Recent NASDAQ Corporate Governance Proposals

In parallel with Sarbanes-Oxley, NASDAQ has also proposed corporate governance reforms, all of which have been approved by NASDAQ's Board of Directors. NASDAQ is currently engaged in discussions with the SEC staff regarding these proposals, and it is possible that its proposals will be adjusted in response to SEC staff input. Following SEC staff review and input, NASDAQ will make formal rule filings.

NASDAQ proposes that changes requiring a company to modify the composition of its Board of Directors be effective immediately following a company's first annual meeting occurring after January 1, 2004.

The following is a summary of certain proposals as of November 20, 2002.

Increase Board Independence

• Require a majority of independent directors on the board.
• Require regularly convened executive sessions of the independent directors.
• Require that a company's audit committee or a comparable body of the Board of Directors review and approve all related-party transactions.
• Prohibit an independent director from receiving any payments (including political contributions) in excess of $60,000 other than for board service and extend such prohibition to the receipt of payments by a non-employee family member of the director. An audit committee member may not receive any compensation except for board or committee service, in accordance with the Act.
• Prohibit a director from being deemed independent if any family member of the director is employed as an executive officer, or has been within the past three years, of the issuer or any of its affiliates.
• Prohibit former partners or employees of the outside auditors who worked on a company's audit engagement from being deemed independent for three years.
• Apply a three-year 'cooling off' period to directors who are not independent due to: (1) interlocking compensation committees; or (2) the receipt by the director or a family member of the director of any payments in excess of $60,000 other than for board service.

Heighten Standards of Independence for Audit Committee Members

• Prohibit audit committee members from receiving any payment other than payment for board or committee service, consistent with Section 301 of the Act.
• Prohibit directors from serving on the audit committee in the event they are deemed an affiliated person of the issuer or any subsidiary, consistent with Section 301 of the Act. In this regard, prohibit audit committee members from owning or controlling 20% or more of the issuer's voting securities, or such lower number as may be established by the SEC in rulemaking under Section 301 of the Act. Audit committee members will also be required to meet the NASDAQ independence definition set forth in Rule 4200(a)(14), as amended by the proposals described above.

Strengthen the role of independent directors in compensation and nomination decisions

• Require independent director approval of director nominations, either by an independent nominating committee or by a majority of the independent directors. A single non-independent director would be permitted to serve on an independent nominating committee: (1) if the individual is an officer who owns or controls more than 20% of the issuer's voting securities, or (2) pursuant to an 'exceptional and limited circumstances' exception.
• Require independent director approval of CEO compensation, either by an independent compensation committee or by a majority of the independent directors meeting in executive session. Require independent director approval of the other executive officer compensation, either by an independent compensation committee or by a majority of the independent directors in a meeting at which the CEO may be present. A single non-independent director, who is not an officer, would be permitted to serve, for two years, on the independent compensation committee pursuant to an 'exceptional and limited circumstances' exception.

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