revenue generated. • For instance, the Nevada Secretary of State’s office might be awarded a marketing budget equal to 5.0% of all revenue generated by that office over a certain baseline. 13

14. Stephen Brock Chief Executive Officer Public Company Management Corporation • It is imperative for the Subcommittee to understand that the corporate charter market in the U.S. is becoming increasingly competitive. • Lured by the success of Delaware, various states across all regions of the U.S. are creating incentives for entities to incorporate in their jurisdictions. • Intensive competition is spreading into the international arena. • Failure to move forward will likely result in being left behind. 14