March 1, 2004

[COMPANY NAME] CORPORATE GOVERNANCE COMPLIANCE CHECKLIST PRE-IPO COMPANIES 1

Requirement

Effective Date 2

Comment on Applicability of Rules to New Public Companies

I. BOARD OF DIRECTORS COMPLIANCE CHECKLIST 1. Independent Directors: The board must be comprised of a The earlier of (1) the first annual meeting 3 majority of independent directors. [Nasdaq Rule 4350(c)(1)] after January 1, 2004 or (2) October 31, 2004; July 31, 2005 for small business issuers and foreign private issuers. Although Nasdaq rules do not specifically provide a phase-in for this requirement for new public companies, it is implied by the phase-in of the independence requirements for specific Board committees (see below).

2. Executive Sessions: The board must have regularly convened The earlier of (1) the first annual meeting (at least twice a year) executive sessions of the independent after January 1, 2004 or (2) October 31, directors. [Nasdaq Rule 4350(c)(2)] 2004; July 31, 2005 for small business issuers and foreign private issuers . 3. Code of Ethics: Board must adopt a Code of Ethics meeting May 4, 2004. specified requirements applicable to all directors, officers and Company must disclose whether it has a employees. [ Item 406 of Reg. S-K, Nasdaq Rule 4350(n)]. 4 code of ethics in its first annual meeting proxy statement for fiscal years ending on or after July 15, 2003. Can file Code of Ethics with IPO registration statement or post to website.

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Comment on Applicability of Rules to New Public Companies Form 3s for each director and executive officer must be on file prior to IPO effective date. The Company may wish to obtain powers of attorney from Section 16 filers to facilitate future filings.

4. Section 16 Compliance. Board must determine which officers are required to file ownership and transaction reports under Section 16 of the Securities Exchange Act. 5 Directors should apply for individual EDGAR filing codes, unless they already have them.

5. Insider Trading Policy. Board should adopt Insider Trading Policy regulating trading in company securities by company directors, officers and employees. 6. Loan Restrictions. It is unlawful for any issuer, as defined in the Sarbanes-Oxley Act of 2002, to extend or maintain credit, or to arrange for the extension or maintenance of credit, to any director or executive officer of the Company. Any outstanding loans to directors or executive officers should be repaid prior to the filing of the IPO registration statement.

II. AUDIT COMMITTEE COMPLIANCE CHECKLIST 1. Membership: The audit committee must have three or more members, all of whom must be independent directors. [Exchange Act Section 10A(m), Nasdaq Rule 4350(d)(2)(A)] The earlier of (1) the first annual stockholders meeting after January 15, 2004 or (2) October 31, 2004; July 31, 2005 for small business issuers and foreign private Note: There is a higher standard of independence on the audit issuers. committee than the standard applicable to the board as described in Item I.1. above. Companies must have at least one independent director on the Audit Committee at the time of IPO effectiveness, a majority of independent members within 90 days and all independent members within one year of IPO effectiveness.

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Requirement

Effective Date 2

Comment on Applicability of Rules to New Public Companies

2. Audit Committee Financial Expert:

Companies must disclose, in Form 10-K or annual meeting proxy statement, whether Determine whether any member of the Audit Committee they have at least one audit committee meets the definition of "audit commi ttee financial expert." 6 financial expert, or if not, why not; if Audit Committee has one or more financial [Item 401(h) of Reg. S-K] experts, at least one must be identified; disclosure must be provided for fiscal years All audit committee members must be able to read and ending on or after July 15, 2003. understand financial statements at the time of their appointment. [Nasdaq Rule 4350(d)(2)(A)]

Nasdaq requires that at least one member of the audit committee have past employment experience in finance or accounting, requisite professional certification in accounting or any other comparable experience or background which results in the individuals financial sophistication, including being or having been a chief executive officer, chief financial officer or other senior officer with financial oversight responsibilities. [Nasdaq Rule 4350(d)(2)(A)] The earlier of (1) the first annual stockholders meeting after January 15, 2004, or (2) October 31, 2004; July 31, The audit committee is directly responsible for the appointment, compensation, retention and oversight of the 2005 for small business issuers and foreign work of any accounting firm engaged to prepare or issue an private issuers. audit report or other audit, review or attest services for the Company. [Exchange Act Section 10A(m)(2)]

3. Appointment and Oversight of Auditor:

The accounting firm must report directly to the audit committee. [Exchange Act Section 10A(m)(2)] The audit committee is responsible for the resolution of disagreements between management and the auditor regarding financial reporting. [Exchange Act Section 10A(m)(2)] -3-

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Requirement

Effective Date 2

Comment on Applicability of Rules to New Public Companies

4. Authority to Engage Advisors: The audit committee has The earlier of (1) the first annual authority to engage independent counsel and other advisers as stockholders meeting after January 15, it determines is necessary to carry out its duties. [Exchange Act 2004, or (2) October 31, 2004; July 31, Section 10A(m)(5)] 2005 for small business issuers and foreign private issuers. 5. Pre-Approve Audit and Non-Audit Services: The audit committee must pre-approve7 audit and nonaudit services provided by the independent auditors. [Rule 2-01(c)(7) of Regulation S-X; Exchange Act Section 10A(i)] 6. Prohibited Non-Audit Services: Review non-audit services currently provided by the independent auditor to determine whether any of these services are prohibited under Section 201 of Sarbanes and the SEC implementing rules. 8 [Exchange Act Section 10A(g)] Applies to services provided on or after May 6, 2003.

Applies to services provided on or after May 6, 2003. Does not apply to services provided before May 6, 2003 so long as: (1) the services are pursuant to contract in existence on May 6, 2003; and (2) the services end by May 6, 2004. Applies to any audit completed on or after Company files its IPO registration statement.

7. Reports from Auditors: The Companys auditors must provide the audit committee with timely reports regarding: All critical accounting policies and practices; All alternative treatments of financial information within GAAP that have been discussed with management, ramifications of the use of such alternative disclosure and treatments and the treatment preferred by the independent auditor; and Other material written communications between the independent auditor and management, including the management letter and schedule of unadjusted difference. [Rule 2-07 of Reg. S-X; Sarbanes 204]

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Requirement

Effective Date 2

Comment on Applicability of Rules to New Public Companies Officer certification requirements will begin with first periodic report filed after IPO effectiveness.

8. Report from CEO and CFO: The CEO and CFO are required to disclose to the audit committee on a quarterly basis (1) all significant deficiencies in the design or operation of internal controls that could adversely affect the Companys ability to record, process, summarize and report financial data; and (2) any fraud, whether or not material, that involves management or other employees who have a significant role in the Companys internal controls. [SEC Rule 13a-14] 9. Whistleblower Procedures: Establish procedures for: (1) the The earlier of (1) the first annual receipt, retention and treatment of complaints received by the stockholders meeting after January 15, Company regarding accounting, internal accounting controls or 2004, or (2) October 31, 2004; July 31, auditing matters; and (2) the confidential, anonymous 2005 for small business issuers and foreign submission by employees of the Company of concerns private issuers. regarding questionable accounting or auditing matters. [Exchange Act Section 10A(m)(4)] 10. Related-Party Transactions: Review and approve all related- Applies to any transaction entered into by party transactions. 9 [Nasdaq Rule 4350(h)] public company on or after January 15, 2004

Audit Committee should ratify existing related party transactions prior to filing of IPO registration statement.

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Requirement

Effective Date 2

Comment on Applicability of Rules to New Public Companies

11. Audit Committee Charter:

The earlier of (1) the first annual Should be adopted before the IPO stockholders meeting after January 15, effective date. 2004, or (2) October 31, 2004; July 31, Revise the audit committee charter to state the audit 2005 for small business issuers and foreign committee's purpose of overseeing the Company's accounting and financial reporting processes, and the audits private issuers. Charter must be filed with proxy statement at least once every three of its financial statements, and to include the following years. specific audit committee responsibilities and authority: the pre-approval of all audit services and permissible nonaudit services; the sole authority to appoint, determine funding for and oversee the independent auditors; the responsibility to establish procedures for complaints; and the authority to engage and determine funding for independent counsel and other advisors. [Nasdaq Rule 4350(d)(1)] Recommend to the board the adoption of the amended audit committee charter. [Nasdaq Rule 4350(d)(1)]

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Requirement

Effective Date 2

Comment on Applicability of Rules to New Public Companies

III. NOMINATING COMMITTEE COMPLIANCE CHECKLIST 1. Director Nominations: The nomination of directors must be selected or recommended for the Board's selection by (a) a majority of independent directors on the board or (b) by a nominating committee comprised solely of independent directors. [Nasdaq Rule 4350(c)(4)(A)] The earlier of (1) the first annual stockholders meeting after January 15, 2004 or (2) October 31, 2004; July 31, 2005 for small business issuers and foreign private issuers. Beginning with first annual meeting proxy statement after January 1, 2004, Company must disclose whether it has an independent nominating committee, or if not, why not. 2. Membership: The Nominating committee must have at least two members, and all members must be independent directors. If the nominating committee has at least three members, one non-independent, non-employee member may serve under a special and limited exception. 10 [Nasdaq Rule 4350(c)(4)(A)(ii)] The earlier of (1) the first annual stockholders meeting after January 15, 2004 or (2) October 31, 2004; July 31, 2005 to small business issuers and foreign private issuers. Must have one independent member at time of IPO, majority of independent members within 90 days, and all independent members within 12 months of IPO effective date (subject to applicable Nasdaq exemptions). If the company has no nominating committee, the Board must adopt a resolution that the independent directors will select director nominees, or recommend them for the Boards selection, consistent with Nasdaq Rule 4350(c)(4), by the IPO closing date.

3. Director Standards: The Nominating Committee should Company must disclose its policies in first determine whether it will develop standards for new directors, annual meeting proxy statement filed after and whether standards will differ for directors nominated by January 1, 2004. stockholders.

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Requirement

Effective Date 2

Comment on Applicability of Rules to New Public Companies Governance committees and governance guidelines not specifically required by Nasdaq; some companies adopting voluntarily.

4. Corporate Governance: Determine whether Nominating Committee will also act as Corporate Governance Committee, and/or whether Company will adopt Corporate Governance guidelines.

5. Nominating Committee Charter. Adopt or revise Nominating Can file Nominating Committee charter Should be adopted prior to IPO Committee Charter consistent with post-IPO functions. with annual meeting proxy statement or post effective date. to Website. IV. COMPENSATION COMMITTEE COMPLIANCE CHECKLIST 1. Officers Compensation: The compensation of the Companys The earlier of (1) the first annual officers11 must be determined by (a) a majority of the stockholders meeting after January 15, 2004 independent directors on the board or (b) a compensation or (2) October 31, 2004; July 31, 2005 for committee consisting solely of independent directors. The small business issuers and foreign private CEO may be present during deliberations regarding other issuers. officers compensation, but may not vote. The CEO must not be present during the deliberations regarding his compensation. [Nasdaq Rule 4350(c)(3)(A)-(B)] 2. Membership: The Compensation Committee must have at least two members, and all members must be independent directors. If the compensation committee has at least three members, one non-independent, non-employee member may serve under a special and limited exception. 12 [Nasdaq Rules 4350(c)(3)(A)(ii), 4350(c)(3)(B)(ii)] 3. Non-Employee Directors: All members of the compensation committee must qualify as non-employee directors. 13 [Rule 16b-3 of the Securities Exchange Act of 1934] The earlier of (1) the first annual stockholders meeting after January 15, 2004 or (2) October 31, 2004; July 31, 2005 for small business issuers and foreign private issuers. New public companies should have fully independent Compensation Committee at time of IPO effectiveness to comply with IRS and SEC Section 16 requirements.

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Requirement

Effective Date 2

Comment on Applicability of Rules to New Public Companies

4. Outside Directors: All members of the compensation committee must qualify as outside directors. 14 [Section 162(m) of the Internal Revenue Code of 1986] 5. Compensation Policies and Practices: Develop and periodically review compensation policies and practices applicable to executive officers, including the criteria upon which executive compensation is based, the specific relationship of corporate performance to executive compensation and the composition in terms of base salary, deferred compensation and incentive or equity-based compensation and other benefits. [Item 8 of Schedule 14A; Item 402(k)(1) of Reg. S-K] 6. Compensation Committee Charter. Adopt or revise Compensation Committee charter consistent with post-IPO functions V. MANAGEMENT COMPLIANC E CHECKLIST 1. Loan restrictions. It is unlawful for any issuer, as defined in the Sarbanes-Oxley Act of 2002, to extend or maintain credit, or to arrange for the extension or maintenance of credit, to any director or executive officer of the Company. 2. Section 16 compliance. Section 16 officers should obtain individual EDGAR filing codes, unless they already have them. Any outstanding loans to directors or executive officers should be repaid prior to the filing of the IPO registration statement. Form 3s for Section 16 insiders must be on file prior to IPO effective date. The Company may wish to obtain powers of attorney from individual filers to facilitate future filings. Should be adopted prior to IPO effective date.

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Requirement

Effective Date 2

Comment on Applicability of Rules to New Public Companies "Quiet Period" begins once decision to file IPO registration statement has been made. Should be done prior to the filing of the IPO registration statement. Should be done prior to IPO effective date.

3. Understand and observe SEC "Quiet Period" restrictions for companies preparing for an IPO. Senior management should approach public appearances with caution. Keep the issuance of press releases to a minimum. 4. Website cleanup. Scrub website to remove links to third party sources, to avoid inadvertent incorporation into IPO prospectus. 5. Website enhancement. Arrange to have Company's periodic reports and insiders' Section 16 reports posted or linked to Company website. Consider posting Code of Ethics and Nominating Committee charter as well. 6. Stock Plan Review. Review existing equity compensation plans and determine if new plans need to be adopted, or existing plans amended. Board and stockholder approval required. 7. Hold Annual Stockholder Meeting. This will allow the Company to defer its first public company stockholder meeting until the following year. At the meeting, obtain stockholder approval for any option plans and other compensatory arrangements, including Section 280G parachute arrangements, that haven't previously gotten stockholder approval. It is much easier to get stockholder approval while the Company is still private and doesn't have to comply with the federal proxy rules.

All pre-IPO grants should be approved by independent Compensation Committee or full Board prior to IPO effective date. Nasdaq requires its listed companies to have a stockholder meeting once each calendar year.

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Requirement

Effective Date 2

Comment on Applicability of Rules to New Public Companies For new public companies, management will need to include report on effectiveness of internal controls, and related auditor attestation, with annual report for first fiscal year ending on or after July 15, 2005.

8. Upgrade Financial Reporting Procedures. Determine whether company will form Disclosure Committee for preparing periodic filings, and who will be on it. Establish disclosure controls to permit timely filing of reports required by the SEC. Upgrade internal controls over financial reporting to public company standards. 9. Securities/Corporate Law due diligence. Review corporate minute book. Review securities issuances and option plan issuances to make sure necessary steps have been taken to perfect state and federal exemptions.

This chart has been prepared for companies planning to list their securities on the Nasdaq National Market. All requirements are effective now, unless otherwise stated.

Nasdaq Rule 4200(a)(15) defines an independent director as a person other than an officer or employee of the Company or its subsidiaries or any other individual having a relationship, which, in the opinion of the Companys board of directors, would interfere with the exercise of independent judgment in carrying out the responsibilities of a director; provided that the following persons are not considered independent: A director who is, or during the past three years was, employed by the Company or by any parent or subsidiary of the Company; A director who accepts or who has a Family Member who accepts any payments from the Company or any parent or subsidiary of the Company in excess of $60,000 during the current fiscal year or any of the past three fiscal years, other than compensation for board service, payments arising solely from investments in the Companys securities, compensation paid to a Family Member who is a non-executive employee of the Company or a parent or subsidiary of the Company, benefits under a tax-qualified retirement plan, or non-discretionary compensation. A director who is a Family Member of an individual who is, or during the past three years was employed by the Company or by any parent or subsidiary of the Company as an executive officer; A director who is, or has a Family Member who is, a partner in, or a controlling stockholder or an executive officer of, any organization to which the Company made, or from which the Company received, payments (other than those arising solely from investment in the Companys securities) that exceed 5% of the recipients consolidated gross revenues for that year, or $200,000, whichever is more, in the current fiscal year or any of the past three fiscal years other than payments arising solely from interests in the Company's Securities or payments under non-discretionary Charitable Contributions monthly programs. A director who is employed as an executive officer of another entity where any of the executive officers of the Company serve on the compensation committee of such other entity, or if such relationship existed during the past three years; or A director who is, or has a Family Member who is, or was a partner or employee of the Company's outside auditor who worked on the Companys audit during the past three years.

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For purposes of determining a director's independence, Nasdaq Rule 4200(a)(14) defines a "Family Member" to include a person's spouse, parents, children and siblings, whether by blood, marriage or adoption or who has the same residence as the director.
4

Under the SEC rules, a code of ethics must be reasonably designed to deter wrongdoing and promote: Honest and ethical conduct, including the ethical handling of actual or apparent conflicts of interest between personal and professional relationships; Full, fair, accurate, timely and understandable disclosure in reports and documents that a Company files with, or submits to, the SEC and in other public communications made by the Company; Compliance with applicable governmental laws, rules and regulations; The prompt internal reporting to an appropriate person or persons identified in the code of violations of the code; and Accountability for adherence to the code.

Nasdaq requires a code of conduct that complies with the SEC definition of "code of ethics." The code must be publicly available. In addition, the code must contain an enforcement mechanism that provides for prompt and consistent enforcement, protection for persons reporting questionable conduct, clear and objective compliance standards and a fair process by which to determine violations. The term "officer" for purposes of Section 16 reporting includes a company's president, principal financial officer, principal accounting officer (or, if there is no such accounting officer, the controller), any vice-president in charge of a principal business unit, division or function (such as sales, administration or finance), any other officer who performs a policy-making function, or any other person who performs similar policy-making functions. SEC Rule 16a-1(f).
6 7 5

See definition of independent set forth in endnote (3) above. The SEC rules implementing Sarbanes 202 provide that services may be pre-approved either: On an engagement-by-engagement basis; or Pursuant to pre-approval policies and procedures established by the audit committee, provided that: (1) the policies and procedures are detailed as to the particular services; (2) the audit committee is informed on a timely basis of e ach such service; and (3) the policies and procedures do not include the delegation of audit committee responsibilities to management.

The audit committee may also delegate authority to grant pre-approvals to one or more of its independent members, provided that the pre-approvals are reported to the full committee at each of its scheduled meetings.
8

The SEC rules prohibit the Companys auditors from providing any of the following non-audit services to an audit client at any point during the audit and professional engagement period: Bookkeeping and other services related to the Companys accounting records or financial statements; Financial information systems design and implementation; Appraisal or valuation services, fairness opinions and contribution-in-kind reports; Actuarial services; Internal audit outsourcing services; Management functions; Human resources; Broker-dealer, investment adviser or investment banking services; and Legal services; and Expert services unrelated to the audit performed for the purpose of advocating an audit clients interest in litigation or in a regulatory or administrative proceeding or investigation.

The rules contain limited exceptions with respect to some of these restrictions for non-audit services.
9

Related party transaction refers to transactions required to be disclosed under Item 404 of Regulation S-K.

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10

See the definition of independent director set forth in endnote (1) above. In addition to that definition, the Nasdaq rules permit a single non-independent director, who is not an officer, employee or family member, to serve for up to two years on a nominating committee comprised of at least three directors under an exceptional and limited circumstances exception. [Nasdaq Rules 4350(c)(4)]
11 12

The Nasdaq rules use the term officers as defined in Section 16 of the Securities Exchange Act of 1934 and Rule 16a-1 thereunder.

See the definition of independent director set forth in endnote (1) above. In addition to that definition, the Nasdaq rules permit a single non-independent director, who is not an officer, employee or family member, to serve for up to two years on a compensation committee comprised of at least three directors under an exceptional and limited circumstances exception. Note, however, that the Section 16 and Section 162(m) exemptions may be lost unless all members meet the "non-employee" director and "outside director" requirements outlined below. [Nasdaq Rule 4350(c)(3)(C)] Under Rule 16b-3 of the Securities Exchange Act of 1934, the receipt by an officer or director of the Company of an option grant or other grant, award or other acquisition from the Company will be exempt from the short-swing profit provisions of Section 16(b) if the transaction is approved by a committee comprised solely of two or more non-employee directors. A non-employee director is defined as a director who:
14 13

Is not currently an officer of the Company or a parent or subsidiary of the Company, or otherwise currently employed by the Company or a parent or subsidiary of the Company; Does not receive compensation, either directly or indirectly, from the Company or a parent or subsidiary of the Company, for services rendered as a consultant or in any capacity other than as a director, except for an amount that does not exceed the dollar amount for which disclosure would be required pursuant to Rule 404(a) of Reg. S-K; Does not possess an interest in any other transaction for which disclosure would be required pursuant to Rule 404(a) of Reg. S-K; and Is not engaged in a business relationship for which disclosure would be required pursuant to Rule 404(b) of Reg. S-K.

A compensation committee comprised entirely of outside directors is required for reliance on the exemption in Section 162(m) of the Internal Revenue Code for remuneration payable solely on account of attainment of performance goals. An outside director is defined as a director who: Is not a current employee of the Company; Is not a former employee of the Company who receives compensation for prior services (other than benefits under a qualified retirement plan) during the taxable year; Has never been an officer of the Company; and Does not receive remuneration from the Company, either directly or indirectly, in any capacity other than as a director. For this purpose, remuneration includes any payment in exchange for goods or services.

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