The Sec Means Business: Put It In Plain English. CCH Outlines How to Stay on the Right Side of the SEC Plain English Rule

(RIVERWOODS, ILL., July 9, 1999) – Although some corporations may have been skeptical that the Securities Exchange Commission (SEC) would truly enforce its plain English rule, recent reports make it quite clear that the Commission is doing just that, according to CCH INCORPORATED (CCH), a leading provider of business and securities law information. The SEC is slowing, and in some cases rejecting, corporate filings because they do not comply with the new rule that now requires companies to use plain-English principles when writing certain parts of stock and bond prospectuses.

"For years, the SEC had been urging companies to use plain English, but there were few ramifications for those who stuck with the typical legalese," said Karen Clanton, JD, editor of the book Securities Disclosure in Plain English, the most authoritative guidance available on the topic. "As a result, when the ruling was issued, there was somewhat of an unspoken belief that the SEC wouldn’t strongly enforce it. But, it’s become quite clear over the last nine months that the SEC does intend to make companies comply."

According to Clanton, the main ramification for companies that submit prospectuses that don’t meet the plain-English guidelines is cost – both in terms of time and money. Companies that don’t comply will have their prospectus filings returned to them with comments and requests for clarifications from the SEC. The company then must incorporate these edits into their filings and resubmit them to the SEC before the prospectus will be approved.

"For a company that’s trying to plan when it will issue a new stock or bond offering, having a prospectus returned means that the offer may have to be delayed," said Clanton. "Not only does this mean they may have to issue their offer at a less favorable time, but also likely requires additional costs as attorneys will have to rewrite the sections not in compliance."

Making The Prospectus Clearer

So what steps can corporations take to stay on the right side of the SEC’s plain English rule? In Securities Disclosure in Plain English, a book designed to help corporations and their attorneys comply with the SEC ruling, several steps are outlined.

Among these, avoid legalistic words and phrases and use the plain English substitute when possible, for example:

Legalistic Style

at the present time
due to the fact that
during such time as
for the duration of
inasmuch as
in the event that
notwithstanding the fact that
prior to
pursuant to
subsequent to
that certain
with reference to

Plain English

now
because; since
while
during
because; since
if
although; even if
before
under; in accordance with
after
a
about

"Some legalisms can’t be avoided, but corporations have to become more sensitive to investors and the SEC guidelines," said Clanton. "Legalisms that can be easily simplified are red flags for the SEC."

Securities Disclosure in Plain English also includes before-and-after examples showing how plain English can clean up a prospectus:

Legalistic Style

In the event of default by an underwriter, the standby underwriting agreement provides that, with minor exceptions, purchase commitments of the non-defaulting underwriter may be increased or the agreement may be terminated.

In the event of the employee’s death or involuntary termination prior to the tenth anniversary of the grant date, the repurchase rights of granting corporation shall be deemed to have lapsed ratably over a five-year period commencing with the fifth anniversary of the grant date.

Plain English

If an underwriter defaults, the standby underwriting agreement generally allows the non-defaulting underwriter to increase its purchase commitments or terminate the agreement.

If the employee dies or is fired within ten years of the grant, the granting corporation’s repurchase rights will be considered to have proportionally lapsed over a five-year period starting five years after the grant.

"The SEC is telling companies to keep it simple," explained Clanton. "Documents shouldn't be cluttered with ambiguous phrases and never-ending paragraphs. And, the most important information shouldn't be buried in the document."

About Securities Disclosure in Plain English

Published by CCH INCORPORATED in February 1999, Securities Disclosure in Plain English, was written by Bryan A. Garner, an expert in legal writing. Garner also serves as president of LawProse, Inc., a Dallas-based company that teaches writing to attorneys. Securities Disclosure in Plain English is 375 pages and is available from CCH by calling 800-248-3248, or by visiting the CCH Business and Finance Group web site (http://business.cch.com). Price is $129.

ABOUT CCH INCORPORATED

CCH INCORPORATED, Riverwoods, Ill., is a leading provider of business and securities law information, including Federal Securities Law and Blue Sky Law Reports. CCH also provides tax and business law information in print and electronic form for accounting, legal, health care and small business professionals. CCH is a wholly owned subsidiary of Wolters Kluwer U.S. The CCH website can be accessed at www.cch.com.

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EDITORS NOTE: An editorial review copy of Securities Disclosure in Plain English is available by contacting Leslie Bonacum at 847-267-7153 or bonacuml@cch.com.

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