CONFIDENTIAL

		    Panel on Investor
		    Information

		    PROPOSED DRAFT OF REPORT

		    November 14, 2000

				   To panel members: This draft is for discussion. It is an attempt to
				   summarize what we think we have heard from the panel members. It
				   does not purport to reflect your collective view until you have
				   reviewed and agreed with it.
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	    EXECUTIVE SUMMARY1

	    This report represents the findings of a panel established at the suggestion of the
	    Securities and Exchange Commission because of its concerns about the ability of
	    investors to adequately value companies in the "New Economy." While not experts,
	    the panel members are individuals with significant experience as senior corporate
	    executives, investment bankers, venture capitalists, and academics.
	    The primary objectives of the panel were to determine $') whether current company
	    disclosure provides members of the investment community with the information they
	    need to assess company value andy what, if anything, the government and business
	    -organizations should do to improve company disclosures. In the course of exploring
	    these topics, the panel also addressed a third issue:,*~) the impact of disclosure on two
	    specific concerns about the market, its recent extreme2j~ili and the lack of a level
	    playing field between large and small investors.
	    As the panel discussed these issues, we agreed upon a common frame of reference that
	    helped us in developing our conclusions. In looking at question one, we agreed that the
	    fundamental drivers of value in the new economy remain a company's potential to
	    generate profits ~d cash flow. While assessing profit and cash flow potential is much
	    harder today as technological change creates new business models and new winners and
	    losers at a breathtaking pace, investors still must ultimately assess these core drivers ot
	    value. With regard to question two, we agreed during this period of rapid change and
	    high uncertainty, prescriptive disclosure regulations can have more unintended and
	    undesirahh~ '~i'ii~ pffect~ than during stable times. Accordingly, the panel believes that a
	    better approach to facilitating disclosure improvements is the creation of an
	    environment that makes A ~sierforco~aniesto disclose more without undue concern
	    about legal risks.

	    With these perspectives in mind and based on our analysis and discussions, we
	    concluded the following:

		  1. Currently, investors do not have all the information they ultimately need to
		    value very high growth companies. The current formal reporting system
		    (GAAP and SEC disclosures) was designed primarily to record historical
		    financial transactions ana is limited to a narrow range of relevant
		    information. In particular, this system does not provide guidance about
		    reporting intangible/ assets, which are so critical in evaluating Internet
		    companies and other high growth companies. These intangible assets range
		    from easy to identify assets such as technologies and brand names to less
		    defined intangibles such as business processes and customer relationships.

	    1 For the final version of this document, we will work with one or more lawyers to ensure that references to legal
	       issues are properly stated. we will also have the text reviewed by a professional editor.

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			Some companies have voluntarily provided supplemental information to help
			investors, but these efforts vary widely in quality and uniformity.
		      2. One of the principal barriers to moving forward with better reporting is the
			absence of a framework or language for supplemental reporting that could be
			immediately implemented. Many academics and practitioners have proposed
			new frameworks or partial solutions, but none has gained clear acceptance by
			the financial and business community. With this limitation in mind, the panel
			believes that the best way to address the situation is a two pronged approach:
			  Recognizing that economic change and uncertainty will not go away soon
			  and that it will probably take time for a new disclosure framework to be
			  developed and adopted, the government should seek to achieve a better
			  balance bet een the need to rotect investors from f  e and misleadin
			  disclosures and the need ~ ncouraeinnovative communications by
			  companies. One way to improve this balance is to significantly expand the
				~ provisions for most disclosures of non-tinancial information.
			  Furthermore, the SEC can facilitate well-intentioned experimentation by
			  carefully choosing its enforcement stance.
			  For the longer term, the panel encourages the establishment of a formal
			  effort to develop a systematic approach to supplemental disclosures,
			  particularly around intangible assets and related operatiijihetrlcs. The
			  effort should involve the SEC, the FASB, the AICPA and the accounting
			  firms, as well as investors, academics and key industry groups. The panel
			  does not envision a wholesale replacement of GAAP, but rather a coherent
			  framework and language for supplemental disclosures to help investors
			  assess the future profit and cash flow potential of companies. The panel is
			  wary of lots of little changes to current reporting requirements that could
			  cause more harm than good. Accordingly, we should not jump to interim
			  solutions that are not complete and thoroughly syndicated.
		      3. Improved reporting, while helping investors value companies will not
			eliminate market volatility (although some reduction may be achieved), nor
			will it level the plavin~ field between large institutional investors and small
			individual investors. The reason that improved reporting does not solve these
			issues is largely because company reporting is only one of many factors that
			influence these particular market characteristics. For example, in the current
			environment, a high level of uncertainty about future company performance
			will remain even if investors know more of what managers know.  This
			uncertainty will drive volatility regardless of what companies report to
			investors.
		In addition to the conclusions and recommendations above, the panel discussed a
		number of other ideas related to company reporting. In summary, the panel favored
		more use of the Internet to communicate with investors. We debated the idea of third
		party verification of non-financial disclosures, but ultimately concluded that the
		difficulties and substantial costs of third party verification would not outweigh the

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	   relatively small improvements expected. We also discussed ideas such as additional
	   disclosures about management and founding investors, but did not achieve consensus.

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	    BACKGROUND

	    This report represents the findings of an independent panel that examined whether the
	    needs of the investment community, in valuing "new economy" companies, are being
	    adequately met by the current disclosures of these companies. The panel was organized
	    at the suggestion of the chairman of the SEC, Arthur Levitt, but has operated entirely
	    independent of the SEC.
	    The primary objectives of the panel were to determine
		  1. Whether current company disclosure provides members of the investment
		    community with the information they need to assess company value.
		  2. What, if anything, the government and business organizations should do to
		    improve company disclosures.
	    In addition to these questions, the panel also discussed two additional concerns that
	    were raised during the establishment of this panel: specifically, the extreme volatility
	    in the stock markets in 1999 and 2000, and the perception that, at a time when many
	    more Americans were participating in the stock market, there was not a level playing
	    field between big and small investors. Accordingly, the panel assessed whether
	    improved disclosure by companies would have an impact on volatility and a leveling of
	    the playing field.
	    The panel members are not technical experts. They are individuals with significant
	    experience as senior corporate executives, investment bankers, venture capitalists, and
	    academics. (See Appendix A for a complete list of panel members.) As a result, our
	    recommendations are written to provide directional guidance. They are not detailed
	    proposals. In addition, Appendix B includes the individual views of some panel
	    members on topics that the entire panel did not take a position.
	    The panel also recognizes that many other groups are examining issues related to
	    valuation in the current economic environment. For example, several of the large
	    accounting firms and a number of academics are looking at the valuation of intangibles.
	    Other groups like the FASB are focused on accounting issues such as revenue
	    recogmuon. accc~unnnwmr nusmess combinations, and accounting for employee stock
	    options.
	    While our discussions focused on Internet related companies, we believe that the
	    distinction between these and other companies as regards to investor information is
	    increasingly be blurred. Therefore, our recommendations apply equally to all
	    companies.
	    This is a [preliminary/final] report. It is a reflection of three meetings of the group, a
	    number of smaller informal discussions, plus several consultations with legal and
	    accounting experts. It will be widely distributed to relevant institutions such as the
	    5Lt, FASB, NAsD, the stock exchanges, and the major accounting firms.

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	    [Furthermore it will be posted on the web site, xxx. org. We welcome comments from
	    all interested parties by xxx, xx 2000. We will issue a final report, taking into
	    consideration comments received, by xxx xx, 2000.]

	    CONCLUSIONS BASED ON COMMON FRAME OF REFERENCE

	    In exploring the issues, we agreed upon a common frame of reference that helped us in
	    developing our conclusions. In particular, we agreed on the following:
		   With regard to the first question about whether investors have the information
		    they need to value companies, we believe that answering the question requires
		    a common framework for understanding what drives the value of a company.
		    The panel agreed that the fundamental drivers of value in the new economy
		    remain a company's potential to generate profits and cash flow
		   With regard to question two about actions that the government and business
		    should take, we discussed the pros and cons of regulation in general. We
		    agreed that during this period of rapid change and high uncertainty,
		    prescriptive disclosure regulations can have more unintended and undesirable
		    side effects than during stable times. Accordingly, the panel took the position
		    that a better approach to facilitating disclosure improvements is the creation
		    of an environment that makes it easier for companies to disclose more without
		    undue concern about legal risks.

	    Value Ultimately Will Reflect Potential to Generate Profits
	    and Cash Flow

	    We are living in a unique time where rapid technological innovation is changing our
	    world. In the past, technological change often led to improved productivity or a small
	    number of new products. Today, the Internet is fundamentally changing the way
	    businesses interact with consumers and each other. There is no doubt that these
	    changes will lead to substantial value creation for the economy as a whole, but there is
	    tremendous uncertainty about which business models and companies will succeed and
	    how value will be distributed between businesses and consumers. This uncertainty
	    makes it extraordinarily difficult to measure the value of companies and has led to
	    unprecedented high levels of volatility in the stock market. (See Appendix C for a
	    more detailed discussion of the changes in the economic environment.)
	    The uncertainty about consumer behavior, technology, and competitive dynamics is
	    naturally reflected in the record high levels of volatility in the stock market, particularly
	    the NASDAQ. The Wall Street Journal noted that before 1998, there had never been a
	    year where the NASDAQ index had more than 10 trading days when it when up or
	    down more than 2%. Yet in 1999, the NASDAQ index experienced 25 days where it
	    went up or down more than 2% and in the first 8 months of 2000, the index
	    experienced over 90 such days.

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	   In this uncertain environment, it appears that the stock market may have initially
	   overvalued emerging companies in the Internet market. It was hard, with even the
	   most optimistic outlook, to rationally explain the valuations of many Internet companies
	   during late 1999 and early 2000. As of November 2000, the values of many of these
	   companies have declined to only 10% to 30% of their highs. This suggests that, as in
	   past waves of investor euphoria, the valuation of these companies will ultimately reflect
	   their potential to generate earnings and cash flows. There have been many explanations
	   for this "irrationality" in the market.
		   Some observers point to the emergence of unsophisticated individual
		    investors, particularly day traders, as trading became very inexpensive, and
		    the amount of investment information available on the Internet exploded. It
		    can be argued that these traders are generating tremendous trading volume
		    leading to unrealistically high prices.
		   Others cite the imbalance between the supply and demand for shares of
		    Internet companies. Many companies have gone public with less than 20% of
		    their shares available to outside investors. Many investors wanted to buy
		    these shares but the supply was artificially limited.
		   Some blame the securities analysts at investment banks. They argue that the
		    analysts' objectivity may have been compromised by their need to support the
		    investment banking side of their firms.
		   Finally, some blame a general speculative fever.
	   These explanations might hold some truth. History suggests, however, that we should
	   not be surprised by episodes of market "irrationality". One of the most recent
	   experiences was the biotechnology bubble in l9xx. Japan experienced its major bubble
	   in the late 1980s and early 1990s. As always, fundamental economics prevailed in the
	   end.

	   Supportive Environment Best Way to Ensure Quality
	   Disclosure

	   Prescriptive regulation of disclosures often have unintended side effects. This is
	   particularly true in this period of rapid change, challenging the traditional regulatory
	   approach to keep pace. The panel believes that a better approach to encouraging and
	   facilitating disclosure is the creation of an environment that makes it easier for
	   companies to disclose more with undue concern about legal risks
	   Managers have strong incentives to maximize their company's share price, which
	   means competing not only for customers but also for investors. As a result, investors
	   and professional analysts have considerable influence on what companies disclose.
	   Analysts also have strong incentives to search out information to get an edge for their
	   clients. This interaction creates a powerful market for information about companies.

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	    In today's legal environment, however, companies often are advised against what might
	    be useful disclosures for fear of lawsuits. As a result, companies hold back disclosures
	    ~ useless boilerplate disclosures For example, it is not uncommon now
	    for the risk factor section of IPO prospectuses to include more than 10 (check) pages of
	    every imaginable risk, typically building on what other companies have disclosed,
	    rather than focusing on the key issues facing the company.
	    Clearly, the legal framework should protect investors against fraud, but there needs to
	    be a balance between protecting investors from the small number of companies that will
	    deliberately mislead investors and the benefits to most investors and companies from
	    improved disclosure. It appears to many panel members that right now the system is
	    not balanced and that it creates risks for companies seeking to communicate honestly
	    with investors.

	    CURRENT REPORTING PRACTICES NOT ADEQUATE

	    The first question the panel addressed was whether current company disclosure
	    practices provide the investment community with the information they need to assess
	    company value. We concluded that currently, investors do not have all the information
	    they need to value companies. In particular, current reporting rules do not provide
	    g~3cIance about reDortin~ the creation of ~
	    in evaluating both Internet companies and traditional companies. Some companies have
	    made slgmtlcant progress in voluntarily providing supplemental information to help
	    investors, but these vary widely in quality and uniformity.

	    Gaps in Current Reporting System

	    The current financial reporting system, as mandated by the SEC and FASB, was
	    designed to accurately report historical financial transactions. In today's world, the
	    importance of historical financial performance has diminished. As we argued earlier, a
	    company's value is driven by its ability to generate profits and cash flows over the long
	    term. It used to be that historical financial performance was a reasonably good
	    indicator of future profits and cash flows. Investors could build their expectations off
	    of historical financial performance, supplemented by information about the quality of
	    management and the future competitive landscape of the industry. This is impossible
	    today when technology is creating new markets and new business models at lightning
	    speed, when companies are going public before they have a track record, when
	    business models based on quickly winning market share before achieving profitability
	    are becoming increasingly common.
	    To illustrate some of the gaps in the current reporting system, let us describe a
	    simplified model of how companies create value. Value creation can be modeled in
	    three stages:

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			      1. A company creates or purchases the tangible and intangible assets that it
				needs to create and sell its products and generate profits. Intangible assets
				include brands, technologies, business processes, customer and supplier
				relationships and organizational capabilities. Tangible assets include factories
				and inventories.
			      2. A company then converts its tangible and intangible assets into products and
				services that its sells to its customers. It begins to develop customer
				relationships and takes market share from other companies (or develops a
				new market if the product is new).
			      3. The sales of these products and services are ultimately converted into a
				stream of profits and cash flows.
	     For mature companies, the current levels of profits and cash flows are often good
	     indicators of how a company is performing in terms of intangibles and products.
	     Investors can often take short cuts in assessing long-term profits and cash flows, by
	     looking primarily current profits and cash flows. Many fast growing companies
	     haven't yet reached a level of maturity where there are any profits or cash flows to be
	     reported, however. Some of them may not even have reached stage 2 yet, where they
	     can report sales of real products or services.

	     We will use a simplified example of an Internet retailer to describe how this might
	     work for a young, fast growing company. In stage 1, the retailer invests in intangible
	     assets--building its brand, acquiring customers, developing its supply chain, and
	     perfecting its product offering (both its products and the overall customer experience).
	     During this stage, the company has only cash outflows, no inflows. In stage 2, the
	     retailer goes on-line, selling its products to the public. During this stage, the retailer
	     will also probably continue to invest in strengthening its intangible assets. The
	     company's income statement reports losses, however, partly because it has not yet
	     reached the scale necessary to compete effectively, partly because it is still
	     experimenting with its business model and partly because its continued investments in
	     intangibles are accounted for as expenses. In stage 3, profits and cash flow turn
	     positive as growth slows and the need for investments relative to operating profits
	     declines.
	     To assess the value of this retailer, an investor needs to estimate how much revenue,
	     profit and cash flow the company might be able to earn in the future when it becomes
	     relatively mature and stable (say 5 to 15 years out). Let's focus on revenues for this
	     example. Regardless of what stage the retailer is in, the investor needs to estimate the
	     potential size of market the company is pursuing and the company's potential market
	     share. For a stage 3 company, the current size of the market and retailer's current
	     market share might be reasonable starting points to develop future estimates.
	     For a stage 2 company, the current size of the market and current market share might
	     not be that relevant. The investor probably needs to look to operating measures such as
	     the number of visitors to the retailer's web site (indicating brand strength), how many
	     visitors make purchases (indicating the attractiveness of the product offering) and how

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	   many customers make repeat purchases (effective is the total customer experience).
	   The investors can use the company's performance on these measures to develop its
	   judgment on the retailer's long term potential.
	   For a stage 1 company, investors need to rely on more qualitative assessments of
	   intangible assets when forecasting future market share. For example, they might assess
	   brand awareness, the logic of the product offering, the skill and experience of the
	   management team, innovative aspects of the business system.
	   Of course, investors will be more uncertain about the performance of a stage 1
	   company than a stage 2 company. Investors may make adjustments for this uncertainty,
	   but in the end, investors still need to get some sense of revenues, profits and cash flow.
	   The current reporting system works best for stage 3 companies, which is what is was
	   designed for. Until recently, most public companies were stage 3 companies. Now
	   that there are so immy ligtpd stage 1 and 2 companies. investors need stage 1 and 2 type
	   information, svecifically, they need information about the intangible a assets of the
	   company and operational metrics (like number of site visitors, number of repeat
	   customers) to help with their assessment. Current reporting rules do not provide any
	   guidance about this type of information.

	   Voluntary Supplemental Disclosures Are Not Adequate
	   Of course, companies voluntarily provide supplemental information to investors to help
	   them assess the value of their company. This information is provided in annual and
	   quarterly reports, press releases, analyst presentations and conference calls.
	   Companies in many industries, not just internet companies, are responding to investor
	   demands for more information that will help them assess the value of companies. A
	   group led by the FASB will issue a report in 2001 that documents many of the
	   voluntary disclosures made by companies in x different industries.
	   There are many examples in the Internet world where companies provide substantial
	   non-financial information to help investors understand their potential for long term
	   revenues and profits:
		  Amazon.com releases figures for how many new customers it added in the
		   last quarter, number of unique visitors, what percent of customers were
		   repeat buyers, how many new "storeg" it opened, and what new partnerships
		   it has formed.
		  E-bay, the on-line auction house releases figures for total transaction volume,
		   number of auctions hosted, and average transaction size.
		  E-trade, the on-line brok~~lease~    res for newAccounts, acquisition
		   costs per account, average number of transactions per day. page views, size
		   of assets held in customer accounts.

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	    These voluntary disclosures tend to evolve over time as companies and investors learn
	    from each other what is important for valuation. A good example of this evolutionary
	    process is the pharmaceutical industry. [This will be filled in with a paragraph based
	    on case material received from David Shedlarz.]
	    Why should companies voluntarily provide this information? CEOs want a high share
	    value. A higher share value leads to better compensation, higher values for their share
	    options, better press coverage and more flexibility to build their business. So
	    companies compete for investors just like they compete for customers. If a company
	    has a good story to tell, it's to their benefit to provide investors with the data to support
	    their story. Investors, on the other hand, are suspicious of companies that are
	    unwilling to provide adequate data. The logical conclusion is that tight-lipped
	    companies must be hiding some bad news (although in some cases competitive issues
	    favor secrecy).
	    While applauding the voluntary reporting of supplemental information, the panel
	    believes that these practices are not as consistent and rigorous as they could be.
	    Companies can selectively decide to disclose only information that paints them in a
	    favorable light. They can change the information they report from one period to the
	    next. Companies are not always clear about how they define and calculate these
	    supplemental measures. Finally, disclosures about intangible assets are spotty at best.

	    RECOMMENDATIONS

	    One of the principal barriers to moving forward with better reporting is the absence of
	    a framework or language for supplemental reporting that could be immediately
	    implemented. This problem is well recognized. Academics, the accounting firms and
	    other organizations have begun to tackle the problem, but no approach has gained
	    widespread acceptance. Furthermore, there has not been a major coordinated effort to
	    rethink the current reporting model.

	    In formulating our re~            ridation~~d's bias is n2t to develop an entire
	    ~enor the currentreporting system. Rather, the panel believes that a
	    systematic approach to providing supplemental information about intangible assets and
	    operating metrics is what is needed. One example -- and only an example -- would be a
	    framework whereby a company describes those intangible assets that are most critical to
	    its business model. With regard to each intangible identified, the company could
	    provide a description of its "characteristics of value" - the things that make the asset
	    valuable. Qualitative information about an intangible asset is meaningful especially if it
	    is backed up with quantitative information that support the qualitative assessment. For
	    example, a company's web site domain name, or URL, could be described as having
	    extraordinary brand value based on the quantitative measures of "hits" or visits to the
	    web site. Similarly, customer loyalty is a valuable intangible asset based on measures
	    such as repeat purchases, customer referrals and other operational metrics.

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	    However, the panel urges caution against making sweeping changes that could create
	    more harm than benefit. For example, the panel is concerned about regulated
	    disclosures of supplemental information. Most useful disclosures are specific to the
	    industry and company. It is probably not practical for any regulatory body to define
	    precisely effective disclosures for hundreds of different industries. Even if regulations
	    could be written that covered the multitude of industries, in many industries the pace of
	    change is so rapid that it is unlikely that regulators could actually change the disclosures
	    quickly enough to keep up with the needs of investors.
	    Considering that there isn't an obvious answer to the problem waiting to be
	    implemented, the panel supports a two-pronged approach:
		  In the near term, create an environment that encourages innovative
		   disclosures by companies.
		  Longer term, establish a formal effort to develop a systematic approach to
		   supplemental disclosures.
				      -p

	    Encourage Experimentation in Near-Term

	    Recognizing that economic change and uncertainty will not go away soon and that it
	    will probably take time for a new disclosure framework to be developed and adopted,
	    companies should be encouraged to experiment with supplemental disclosures. Almost
	    by definition, experimentation must be voluntary. The government cannot, therefore,
	    mandate experimentation by companies, but it can help create an environment that is
	    supportive of disclosure. There is currently a sense among the panel members that the
	    current legal framework discourages companies from experimenting with supplemental
	    disclosures.
	    Essentially, the panel's view is that a shift in mindset by the government is needed.
	    The traditional mindset is that companies will try to mislead investors unless heavily
	    restrained by detailed regulation and that investors are very naive. A better
	    presumption might that in today's economy investors need more information and
	    different types of information that cannot be adequately described by regulation.
	    Companies should be permitted to provide more speculative, hard to measure
	    information, as long as they warn investors that the information is speculative.

	     There are a number of actions the government can take to improve the environment
	    and encourage experimentation.
		 1. Expand safe harbor provisions. The current safe harbor provisions, as
		   embodied in the Private Securities Litigation Reform Act of 1995, while
		   helping expand the provision of forward looking financial information, are
		   very limited in scope. While the panel members are not lawyers and
		   therefore not in a position to make specific recommendations, the panel
		   supports considering expansion of safe harbor rules to include most

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		    disclosures related to intangible assets and operating metrics made by a
		    company in its annual and quarterly reports, SEC filings, web site and other
		    investor communications. Of course, these should be accompanied by the
		    appropriate warnings.
		  2. Modify SEC enforcement posture. There is a sense among some of the
		    panel members that the SEC has gone too far in aggressively pursuing cases
		    against companies. The SEC needs to set the tone in its enforcement
		    activities, making it clear that it will not prosecute companies making good
		    faith attempts to provide better information to investors. Unfortunately, the
		    SEC has shown the opposite inclination by filing legal briefs that support a
		    more restrictive view of the safe harbor's availability. For example, the
		    SEC's Amicus Curie brief Harris v. Ivax, No. 98-48 18, (Eleventh Circuit,
		    1999) where the SEC argued against the circuit court's broad interpretation of
		    the statutory safe harbor.

	    Pursue Systematic Approach for Longer-Term

	    For the longer term, the panel encourages the establishment of a formal effort to
	    develop a systematic approach to supplemental disclosures, particularly around
	    intangible assets and related operating metrics. The panel does not envision a
	    wholesale replacement of GAAP, but rather a coherent framework and language for
	    supplemental disclosures to help investors assess the future profit and cash flow
	    potential of companies.
	    The effort should involve the SEC. the FASB, the ALCPA and the accounting firms, as
	    well as investors, academics and key industry groups. Users and preparers should pay
	    a particularly important role in ensuring that the proposals are easy to implement and
	    that the information provided will be valued by the investor community.
	    The panel is wary of many small interim changes to current reporting requirements
	    that could cause more harm than good. Accordingly, we should have patience and
	    only implement a comprehensive approach that has been thoroughly tested.

	    IMPROVED REPORTED LIKELY TO HAVE LITTLE IMPACT ON
	    VOLATILITY OR LEVELING PLAYING FIELD

	    Improved reporting, while helping investors value companies will not eliminate market
	    volatility (although some reduction may be achieved), nor will it level the playing field
	    between large institutional investors and small individual investors.
	    The volatility of the stock market is largely driven by the underlying uncertainty about
	    the future performance of companies and the economy as a whole. The senior
	    managers of most Internet companies cannot accurately predict how their companies
	    will perform over the longer term. Therefore, even if investors had as much

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	    information about companies as their managers did, the uncertainty and volatility in the
	    stock market would not be significantly reduced. Furthermore, the panel believes the
	    boom and bust in Internet shares that we experienced in late 1999 and 2000 was largely
	    driven by factors other than inadequacies in company reporting.
	    The perceived unlevel playing field is br~elv unrelated to company disclosures.
	    Professional securities analysts and their c1ient~ h~e a number of advantages over
	    individual investors. While companies can provide raw information to investors,
	    analysis and synthesis that integrates company information with industry knowledge
	    drives informed investment decisions. Professional analysts have the skills, experience,
	    access to management and industry contacts to assemble and critically assess the
	    information from companies to make fully informed investment recommendations.
	    They are also able to assess the management through direct contacts. This costly
	    analysis is typically available to large investors only, those who can hire analysts or
	    purchase outside research.
	    In addition, professional analysts are "in the information flow" and, therefore are
	    likely to learn about company developments sooner than small investors. They may
	    also be able to better interpret company statements or read between the lines in          1 ~
	    company statements or press releases.
	    There is great concern these days about whether securities analysts emDloved by the
	    leading investment banks are truly unbiased in their recommendations More and
	    more, analysts are critical in helping the investment banking side of their firms bring in
	    clients. Analysts face two issues when they write unfavorable reports. First, they risk
	    being cut off from access to management. Second, they could risk losing the client for
	    advisory and capital raising fees. As a result, it is well known that analysts rarely issue
	    "sell" recommendations.
	    These issues around the structure of the stock market are important. However, the
	    panel believes that changes in company disclosure will not eliminate this advantage for
	    large investors. Furthermore, attempts to level the playing field could make the
	    problem worse. It could actually inhibit the free flow of information or it could lead to
	    a deluge of useless boilerplate information that confuses small investors.
	    Finally, it is not clear that many smaller investors would make use of improved
	    company disclosure. The percentage of trading conducted by individual investors is
	    growing relative to institutional investors. This is more pronounced in Internet shares.
	    [cite statistics]. Yet, many of these individual investors are either unsophisticated
	    (wanting to make some money on the latest sure thing) or technical traders (wanting to
	    make money on the volatility of shares during the day rather than investors for the long
	    term based on the fundamentals of the company). It is not clear that these individual
	    investors will make use of improved disclosure.

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	    OTHER IDEAS EXAMINED

	    In addition to the conclusions and recommendations above, the panel discussed a
	    number of other ideas related to company reported.    ~ the panel favored
	    more use of the Internet to communicate with investors. We debated the idea of third
	    party veritication ot non-financial disclosures, but ultimately concluded that the
	    difficulties and substantial costs of third party verification would not outweigh the
	    relatively small improvements expected. We also discussed ideas such as additional
	    disclosures about management and founding investors, but did not achieve consensus.

	    Using the Internet to Communicate with Investors

	    The Internet is also changing the way information is supplied to investors. Through
	    their web sites, companies can now, at virtually no cost, make information available to
	    all investors immediately and simultaneously. Furthermore, the elimination of the need
	    to print and mail documents means that companies can easily provide more information
	    to investors at no incremental cost.
	    Internet technology and the explosion of interest in Internet companies has also led to
	    more information being made available to investors about companies from third parties.
	    In addition to information from companies themselves, investors can learn both facts
	    and opinions about companies from business oriented television networks, investor
	    oriented websites, investor chat rooms, fact oriented web sites (e.g., Bloomberg,
	    Bridge, etc.). The volume of information that investors can access can be
	    overwhelming.
	    Many companies have moved swiftly ahead in experimenting with ways to use the
	    Internet. The panel hopes that this trend spreads quickly. While there will inevitably
	    be a learning period as companies and investors learn best how to take advantage of the
	    new technologies for investor communications, certain steps can be taken now.
	    First, the panel supports simultaneous disclosure of key information to all investors via
	    a company's web site. There needs to be a clear dividing line, however, that delineates
	    what must be simultaneously disclosed to all investors over the Internet and private one-
	    to-one conversations. We would favor limiting immediate disclosure to information
	    that will be in the public domain anyway. Simultaneous disclosure would probably
	    include SEC filings, annual and quarterly reports, press releases, transcripts of investor
	    presentations (with more than 10 in attendance), conference call recordings or
	    transcripts.
	    Second, the panel encourages experimentation with using the Internet for two-way
	    communication between companies and investors. Typically only professional
	    securities analysts and institutional investors have been able to ask managers questions.
	    While it would be infeasible for managers to sit down with every investor, there might
	    be ways that companies could use the Internet to provide two-way communication with
	    investors. For example, the company could post each week or month the 10-20 most
	    frequently asked questions and answers. The company could also commit to posting

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	    frequently asked questions that it did not want to answer and explain why (or not as the
	    case may be).

	    Third Party Verification

	    It has been suggested that investors could benefit from some form of third party
	    verification of non-financial information, similar to the way auditing firms provide
	    opinions on financial statements. Currently, information on key operating metrics or
	    market size data is provided voluntarily by companies based on their own internal
	    definitions, with no external verification. While companies today can be penalized for
	    providing fraudulent information to investors, operating data is not standardized and
	    therefore may not be comparable across companies. Furthermore, companies have
	    substantial freedom to report information that while not fraudulent, could be
	    misinterpreted by investors.
	    The panel did not endorse third party verification of non-financial information. The
	    panel believes that third party verification would not significantly improve the quality
	    of information provided by companies to investors and the costs to companies would be
	    substantial. Furthermore, such a requirement would likely reduce the amount of
	    information that companies disclose.

	    Additional Disclosures About Management

	    For most investors and venture capitalists, the quality of management is often the most
	    important determinant of investment decisions. The panel discussed whether additional
	    disclosures about management would be beneficial. These additional disclosures might
	    include: record of past success and failures, how much time they would devote to the
	    company, a summary of employment contracts.
	    The panel did not reach a consensus on whether additional disclosures would be
	    helpful. Some of the panel members believed that the most important qualities of a
	    management team could not captured in his/her past record or by information about
	    employment contracts.

	    Disclosures about Founding Investors

	    For younger companies, the background and intentions of the founding investors is
	    extremely important to new investors. The founding investors often help management
	    develop the company. Venture capitalists and other founding investors also develop
	    reputations for spotting attractive investments. However, the interests of the founding
	    investors are not always in line with those of the public market investors. Accordingly,
	    the panel members discussed whether the following disclosure should be considered:
	    (1) Track record of founding investors, (2) How long do founding investors typically
	    hold shares after an IPO? (3) What are founding investors' intentions with respect to

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	     selling shares in this company? This information could be disclosed in the IPO
	     prospectus and updated in annual and quarterly reports.
	     The panel did not reach a consensus on this issue. Some panel members believed that
	     the track record and intentions of founding investors are private matters and should be
	     disclosed on a voluntary basis only. Mandating such disclosure might limit the pool of
	     capital available to some companies, as start-up investors would be less willing to take
	     risks and publicize their investments.

	     Reporting on Insider Transactions

	     The panel discussed delays in the disclosure of insider trading activity render the
	     information useless in today's fast paced Internet world. Therefore. insiders should
	     provide full and ininiediate disclosure of insider trades. The panel did not reach a
	     consensus on this issue. Several panel members believed that current system of insider
	     trading disclosure appropriately balances the needs of public investors and the privacy
	     of insiders.

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	APPENDIX A -- PANEL MEMBERS

	[To come]

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	   APPENDIX B - ADDITIONAL VIEWS OF PANELISTS

	   IThis is where panelists could submit their views regarding GAAP and the new Fair

	   Disclosure rule or any other issue.]

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	    APPENDIX C -- AN ENVIRONMENT OF RAPID AND PERVASIVE
	    CHANGE

	    The current wave of innovation centered around the Internet and telecommunications
	    has four critical dimensions: (1) the pace of technology diffusion, (2) the fundamental
	    impact on business models, (3) opportunities for "winner take all" outcomes, and (4)
	    the willingness of the capital markets to finance companies with limited track records.
	    Pace of technology diffusion. The pace of technological development and diffusion is
	    much faster than in the past. This has resulted in the creation of new markets and new
	    business models at lightning speed. For example, worldwide Internet usage reached 10
	    million people around the world in only 4 years. Past innovations like the telephone
	    required 38 years and the fax machine required 22 years to reach an equal number of
	    users.
	    Impact on business models. New technologies are linking businesses to each other
	    and to consumers, thus fundamentally changing the way business is conducted. Past
	    waves of innovations were more narrowly focused on specific products or
	    improvements in manufacturing or back office operations. For example, the computer
	    manufacturer Dell has introduced a business model that links it directly to its end
	    consumers and suppliers, thereby cutting out distributors and retailers and providing
	    much quicker information about its component needs to its suppliers. This approach
	    has helped Dell operate with only 6 days sales in inventory compared with 30-60 days
	    for similar manufacturers. Because it manufactures to order, it also does not incur the
	    costs of obsolete inventories. Its approach has made it the most profitable manufacturer
	    of PCs.
	    Opportunities for "winner take all" outcomes. In a limited set of cases, new
	    information related products are being developed where "demand side" economies of
	    scale result in "winner take all" economic models. On line auctions are a prominent
	    example. The largest auction house selling a particular category of product is more
	    attractive to both buyers and sellers because of they have the most products to sell
	    (attractive for buyers) and they have most buyers visiting their site (attractive for
	    sellers). As more sellers post their wares on the site, the site becomes more valuable to
	    buyers. More buyers, in turn, attract more sellers. This creates a positive feedback
	    loop, helping the leading auction site accelerate its growth much faster than
	    competitors. While we may see more of these "demand side economies" in Internet
	    related products and services; they are still likely to be rare.
	    Willingness of capital markets to support very young companies. The opportunities
	    for value creation are so large that the capital markets have been willing to place very
	    high values on companies with no track record or earnings history, only the potential to
	    strike gold. As a result, the capital markets have financed an unprecedented number of
	    companies at earlier stages in their lives, rather than by venture capitalists and other
	    private investors. The willingness of the capital markets to finance these businesses
	    has, in turn, also accelerated their growth.

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	    There is no doubt that these technological changes and resulting new products and
	    services will create substantial value for the economy. Not surprisingly, however,
	    there is tremendous uncertainty about which business models, companies, and
	    industries will capture a large share of the value for their shareholders.
	    One source of uncertainty is consumer behavior. For example, will consumers prefer
	    to shop in virtual malls or will they prefer specialist retailers? Or perhaps there is
	    room for both? On one hand, the Internet favors companies who can develop strong
	    brands and build customer relationships. On the other hand, the Internet also makes it
	    easy for the consumer to find the best specialist retailer for any product or service or to
	    bypass the retailer completely and go directly to the producer. Despite their early
	    leads, Amazon.com quickly overtook both CDNow and e-Toys in their respective
	    markets once Amazon decided to enter their markets.
	    Another source of uncertainty is the continued rapid pace of technological innovation.
	    Innovation can turn successful business models obsolete practically overnight. For
	    example, AOL has offered to pay a tremendous premium (and associated drop in its
	    own share price) to purchase Time-Warner to get assured access to broadband
	    distribution of its services.
	    A final source of uncertainty is competitive behavior itself. Jt is impossible to predict
	    when the best management team will stumble or when a weak competitor will make a
	    brilliant move (either by keen insight, luck, or desperation).
	    As in past waves of innovation, most new companies will fail or be swallowed by
	    stronger competitors, and many survivors will pass on most of the benefits from new
	    products and markets to consumers, rather than their shareholders. Only a small
	    number are likely to create substantial shareholder value. A study by Morgan Stanley
	    in l99x showed that, prior to the current wave of Internet related IPOs, of x,xxx
	    technology IPOs, only xx% of them created over xx% of the value for shareholders.
	    The results for the current round of IPOs are unlikely to be substantially different, in
	    fact, more than xx % of Internet related IPOs are trading below their opening prices.

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