Sarbanes-Oxley Corporate Reform Act of 2002

• CEO/CFO Requirements.The Act requires CEOs and CFOs to make two different certifications of financial reports under § 906 and § 302. CEOs and CFOs are also required to disgorge bonuses, stock profits, and incentive- and equity-based compensation if a restatement of a report is necessary due to the company’s non-compliance or misconduct. Additionally, the Act prohibits insider trades during pension plan blackouts. The Act also bans the provision of or arrangement for personal loans to executive officers and directors.

• Disclosure Requirements. The Act requires corporate insiders to report on Form 4 transactions involving the company’s securities within two business days, instead of by the 10th of the following month as required by the old rule. The Act also directs the Securities and Exchange Commission to make rules requiring public companies to disclose events on a real-time basis, improve pro forma financial result reporting, provide disclosures concerning related party and off-balance sheet transactions, and disclose information about internal controls.

• Public Company Accounting Oversight Board. The Act establishes the Public Company Accounting Oversight Board (PCAOB), which is overseen by the SEC and regulates auditors and auditing processes.

• Auditing Requirements. The Act requires independence of public company auditors and imposes limitations and approval requirements to ensure this independence. In addition, the Act sets forth requirements pertaining to the role, composition, and responsibilities of audit committees, including requiring committees to develop a process for addressing complaints about the company’s accounting.

• Attorney Regulations. The Act subjects attorneys who practice before the SEC to new regulations requiring them to take action if they become aware of securities law violations or breaches of fiduciary duties.

• Enforcement Provisions. The Act expands prohibitions on and increases criminal penalties for violations of the securities laws.

• CEO/CFO Certification. Pursuant to § 906 of the Act, all CEOs and CFOs of public companies must certify quarterly and annual reports. The certification must state that the report complies with the requirements of § 13(a) or 15(d) of the Securities Exchange Act of 1934 and that the information contained in the report fairly presents the financial condition and results of operations of the company. Additionally, quarterly and annual reports filed with the SEC must reflect all significant correcting adjustments identified by the company’s registered public accounting firm.

  In addition, § 302 requires that each quarterly and annual report filed with the SEC include the certification of a company’s CEO and CFO that the report does not misstate or omit material facts and that the financial statements are fairly presented. The certification must also include representations about specific internal control matters designed to ensure that the financial and non-financial information required to be disclosed in periodic reports is recorded, processed, summarized and reported within the specified time periods.

  The Act provides that criminal penalties will be imposed for willfully or knowingly making a false certification. Furthermore, if an accounting restatement is required due to a company’s non-compliance or misconduct concerning financial reporting requirements, CEOs and CFOs will be required to reimburse their companies for bonuses, other incentive- or equity-based compensation, and stock sale profits received during the 12 months following the original report.

• Personal Loans. Providing or arranging for personal loans to executive officers and directors is now prohibited. Existing loans are grandfathered, but may not be further modified, extended, or renewed.

• Independent Auditing. Registered accounting firms are prohibited from providing non-audit services to public companies contemporaneously with an audit. Auditors may provide certain non-audit services if pre-approved by the public company’s audit committee; disclosure of these non-audit services is required via periodic reports filed with the SEC. The Act requires that all audit services be pre-approved by the audit committee. In addition, the Act prohibits a registered public accounting firm from participating in the audit of a public company if a CEO, CFO, controller, or chief accounting officer of the company (or equivalent of any of these positions) was employed by the accounting firm and participated in the audit of a public company during the year prior to the initiation of the audit.

• Insider Transactions. Corporate insiders (§ 16 reporting persons) must report transactions involving company securities (with a Form 4 report) within two business days.

• Audit Committee Financial Expert. Every public company must disclose in annual report whether the company has at least one financial expert serving on its audit committee and disclose the expert’s name. A company must also disclose whether the person identified as the audit committee financial expert is independent of management. If a company does not have an audit committee financial expert, it must disclose and explain why it does not have an expert.

• Code of Ethics. Every public company must disclose in its annual report whether it has adopted a code of ethics that applies to the company’s principal executive officer, principal financial officer and principal accounting officer or controller. If a company has not adopted a code of ethics, it must disclose and explain why it has not done so. A company must immediately disclose on Form 8-K or its website any change to, or waiver from, the company’s code of ethics.

• Use of Non-GAAP Financial Measures. Effective on March 28, 2003, a company that discloses or releases any non-GAAP financial measures must include in that disclosure or release a presentation of the most directly comparable GAAP financial measure and a reconciliation of the disclosed non-GAAP financial measure to the most directly comparable GAAP financial measure.

• Electronic Filing and Website Posting for Forms 3, 4 and 5. The SEC has proposed rules that will require a company’s officers, directors and principal shareholders who are subject to Section 16(a) of the Securities Exchange Act to electronically file their Forms 3, 4 and 5 beneficial ownership reports. The rules will also require a company to post these reports on its web sites. The SEC intends to implement the proposed rules as soon as practicable before July 30, 2003.

SEC Regulation	Date Available
Rules to prevent fraudulent influencing or misleading of a company’s auditors	By April 26, 2003
SEC recognition of Public Accounting Oversight Board	By April 26, 2003
Rules prohibiting securities exchanges and associations from listing companies whose audit committee is not composed entirely of independent board members	By April 26, 2003
Rules concerning independence of analysts	By July 30, 2003

The complete text of the Sarbanes-Oxley Act is available at the United States Government Printing Office. If you would like additional information regarding the requirements of the Act, please contact any of our securities lawyers.