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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 wouldnt strongly enforce it.
But, its become quite clear over the last nine
months that the SEC does intend to make companies
According to Clanton, the main ramification for
companies that submit prospectuses that dont meet
the plain-English guidelines is cost both in terms
of time and money. Companies that dont 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 thats 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
Making The Prospectus Clearer
So what steps can corporations take to stay on the
right side of the SECs 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
at the present time
due to the fact that
during such time as
for the duration of
in the event that
notwithstanding the fact that
with reference to
although; even if
under; in accordance with
"Some legalisms cant 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:
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 employees 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
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 corporations
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
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 firstname.lastname@example.org.