Recent Snell & WilmerBusiness and Finance Transactions

2003 Proxy and Form10-K Checklist

March 2003

Table of Contents

Snell & Wilmer

Dear Clients and Friends,

With the 10-K and proxy season upon us, we thought it would be helpful if we highlighted the many changes that you will need to consider in prepar-ing your year-end materials. Accordingly, our feature article in this issue highlights many of the regulatory changes that have been adopted over the past several months that may impact preparation of your annual report and proxy statement. We have also posted sample disclosures on our website to facilitate your drafting of these materials. Please go to http://www.swlaw.com/practice/more_display.asp?pa_id=11&fieldname=headsupheadline#100057 to access Exhibits A - I.

During 2002, in the wake of the many changes in corporate governance that have been adopted or are underway, our firm partnered with Thunderbird, The American Graduate School of International Management, a premier international school of business, to launch the Western Institute for Cor-porate Governance. Our first all-day workshop was held on November 21, 2002. The workshop featured speakers from a variety of disciplines (Board Chairmen, General Counsels, outside CPA’s, and insurance experts) who provided practical guidance to the almost 50 attendees, most of whom serve on public company Boards. A second seminar is scheduled for October 5th through October 7th of this year, so please mark your calendars. For more information on the seminar, please visit www.wicg.net.

In addition, our firm completed the opening of our Denver and Las Vegas offices in 2002. These offices are now serving local as well as regional and national clients. If you have a need for legal work anywhere in the South-west and California, please contact us. We are in a great position to service these needs.

The economy failed to rebound as we had all hoped in 2002, but many of our clients were fortunate enough to remain in a position to refinance their debt at lower interest rates, to raise additional equity, and to buy or sell divisions or companies. The next page features tombstone ads highlighting several billion dollars of deals we assisted in recent months. We congratulate our clients on making the best of a difficult environment and wish you the best for a successful 2003!

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Snell & Wilmer L.L.P.www.swlaw.com

Character comes through.

Sale ofSelected Assets

$7.3 million

Placement Agent’s Counsel in Placement of Series E

Preferred Stock forABAXIS, Inc.

Encore CapitalGroup, Inc.

$5 million

Private Offering ofSeries A Convertible

Preferred Stock

Senior Loan FacilityProvided by PNC Bank,

National Association

December 20022002April 2002 2002

$7.9 millionPlacement Agent’s Counsel

in Placement ofCommon Stock for

Meade Instruments Corp.

October 2002

$8 million

Placement Agent’s Counselin Placement

of Common Stockfor Landec Corporation

March 2002

$9 million

Placement Agent’s Counselin Placement

of Common Stockfor Amerigon Incorporated

February 2002

$80 millionPlacement Agent’s Counsel

in several transactions on behalf of

OSI Systems, Inc.

October 2002

Berkshire MortgageFinance

Six Loans Totaling $134,307,000 for

J.F.Shea Co., Inc.

September 2002

$206.4 millionPublic Offering of

Common Stock6.555 million shares

December 2002

$217 million

Sale of Company toNovellus Systems Inc.

December 6, 2002

$215 million

Notes

Offering of 4.5% Notes due 2004

February 2002

January 21, 2003

$39 million

Private Offeringof Common Stock

March 2002

$85 million

Public Offerings ofCommon Stock

1.75 million shares

June 26, 2002

$215 million

Notes

Offering of 9.75% Senior Notes due 2011

$83 million

Acquisition ofHammonds Homes

July 1, 2002

$250 million

Unsecured RevolvingCredit Facility

December 12, 2002

$371 millionSale of Securitized Interestsin Automobile Receivables

March, August, and December 2002

$255 million

Unsecured RevolvingCredit Facility

December 2002February 2002

$375 million

Notes

Offering of 6.5% Notes due 2012

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2003 Proxy and Form 10-K Checklist

The following checklist was designed for your conve-nience in preparing your annual meeting documents. The Exhibits referenced in the checklist may be found on the Snell & Wilmer website at http://www.swlaw.com/practice/more_display.asp?pa_id=11&fieldname=headsupheadline#100057.

Form 10-K1. Cover Page - Accelerated Filer Status. Companies

must check the box on the cover page to inform investors whether they are an “accelerated filer” as defined in Rule 12b-2 (aggregate non-affiliate market cap of $75 million and S-3 eligible). The cover page should include the following language toward the bottom:

“Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes ..... No ......”

Item 405 Box. As a result of the new 2-day acceler-ated fling period for most Form 4s, more companies may have to check the Item 405 box for delinquent Section 16 filings.

2. Business - Web Site Postings. Under new Item 101(e) of Regulation S-K (web site posting of SEC reports), “accelerated filers” (see above) that do not timely post their SEC reports have to disclose that fact (including why it was late or not posted). For this year, if a company did not post reports filed after November 15, 2002 (likely only 8-Ks to date), it must disclose that it was late. It is important to note the SEC staff has taken the position that posted reports are considered incomplete if they do not include the report’s exhibits. Accelerated filers must disclose their website address.

3. MD&A – No Boilerplate. The SEC strongly encourages companies to tailor their MD&A dis-closures to particular facts and circumstances and

to avoid boilerplate language. For example, instead of disclosing that an issuer has sufficient funding to meet liquidity needs over the next year, the SEC recently suggested that the issuer should describe its sources of short-term funding and the risks and circumstances that are reasonably likely to affect those funding sources. Note: The SEC recently posted a “Summary of Significant Issues Addressed in its Review of Periodic Reports of Fortune 500 Companies.” This release is attached as Exhibit A on our website and you are strongly encouraged to review it prior to your preparation of any periodic reports.

Critical Accounting Estimates and Policies. Although final rules on critical accounting estimates and policies have not been adopted by the SEC, the staff has indicated that it still expects companies to follow its guidance in this area, which it initially issued in January 2002. In its most recent proposal in April of last year, the SEC suggested that companies identify and discuss 3 to 5 estimates. See Exhibit B on our website for disclosure examples taken from Gentex Corporation’s and Echostar Communica-tion Corp.’s recent 10-Ks and the SEC’s “Critical Accounting Release” (33-8098, available May 10, 2002).

Off-balance Sheet Transactions. Although the off-balance sheet rules will not apply until disclosures are due for fiscal years ending on or after June 15, 2003, the SEC strongly encourages companies to begin complying with the proposed rules now. The new disclosure is to be located in the MD&A section and requires a registrant to provide, in a separately captioned subsection, a comprehensive explana-tion of its off-balance sheet arrangements. The rule requires disclosure of any transactions, arrangements and other relationships with unconsolidated enti-ties or other persons that are reasonably likely to have a material effect on the company’s liquidity. The discussion should highlight the extent of the company’s use of off-balance sheet transactions to facilitate financing, liquidity, market or credit risk

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management, hedging, leasing, and research and development activities. The MD&A discussion on this point should include specific factual information concerning each off-balance sheet arrangement so that investors can fully understand and evaluate the nature of the transaction and the associated risks.

Table of Contractual Obligations. This table is required only for fiscal years ending on or after December 15, 2003 but, again, is strongly encour-aged to be disclosed now. Registrants (other than small business issuers and bulletin board companies) will need to provide an overview of their aggregate contractual obligations in a tabular format, and contingent liabilities and commitments in either a textual or tabular format. See Exhibit C on our website for disclosure examples.

Pro Forma Information. The SEC’s new rules regarding non-GAAP financial measures should significantly impact MD&A for those compa-nies that have traditionally used such measures. Amended Item 10 of Regulation S-K imposes very specific requirements on these disclosures. Gener-ally, the new rules require that where non-GAAP financial information is presented in periodic reports filed with the Commission, the company must also include:

• a presentation with equal or greater prominence of the most directly comparable financial mea-sure presented in GAAP;

• a reconciliation to the comparable GAAP mea-sure;

• a statement of the reasons why management believes that the non-GAAP presentation is useful; and

• a statement disclosing the additional purposes, if any, for which management uses the non-GAAP financial measure that are not otherwise disclosed.

The amendments to Item 10 of Regulation S-K will apply to any annual or quarterly report filed with respect

to a fiscal period ending after March 28, 2003. New Regulation G applies the same requirements to public announcements and becomes effective after March 28, 2003 as well. See Exhibit D on our website for an example of the new reconciliation requirements (excerpt from Echostar Form 10-K)

Material Related Party Transactions. The SEC also is encouraging issuers to consider including disclosure of material related party arrangements in MD&A to help investors better understand the company’s current and prospective financial posi-tion and operating results. This disclosure would supplement the related-party disclosures required by Item 404 of Regulation S-K by setting forth the business purpose of the transaction, the identity of the related parties, the means by which transaction prices were determined, a description of any proce-dures used to evaluate the transaction for fairness, and the existence of any contractual commitments as a result of the arrangement.

4. Signature Page/Exhibits - CEO & CFO Certi-fications. Under Section 302 of Sarbanes-Oxley, as implemented by SEC rulemaking on August 29, 2002, companies must include CEO and CFO cer-tificates as part of their signature page. Note that the 302 certification for 10-Ks has minor differences compared to the 10-Q certification (e.g. “annual” versus “quarterly” report). See Exhibit E on our website for an example of the correct 302 certifica-tion.

Unlike the 302 certifications, companies have a variety of choices regarding how to submit their 906 certifications to the SEC. Many companies are just attaching it to the 10-K, like the 302 certification. Some practitioners believe, however, that including the 906 certificate in the 10-K may result in height-ened liability, particularly if the 10-K is incorporated by reference into a transactional filing. Accordingly, some companies furnish the 906 certification as cor-respondence to the SEC; other companies attach their 906 certifications as an Exhibit 99 under Item

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601, which serves to put investors on notice that the company was able to make the requisite certification; and still others are furnishing the 906 certification as correspondence, coupled with an 8-K furnishment under Item 9 of the Form 8-K. See Exhibit F on our website for an example of a 906 certification.

5. Item 14 of Part III - Disclosure Controls. Under new Item 307 of Regulation S-K, disclosure regard-ing the company’s disclosure controls and procedures as well as its internal controls (defined as “financial related controls”) must be made. See Exhibit G on our website for the form of disclosure. You may wish to refer to the Form 10-Q filed by Intel in Novem-ber for an extremely comprehensive approach to explaining the limitations of internal controls, also attached to Exhibit G on our website.

Proxy Statement

6. Related Party Transactions. Although not directly impacted by Sarbanes-Oxley or SEC rulemaking, related party transactions are being scrutinized by regulators and investors. Companies might consider going beyond the disclosure required by Item 404 to disclose any transactions that could arguably be considered “related.”

7. Committee Reports. Although there are no new rule changes, the level of regulatory and investor interest in executive compensation and audit com-mittee disclosures means that companies should ensure that their reports are readable, and not overwhelmingly boilerplate.

Form 10-K/Proxy Statement

8. Equity Compensation Plan Table. Under Item 201 of Regulation S-K, the new “Equity Compensation Plan Table” is to be disclosed in the Form 10-K. This table covers not only plans, but also contracts and arrangements entered into with individuals or groups of individuals. In the event the company will be adopting a new plan or amending an existing plan

at its annual meeting, this information will also need to be included in the Company’s proxy statement and may be incorporated by reference into the 10-K if the proxy is filed within 120 days. If a plan, con-tract, or arrangement is adopted without shareholder approval, it must be filed as an exhibit under Item 601 and described in the 10-K or proxy in narra-tive form, unless they are immaterial in amount or significance. Note: if a narrative description which satisfies these requirements is included in the notes to the Company’s financial statements (FAS 123 disclosure), that description may be cross-refer-enced in the 10-K. See Exhibit H on our website for samples.

Note that the following types of plans are excluded from the disclosure requirements: (i) plans, con-tracts or arrangements for the issuance of warrants or rights to all security holders on a pro rata basis (such as a stock rights offering), and (ii) plans intended to meet the qualification requirements of Section 401(a) of the Internal Revenue Code (which includes 401(k) plans).

SOX Items that Don’t Go into Effect Until Next Year, but Could be Adopted Early.

In addition to some of the items discussed above, the following sets forth matters that will go into effect in the near term:

A. Corporate Governance Disclosure. Although not required, a number of companies are enhancing the level and modifying the type of corporate governance disclosure they make this year in their proxy state-ments. Most noteworthy is the practice of establish-ing a new section in the proxy statement under a “Corporate Governance” caption. Also notable is the practice of voluntarily appending corporate gover-nance guidelines, committee charters and codes of ethics to the proxy statement. See Exhibit I on our website for sample disclosures reflecting these new practices:

B. Code of Ethics - Companies will need to indicate if they have a code of ethics, and if not, why not. Companies will have three choices with respect to disclosure of codes of ethics: (i) post their code of ethics on their web sites (and identify that fact in the 10-K); (ii) merely attach the code as an exhibit to the 10-K; or (iii) undertake in the 10-K to provide copies upon request. Some companies might begin to implement this rule early. This disclosure is not required until a company files its Form 10-K for its fiscal year ending after July 15, 2003.

C. Audit Committee Financial Expert - Companies will be required to identify their audit committee financial experts if they have one, and if not, why not. This disclosure is not required until a company files its Form 10-K for its fiscal year ending after July 15, 2003.

D. Non-Audit Services by Auditors - Under a revised Item 9 of Schedule 14A, companies have more flex-ibility in their “audit fee” table. Former Item 9 previ-ously required disclosure of fees billed by the auditor for the last fiscal year, with the fees broken down into three categories: “audit fees,” “financial information systems design and implementation fees,” and “all other fees.”

The revised Item 9 adds disclosure of two categories (tax fees and audit-related fees) - while eliminating one category (financial information systems design and implementation). However, the revised Item 9 requires disclosure of an additional past year for each of these fees. Although the revised Item 9 is not mandatory until 2004, companies may want to voluntarily modify their audit fee table for the upcoming proxy season since it generally tracks more closely fees now paid to accounting firms.

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Snell & Wilmer L.L.P.

©2003 All rights reserved. The purpose of this newsletter is to provide our readers with information on current topics of general interest. The articles should not be considered legal advice or opinion, because their content may not apply to the specific facts of a particular case. Please con-tact a Snell & Wilmer attorney with any questions.

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PhoenixShirley Baum........................................................................ 602.382.6244Thomas Barako .................................................................... 602.382.6587Jeff Beck ............................................................................... 602.382.6302Mike Christopher................................................................. 602.382.6507Jon Cohen ............................................................................ 602.382.6247Sam Cowley.......................................................................... 602.382.6321Mike Donahey ..................................................................... 602.382.6381John Dorris........................................................................... 602.382.6278Matt Feeney ......................................................................... 602.382.6239Brad Gazaway....................................................................... 602.382.6276Bill Hicks.............................................................................. 602.382.6303Amy Hinderer ...................................................................... 602.382.6521Cheryl Ikegami..................................................................... 602.382.6395Leonardo Loo....................................................................... 602.382.6376Dan Mahoney ...................................................................... 602.382.6384Steve Pidgeon....................................................................... 602.382.6252Brian Roberts ....................................................................... 602.382.6330Terry Roman........................................................................ 602.382.6293Jason Rowley ........................................................................ 602.382.6222Richard Stagg....................................................................... 602.382.6363Garth Stevens ...................................................................... 602.382.6313Michele Stevenson............................................................... 602.382.6542

TucsonMarjorie Perry ...................................................................... 520.882.1225Tim Pickrell.......................................................................... 520.882.1264Lowell Thomas..................................................................... 502.882.1221

Orange County David Beard ......................................................................... 949.253.4975Bill Gay................................................................................. 949.253.2738Josette Mollica ..................................................................... 949.253.2732Jim Scheinkman................................................................... 949.253.2737

Salt Lake CityChris Anderson.................................................................... 801.257.1997Dawn Call ............................................................................ 801.257.1949Dave Evans .......................................................................... 801.257.1923John Morris .......................................................................... 801.257.1908Dennis Owens...................................................................... 801.257.1981John Weston ........................................................................ 801.257.1931

DenverMike McGinnis .................................................................... 303.634.2018Chris McManus ................................................................... 303.634.2021Sumaya Vanderhorst............................................................ 303.634.2094

Las Vegas Brad Kerby ........................................................................... 702.784.5206

BUSINESS & FINANCE PRACTICE GROUP MEMBERSMarch 2003

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