Sarbanes Oxley Primer For The Small Law Department

September 2005

Provided by the Association of Corporate Counsel
1025 Connecticut Avenue NW, Suite 200
Washington, D.C. 20036
Tel 202.293.4103
Fax 202.293.4107
www.acca.com

This primer provides a broad overview of several provisions of Sarbanes Oxley. It does not cover all of SOX's provisions or related rules. It is intended to offer non-securities law practitioners practicing as in-house counsel, a brief introduction into SOX topics, and perhaps to provide a quick, summary level "brush-up" for securities practitioners. To aid readers in their understanding of the covered topics, this primer includes practice tips and several forms and reference materials in the Samples and Forms section at the end. As each company and securities matter presents unique facts and considerations, legal and otherwise, readers are cautioned not to use these tips and forms without carefully reviewing and analyzing the specific company and/or individual at issue and their needs and circumstances.

The information contained in this InfoPAK^SM was compiled by Holland and Knight LLP at the direction of the ACC. ACC wishes to acknowledge the following members of Holland and Knight LLP for their contribution to the development of this InfoPAK^SM:

Jane K. P. Tam
Mark J. Tarallo
Jonathan F. Wolcott
Jennifer E. Dure

We hope that you find this material useful. Thank you for consulting with the Association of Corporate Counsel.

ACC wishes to acknowledge the following for their contribution to the development of this InfoPAK:

Todd H. Silberman, Vice President & General Counsel Express Carriers
Meredith B. Stone, Vice President, General Counsel, Americas NACCO Materials Handling Group, Inc.
&
Deanne Tully, Vice President & General Counsel, Tier Technologies, Inc.

Table Of Contents

1. Coverage and Use of this Primer


2. Board of Directors
   
   1. Overview
   2. Director Independence
   1. Definition of "Independence"
   2. "Controlled Company" Exception
   3. Executive Sessions
   4. Sample Questions Included in the D&O Questionnaires


3. Audit Committee
   
   1. Overview
   2. Most Common Exemptions from the Independence Requirements
   3. The "Financial Literacy" Requirement
   4. Requirements of a "Financial Expert"
   1. Attributes Required of an Audit Committee "Financial Expert"
   2. How Attributes can be Acquired
   5. Additional Disclosure in the Case of Simultaneous Service on Multiple Audit Committees
   6. Audit Committee Responsibilities


4. Compensation Committee
   
   1. Overview
   2. Non-independent Director Hardship Exemption
   3. Compensation Committee Responsibilities


5. Corporate Nominating /Governance Committee
   
   1. Overview
   2. Non-independent Director Hardship Exemption
   3. Nominating/Corporate Governance Committee Responsibilities
   4. Required Proxy Statement Disclosure


6. Accelerated/Enhanced Disclosure Requirements
   
   1. General Overview
   2. Applicability of New Rules
   3. 10 Ks and 10 Qs
   1. Changes for Filings Made Within 90 days of Fiscal-Year End
   2. Changes for Filings Made After 134 Days After Fiscal-Year End
   3. Age of Financial Statements at Effective Date of Registration Statements
   4. No Change Made to Deadline for Proxy Statement
   5. No Change Made to Deadline for Filing Acquired Entity Financial Statements
   6. Web Posting Requirements
   4. 8 Ks
   5. Summary of Changes


7. Disclosure Procedures and Internal Controls
   
   1. General Overview
   2. Disclosure Controls and Procedures
   1. Definitions and Scope
   2. Management Evaluations
   1. Timing
   2. Required Disclosure
   3. Practice Tips
   1. Criteria for Procedures
   2. Documentation
   3. Disclosure Committees
   4. Gathering Information
   5. Verification/Back Up Certifications
   4. Samples and Forms
   3. Internal Controls
   1. Definition of "Internal Control over Financial Reporting" and Coverage of Requirement
   2. Annual Internal Control Report
   1. Management's Responsibilities
   2. Statement of Evaluation Framework
   3. Conclusions about Effectiveness
   4. Timelines for Compliance with Report Requirements
   3. Attestation Report of Auditors and Auditing Standards
   4. Quarterly Evaluation and Disclosure
   5. SEC Guidance on Recently Acquired Entities
   6. Sample Disclosure


8. Management Certifications under SOX Sections 302 and 906
   
   1. General Background and Overview of Certifications
   1. Companies Covered
   2. Filings Covered
   2. Section 302 Certification
   1. Content
   1. Review of Report
   2. Material Accuracy of Report
   3. Fair Presentation of Financial Information
   4. Evaluation of Disclosure Controls and Procedures
   5. Internal Control over Financial Reporting
   2. Mechanics
   3. Section 906 Certification
   1. Content and Covered Reports
   2. Submission
   3. Penalties


9. Code of Ethics
   
   1. Overview
   2. Legal Requirements
   1. Section 406 of SOX and Implementing Regulations
   2. NASD
   3. NYSE
   4. U.S. Sentencing Guidelines
   3. Persons Subject to the Code of Ethics
   4. Public Availability of Code of Ethics
   5. Amendments and Waivers
   1. Amendments
   2. Waivers
   3. Internet Option
   6. Sample Code of Ethics


10. Shareholder Approval of Equity Compensation Plans
    
    1. Overview
    2. NYSE Rule
    1. Definition of Equity Compensation Plan
    2. Material Revisions/Repricings
    3. Exemptions
    4. M&A Context
    5. Broker Voting
    3. NASD Rule
    4. Summary


11. New Deadlines for Insider Transaction Reports
    
    1. Overview
    2. Shorter Deadline Requirements
    1. Two Business Day Requirements
    2. Limited Exceptions
    3. Use of Form 5/Exemptions for Reporting
    3. Mandated Electronic Filing and Website Posting


12. Prohibition on Loans to Directors and Officers


13. Pension Fund Blackouts
    
    1. Overview
    2. Prohibition on Trades during Blackout Periods
    1. Coverage
    2. Exceptions
    3. Department of Labor Advance Notice Rule
    4. Notice to Insiders and SEC
    5. Remedies
    6. Practice Tips


14. Employee Whistleblower Protection
    
    1. Overview
    2. Civil Liability
    3. Criminal Liability
    4. In-house Counsel Role
    5. Investigation of Whistleblower Complaints
    6. Common Whistleblower Problems


15. Record Keeping Requirements
    
    1. Overview
    2. Section 802 and Auditor Requirements
    3. Section 1102
    4. Sentencing Guidelines regarding Obstruction
    5. Practical Applications/Policy Formulation


16. Private Company Implications
    
    1. Applicability of SOX on Privately Held Companies
    1. New Penalties for Destruction or Falsification of Records in Federal Investigations and Bankruptcy
    2. Whistle-Blower Protection
    3. Extended Statute of Limitations for Securities Fraud
    4. 30-Day Notice Requirement for 401(k) Plan Blackout Periods
    2. Applicability of SOX on Companies Going Public
    3. Other SOX Requirements that have Become "Best Practices" Among Privately Held Companies


17. Additional Resources


18. Sample Forms and Policies
    

    Sample II -1 Sample D&O Questionnaire
    Sample III-1 Sample Audit Committee Charter
    Sample IV-1 Sample Compensation Committee Charter
    Sample V-1 Sample Nominating/Corporate Governance Committee Charter
    Sample VII-1 Sample Disclosure Controls and Procedures Policy and Timelines
    Sample VII-2 Sample Back-Up Certifications to Section 302 Certification
    Sample VII-3 Sample Company Internal Control Reports
    Sample VII-4 Sample Auditor Attestation Reports
    Sample VII-1 Forms of Section 302 and Section 906 Certifications
    Sample IX-1 Sample Code of Ethics
    Sample XI-1 Sample Insider Trading/Pre-Clearance Policies
    Sample XIII-1 Sample Department of Labor and Director and Officer Notices under SOX 306



19. XIX. About the Firm