SEC Adopts Final Rules on Deadlines and Certifications

On Tuesday, August 27, 2002, the SEC adopted final rules that implement an accelerated deadline for reporting certain stock transactions by persons subject to Section 16 of the Securities Exchange Act of 1934. On the same day, the SEC also adopted final rules that require CEO and CFO certification of periodic reports filed with the SEC. Pursuant to requirements in the Sarbanes-Oxley Act of 2002, these final rules went into effect on Thursday, August 29, 2002. The SEC also approved final rules regarding accelerated deadlines for filing Form 10-Ks and Form 10-Qs that will be phased in over a three year period.

Form 4 Deadlines

Accelerated Deadline

The SEC adopted rules that implement an accelerated filing deadline for reporting stock transactions on a Form 4. The new deadline for all transactions that were previously required to be reported by the 10th day of the month following the transaction is now the end of the second business day following the day on which the transaction is executed. The new accelerated Form 4 filing deadline is effective for all transactions which occur on or after August 29, 2002.

Transactions Changed from Annual to Execution-Related Reporting

In addition, the SEC rules require that certain transactions that previously were eligible for deferred reporting on Form 5 now be reported on Form 4 with the accelerated filing deadline. Transactions now required to be reported on Form 4 include transactions between an officer or director and the issuer (such as grants of stock options and restricted stock) and discretionary transactions pursuant to employee benefit plans. These transactions will now have to be filed on Form 4 by the end of the second business day following the day on which the transaction is executed.

Reporting Date

The new requirement that certain transactions be reported by the end of the second business day following the date of execution requires that the SEC receive the report by such time. The date of execution is generally the trade date.

Exceptions to the Two Business Day Deadline

The SEC rules provide two exceptions to the general two business day deadline. The first exception is for transactions pursuant to a contract, instruction or written plan for the purchase or sale of issuer securities that satisfy the requirements of Rule 10b5-1(c) (known as 10b5-1 Plans) where the reporting person does not select the date of execution. The second exception is for a Discretionary Transaction (transactions involving intra-plan transfers of previously invested assets into or out of, or a cash-out from, a plan issuer securities fund) where the reporting person does not select the date of execution. In both exceptions, the execution date of the transaction is deemed to be the earlier of (a) the date on which the reporting person is notified of the transaction by the executing broker, dealer or plan administrator and (b) the third business day following the date the transaction was executed. The Form 4 deadline for these transactions is the end of the second business day following the deemed execution date.

Result of Late Filing

Late Section 16 reports must be disclosed each year in the company's proxy statement and Form 10-K. In addition, Sarbanes-Oxley generally authorizes the SEC to implement such other equitable relief as may be necessary to carry out these provisions.

Electronic Filing

Under Sarbanes-Oxley, the SEC is required to implement and require electronic filing of Section 16 reports by July 30, 2003. The SEC is proceeding expeditiously to implement rules to meet this requirement and the related system programming and anticipates that it will occur prior to July 30, 2003. In the meantime, the SEC has said that it will accept Form 4s in the current EDGAR system that are not in the standard box format and omit the horizontal and vertical lines separating information as long as all captions and required information are present and are in the proper order. Reporting persons who plan to file electronically should submit a Form ID to the SEC requesting EDGAR access codes as soon as possible, as these codes are required for a reporting person to file electronically.

Website Posting

The SEC is also required to mandate the posting of Section 16 reports on a company's website by July 30, 2003. The SEC is already encouraging companies to voluntarily post Section 16 reports on their websites.

CEO/CFO Certification

Certification Requirements

The SEC also released final rules to implement Section 302 of Sarbanes-Oxley that requires CEO and CFO certification of periodic reports filed with the SEC. The new Exchange Act rules require a company's CEO and CFO to certify, with respect to the company's quarterly and annual reports filed or submitted to the SEC, that:

• the officer has reviewed the report;
• based on the officer's knowledge, the report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made not misleading;
• based on the officer's knowledge, the financial statements and other financial information included in the report fairly present in all material respects the company's financial condition, results of operations and cash flows as of, and for, the periods presented;
• the signing officers are responsible for establishing and maintaining "disclosure controls and procedures" that are designed to ensure that material information about the company and its subsidiaries is made known to them;
• the signing officers have evaluated the disclosure controls within 90 days prior to the report and have presented in the report their conclusions about the effectiveness of the disclosure controls based on that evaluation;
• the signing officers have disclosed to the company's auditors and the audit committee of the board of directors (i) all significant internal control deficiencies, (ii) that they have identified to the company's auditors any material weaknesses in internal controls, and (iii) any fraud, whether or not material, involving management or other employees who have a significant role in the company's internal controls; and
• the signing officers have indicated in the report whether or not there were any significant changes in internal controls or factors that could significantly affect internal controls since the last evaluation, including corrective actions.

The Reports to be Certified and Technical Requirements

The reports to be certified include annual reports on Forms 10-K, 10-KSB, 20-F and 40-F, quarterly reports on Forms 10-Q and 10-QSB and amendments to any of these reports. The certification is not required for Forms 8-K or 11-K or for proxy statements; however, the SEC is soliciting comment about requiring certification of proxy statements. Registered investment companies are also required to file certifications as an exhibit to Form N-SAR.

A separate certification must be signed by both the CEO and CFO. The certifications are to appear at the end of the report after the "Signatures" section. The SEC has indicated that no changes to the language of the certifications, even minor changes, are permitted.

Definition of Disclosure Controls and Procedures

The new rules define "disclosure controls and procedures" as controls and other procedures that are designed to ensure that information required to be disclosed by the company in the reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods required under applicable SEC rules. In the adopting release, the SEC specifically recommends the formation of a committee responsible for considering the materiality of information and determining the corresponding disclosure obligations. The committee would likely consist of the company's controller, general counsel, risk manager and investor relations manager and would report to the company's senior management, including the CEO and CFO. The definition, based on the pre-existing concept of internal controls that relate to financial reporting obligations, extends the certification to non-financial information contained in the reports.

Disclosures of Controls and Procedures

The new rules require the certifying officers to disclose in each Form 10-K and Form 10-Q their conclusions about the effectiveness of the company's disclosure controls and procedures based on their evaluation. The certifying officers are also required to disclose whether or not there were significant changes in the company's internal controls or other facts that could significantly affect the internal controls since the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

No Effect on Section 906 Certification or SEC Ordered Certification

The new rule requiring the certifications does not affect the certifications required under Section 906 of Sarbanes-Oxley or the SEC's Order of June 27, 2002 that applied to 947 large public companies. Section 906 of Sarbanes-Oxley requires CEO and CFO certification of periodic reports filed with the SEC that contain financial statements. As a result, two separate certifications are required for reports on Form 10-K and Form 10-Q that contain financial statements. In addition, any company subject to the SEC Order that has not yet filed its first Form 10-K or Form 10-Q that was due since August 14, 2002 will also be required to make the certification in the SEC's Order.

Implementation Date

The new certifications are required in all subject reports filed with the SEC after August 29, 2002; however reports that apply to fiscal periods ended prior to August 30, 2002 do not need to include the disclosure or certifications regarding controls and procedures. To meet the requirements of this immediate deadline, companies will need to implement policies and procedures to ensure they are in compliance.

Form 10-K and Form 10-Q Deadlines

On August 27, 2002, the SEC also adopted final rules that accelerate the filing deadline of Form 10-Ks and Form 10-Qs over a three year period, with no change in the first year. The accelerated deadline will apply to domestic filers that:

• have a public float of at least $75 million;
• have been reporting for at least 12 months;
• have previously filed one annual report; and
• are not eligible for reporting as a small business issuer,

These accelerated deadlines will require filing of the Form 10-K within 90 days in year one (no change from current rules), 75 days in year two and 60 days in year three and thereafter. Form 10-Qs for accelerated filers will need to be filed within 45 days in year one (no change from current rules), 40 days in year two and 35 days in year three and thereafter.

In addition, an accelerated filer will be required to disclose in its Form 10-Q whether the company makes its periodic and current reports available, free of charge, on the company's website as soon as reasonably practicable after they are filed with the SEC. This disclosure is required in Form 10-Ks for accelerated filers with fiscal years ending on or after December 15, 2002.

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This update is intended solely to alert readers to the certain provisions of new SEC Rules and is not intended as legal advice. Further details may be necessary for a complete understanding of the information in this update.