MORGAN LEWIS ON SECURITIES A NEWSLETTER FROM THE SECURITIES PRACTICE www.morganlewis.com

FALL 2004 A YEAR IN TURMOIL FOR MUTUAL FUNDS — IN THIS ISSUE

VIEWS OF AN INDUSTRY INSIDER BY THOMAS S. HARMAN Amid the frenetic backdrop of regulatory catch-up and leap-frog in the mutual fund industry over the last year, it 2 OUTSIDE DIRECTORS AND is important to step back and observe the larger trends and try to discern what has fundamentally changed. That RED FLAGS involves focusing on the industry’s primary regulator, the SEC. OBTAINING A LISTING ON Initially outflanked by New York maintained. It has adopted signifi- 3 THE LUXEMBOURG STOCK Attorney General Eliot Spitzer, the cant revisions to substantive rules, EXCHANGE SEC has responded vigorously to e.g., Rule 12b-1, to prohibit the alleged abuses in the Mutual Fund practice of tying portfolio execution EXPANDED NEW FORM 8-K Industry. It has employed virtually to fund distribution, and Rule 22c- 4 REQUIREMENTS BECAME all of its tools: information-gather- 1, the forward pricing rule, a EFFECTIVE IN AUGUST ing, jawboning, disclosure fundamental bulwark of the rulemaking, rulemaking that For further information, or to receive Investment Company Act of 1940. MORGAN LEWIS NEWS reshapes business practices, corpo- this newsletter by e-mail only, contact It has even proposed a rule that 11 rate governance rulemaking and David Sirignano at 202.739.5420 or would require funds to impose a 2% enforcement actions. The enforce- [email protected], who redemption fee on certain short-term focuses on SEC regulation, or ment actions, notably, often investors. Further, it has proposed Thomas Harman at 202.739.5662 involved well-known fund families, or [email protected], who revisions to require most private significant sanctions and coordina- focuses on investment management fund advisers to register under the tion with state authorities–all of and mutual funds. Investment Advisers Act of 1940. which is unprecedented in the regu- lation of mutual funds. One literally In short order, the SEC also Last but not least, the SEC has has to go back to the 1920s and began to flex its rulemaking muscles instituted and settled a score of 1930s to find a similar moment in in a variety of ways. It has administrative proceedings against history when the misdoings and proposed and adopted new disclo- large fund families. The monetary alleged misdoings of mutual funds sure enhancements, i.e., market damages and fines alone, putting were so prominently in the press. timing and portfolio holding disclo- aside other remedies, have exceeded sure, that arguably look like $2 billion. Significantly, the SEC The information gathering regulation through disclosure. It has resisted wrapping advisory fee began almost immediately after has adopted proposed rules whose reductions into its settlements Eliot Spitzer announced his first fate previously seemed uncertain, (unlike Mr. Spitzer), thus staying This newsletter is provided as a general settled action early September e.g., quarterly disclosure of portfo- consistent with its historical reti- informational service to clients and friends of Morgan, Lewis & Bockius LLP.It 2003. It continues to grind away. lio schedules and the chief cence to being a rate-making should not be construed as imparting Since then, the SEC has demanded compliance officer rule. It has agency. Instead, the SEC has incor- legal advice on any specific matter. information from large segments of adopted a rule that would require porated procedural reforms into its the industry relating to, among advisers to have codes of ethics settlements, e.g., independent other things, market timing, portfolio similar to those required of mutual chairman of the board, board elec- valuation by international stock funds. It has adopted new rules to tions every five years. By so doing funds, pension consultants, mutual strengthen corporate governance, it jump-started its fund corporate fund transfer agents and fund rela- e.g., independent chairman of the governance reforms. tionships with investment bankers, board, 75% of the board must be © 2004 Morgan, Lewis & Bockius LLP and has made two different queries independent, and records of board What, then, should one take All Rights Reserved. regarding index funds. deliberations regarding advisory away from all this? First, the SEC is agreements must be kept and moving aggressively to address

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MORGAN LEWIS ON SECURITIES „ 1 FOCUS ON ENFORCEMENT AND LITIGATION OUTSIDE DIRECTORS AND RED FLAGS BY JOHN F.X. PELOSO AND BEN A. INDEK

In the wake of recent corporate scandals, by failing to ensure that the company’s public fund directors, are living up to their fiduciary there has been a sharpened focus on the role of filings were accurate.”3 obligations and the spirit underpinning all of outside directors. As an example, SEC our securities laws.” Enforcement Chief Stephen Cutler announced an Specifically, the complaint alleges that intention to target outside directors for falling Peselman signed restatements of financial FIDUCIARY DUTIES: THE PROVINCE 1 “asleep at the switch.” That statement and results that contained misstatements and con- OF STATE LAW others by SEC officials, together with a related tradicted earlier statements he had signed. In civil action against an outside director, indicate doing so, Peselman “ignored . . . red flags.” The Chancellor action and the public that the SEC has trained its sights on outside “Indeed,” the complaint continues, “Peselman comments of Messrs. Donaldson and Cutler directors who the SEC believes may have failed had completely neglected to fulfill his duties as together reflect the SEC’s intent to target to react to red flags warning of corporate a director and as an audit committee member. outside directors for negligent activity (or inac- impropriety and failed to fulfill their fiduciary He failed to oversee Chancellor’s financial tivity) and breaches of fiduciary duty, duties. This article will consider the SEC’s reporting, exercising no care to ensure that the presumably invoking the antifraud provisions of stated initiative in this area in the context of company had appropriate accounting proce- the federal securities laws. The obvious traditional standards of liability for outside dures and internal controls and that its financial question is whether the federal securities laws directors as recently analyzed in state and records were adequate . . .”4 provide the statutory basis for the Commission federal courts. to pursue that campaign. Calling the case against Peselman “the first THE CHANCELLOR CASE salvo in this area” and a model for such enforce- Almost 30 years ago, in Sante Fe Industries, ment actions, Enforcement Chief Cutler stated Inc. v. Green, 430 U.S. 462 (1977), the United In April 2003, the SEC filed a complaint that he was unaware of any other SEC action States Supreme Court considered and expressly against the Chancellor Corporation, and certain against an outside director not directly involved rejected the application of the antifraud provi- individuals associated with Chancellor, including in fraud. According to Cutler, “[t]his case sig- sions of Section 10(b) and Rule 10b-5 to all outside director Rudolph Peselman, detailing a nifies the Commission’s willingness to pursue breaches of fiduciary duty. Rather, the Court “multi-faceted financial fraud” involving “the cases against outside directors who were recognized that a “claim of fraud and fiduciary creation of false corporate documents and ficti- reckless in their oversight of management and breach . . . states a cause of action under any tious accounting entries” leading to alleged asleep at the switch.”5 part of Rule 10b-5 only if the conduct alleged material overstatements of revenue, income can fairly be viewed as ‘manipulative or decep- and assets.2 Cutler’s comments were echoed in a speech tive’ within the meaning of the statute.” by SEC Chairman William H. Donaldson.6 Twenty years later, this principle was reiterated By naming the outside director as a defen- Commenting on the Commission’s investigation by the Court in United States v. O’Hagan, 521 dant, Chancellor raised more than a few of mutual funds, the Chairman stated that the U.S. 642 (1997). In ruling on the government’s eyebrows. Although the complaint alleges that SEC is “carefully looking at the role that inde- misappropriation theory of insider trading, the Peselman violated, inter alia, Section 10(b) of pendent directors played, if any, in the problems Court recognized as a predicate for liability the Exchange Act, and Rule 10b-5 thereunder, at these firms. We are asking whether the direc- under Section 10(b) in that context that there he is not charged with direct participation in tors were aware of these abuses, and whether needed to be an underlying breach of fiduciary the accounting fraud. Rather, in its release there were red flags that were ignored.” duty. Although finding such a duty in that case, announcing the complaint, the SEC asserts that Donaldson added that the SEC would pursue the Court nevertheless again stated that Peselman violated the antifraud provisions of aggressively those who harmed investors, “even “§ 10(b) is not an all-purpose breach of fidu- the federal securities laws “by signing a number if they turn out to be fund directors.” Mirroring ciary duty ban; rather it trains on conduct of false financial statements and, as an outside the reference to fiduciary duties in the involving manipulation or deception.” (In director with fiduciary responsibilities, by Chancellor action, the Chairman concluded his O’Hagan, the Court found this requirement sat- ignoring clear warning signs that financial remarks by stating: “Investors must be able to isfied by the defendant’s trading activity using improprieties were ongoing at the company and see for themselves that fund companies, and the information obtained by the breach of duty.)

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1 SEC to Target Directors in Fraud Cases, Cutler Says, Bloomberg Report (August 20, 2003). 2 Complaint, SEC v. Chancellor Corp., 03 Civ. 10762 (D. Mass.) at ¶ 1. 3Litigation Release No. 18104 (April 24, 2003) (emphasis added). 4 SEC v. Chancellor Corp., Complaint at ¶¶ 5, 48, 53, 59-60. Peselman’s answer to the complaint asserts nine defenses including inter alia a failure to state a claim on which relief can be granted, and assertions that the claims are barred because the Commission cannot prove scienter and because Peselman acted in good faith and in reliance on the company’s accountants and auditors. 5 SEC to Target Directors in Fraud Cases, Cutler Says, Bloomberg Report (August 20, 2003). 6 William H. Donaldson, “America’s Need for Vigilant Mutual Fund Directors”, Speech at the U.S. Securities and Exchange Commission Mutual Fund Directors Forum (January 7, 2004).

2 „ MORGAN LEWIS ON SECURITIES OBTAINING A LISTING ON THE LUXEMBOURG STOCK EXCHANGE BY RACHEL A. GONZALEZ

Obtaining a listing on the Luxembourg Stock with securities listed thereon. These rules and WORKING WITH A LUXEMBOURG Exchange (the “Exchange”) is a process that regulations are formalized in the following pub- LISTING AGENT differs in significant respects from obtaining a lications, which may be found on the listing on an exchange or regulated market in Exchange’s website (www.bourse.lu): A company seeking an Exchange listing gen- the United States, or receiving an effectiveness erally does not deal directly with the Exchange. • “Admission to Official Stock Exchange order from the U.S. Securities and Exchange The primary contact with the Exchange on Listing and Public Offer of Transferable Commission in respect of a registration state- Securities - 1 January 1991 (1999 edition)” behalf of an issuer is the Luxembourg listing ment. In many respects obtaining a listing on (the “Admission Requirements”); and agent, which must be a Luxembourg-based the Exchange is easier – certainly, the comment • “Rules and Regulations of the bank. Typically, counsel to the issuer works process can be less time-consuming than an Luxembourg Stock Exchange” (the latest closely with a Luxembourg listing agent to SEC comment process. On the other hand, revision to which was by Ministerial advocate disclosure positions on behalf of the obtaining a listing in Luxembourg can be Decree in March 2003) (the “Rules issuer; however, it is the listing agent who and Regulations”). frustratingly bureaucratic and some requests or interacts directly with the Exchange. If a comments can be puzzling to U.S. secu- Any company intending to make a public significant disclosure issue arises, counsel to rities lawyers. offer of transferable securities on the Exchange the issuer may participate in a conference call or to apply for the admission of transferable with the reviewer at the Exchange, though this The purpose of this article is to give you securities to official listing on the Exchange is somewhat unusual. practical tips on how to obtain a listing on must notify (with at least two weeks’ prior the Exchange. notice) the Exchange by submitting an applica- THE PROCESS tion file containing the following: The Luxembourg listing agent, under its own WHY LUXEMBOURG? letterhead, submits a proposed offering memo- You probably have seen Luxembourg listings • Draft listing particulars,public offer randum or prospectus and solicits comments in most frequently in the context of Rule prospectus, and offering memorandum. respect thereof. The Exchange assigns a 144A/Reg S debt offerings for foreign private reviewer and that reviewer prepares comments issuers, in particular, issuers in the UK. As a • Any additional information supplemental for approval by his or her supervisor. The general matter, the United Kingdom imposes a to, but not included in, the draft listing comments are then issued to the listing agent withholding tax on the payment of interest on particulars, public offer prospectus or as a formal comment letter, in French with an a debt security to non-UK resident holders, offering memorandum. English language translation. unless an exemption is available under either • Supporting documents as follows: UK domestic law or an applicable double tax The Exchange’s response time varies signifi- treaty. One such exemption is the “quoted (a) organizational documents of cantly based on workload and staff availability, Eurobond” exemption. If the debt security is the issuer; and an initial response may take 10 to 20 days. listed on a “recognized” stock exchange, such (b) draft underwriting or subscription Obtaining a listing during the summer, as the Luxembourg Stock Exchange, there is agreement; especially in August, is likely to take longer. no withholding. (c) fiduciary agreement (trust indenture Once the listing agent receives the Sometimes the admission of a security to the or trust deed); comments, they are formatted into a response Luxembourg Stock Exchange is also beneficial (d) deposit agreement; letter on the listing agent’s letterhead and for securities law and tax considerations in non- passed on to the issuer’s counsel. Issuer’s European countries. For example, we (e) annual reports for the last three fiscal counsel, in consultation with the listing agent, understand that certain jurisdictions in Asia years together with latest interim the issuer and the underwriters and their accord beneficial securities law and tax treat- accounts for the issuer, if available; counsel, drafts responses for inclusion in the ment to offerings of debt securities when a (f) draft of legal notice provided for by response letter and modifies the offering listing is obtained on certain enumerated Articles 33 to 80 of the Law on document accordingly. An experienced listing exchanges, including the Luxembourg Commercial Companies of 1915 (the agent can be helpful in deciding how to Stock Exchange. principal corporate legislation in respond to the comments. Luxembourg) to be filed with the THE LUXEMBOURG LISTING RULES Luxembourg District Court (a notice A completed comment response package is Admission to listing on the Exchange specifying the name of the issuer and submitted to the Exchange for further review. requires both compliance with the Exchange’s the details of the transferable securi- admission requirements and ongoing compli- ties to be listed). The Exchange, in reviewing modified offering ance with its rules and regulations for issuers materials submitted by the issuer, reserves the continued on page 8

MORGAN LEWIS ON SECURITIES „ 3 EXPANDED NEW FORM 8-K REQUIREMENTS

BECAME EFFECTIVE IN AUGUST BY HOWARD A. KENNY

Effective August 23, 2004, public companies NEW DISCLOSURE ITEMS obligation, or if the company becomes are now required to comply with new Form 8-K directly or contingently liable for an oblig- requirements. The Securities and Exchange ITEM 1.01. ENTRY INTO A MATERIAL ation arising out of an off-balance sheet Commission (“SEC”) has added eight new DEFINITIVE AGREEMENT arrangement, in either case, that is reportable items, transferred two items from the • This item requires disclosure of any material to the company. The company periodic reports and expanded disclosures under material definitive agreement not made in must disclose (i) the date on which the two existing items. The form itself has been the ordinary course of business. company becomes directly or contingently reorganized into topical categories under a new Materiality is defined by reference to Item liable on the obligation; (ii) a brief numbering system. In addition, the filing 601(b)(10) of Regulation S-K, which sets description of the transaction; (iii) the deadline for most items is four business days out the types of “material contracts” that amount of the obligation and the after the occurrence of an event triggering the must be filed as exhibits. A company must maximum potential amount of future disclosure requirements of the form. also disclose any material amendment to a payments that the company may be material definitive agreement, even if the required to make; and (iv) a brief These amendments are responsive to the underlying agreement previously has not description of the other material terms “real time disclosure” mandate in Section 409 of been disclosed. The disclosure must and conditions. the Sarbanes-Oxley Act of 2002, which stated include (i) the date the agreement was that public companies should disclose, on a • Direct financial obligations include long- entered into or amended; (ii) a brief “rapid and current basis,” material information term and short-term debt, and capital and description of any material relationship regarding changes in a company’s financial con- operating leases. Trade payables are not between the company or its affiliates and dition or operations as the SEC determines to be included. The term “off-balance sheet any of the parties, other than in respect of necessary and useful for the protection of arrangement” has the meaning set forth in the material definitive agreement or investors and the public. All companies subject the SEC rules regarding Management’s amendment; and (iii) a brief description of to the reporting requirements of the Securities Discussion and Analysis. the terms and conditions of the agree- Exchange Act, other than foreign private ment or amendment that are material issuers, will be subject to the new requirements. • Disclosure is also required if the company to the company. The stated purpose of these amendments is to enters into a facility, program or similar arrangement that could give rise to enhance investor confidence in the fairness and ITEM 1.02. TERMINATION OF A MATERIAL material financial obligations in connec- integrity of the securities markets by providing DEFINITIVE AGREEMENT more timely access to a greater range of infor- tion with multiple transactions, and an • Under this item, if a material agreement, additional Form 8-K is required when mation concerning significant corporate events as defined in Item 1.01, is terminated and than is currently required by Form 8-K. material obligations, in the aggregate, such termination is material to the have been incurred. Aside from the increased number of required company, the company must disclose (i) disclosure items and accelerated filing deadline, the date of the termination; (ii) the • In a helpful exception for companies that the biggest change is the need for public com- identity of the parties; (iii) a brief descrip- raise debt financing through a shelf regis- panies to assess the “materiality” of a variety of tion of any material relationship between tration, such as a medium-term note events. The former requirements under Form 8- the company or its affiliates and any of program, no Form 8-K is required for a K tended to be fairly objective and allowed a the other parties, other than in respect of security sold pursuant to an effective reg- company to easily determine whether a filing is the material definitive agreement; (iv) a istration statement, provided that the required. The new requirements depend upon brief description of the material circum- prospectus relating to the sale contains an event occurring, and such event being mate- stances surrounding the termination; and the information required by the Form 8-K. rial to the company, thus introducing a greater (v) any material early termination penal- ITEM 2.04. TRIGGERING EVENTS THAT degree of subjectivity. A company should con- ties incurred by the company. ACCELERATE OR INCREASE A DIRECT sider in advance appropriate materiality thresh- • An agreement that terminates by its terms FINANCIAL OBLIGATION OR AN OBLIGATION olds, and these should be periodically reexam- or as the result of full performance will not UNDER AN OFF-BALANCE SHEET ined and adjusted as necessary. Because of the trigger the disclosure requirements. ARRANGEMENT short filing deadline, an assessment of whether • This item requires a company to file a Form a filing will be required should be made well in ITEM 2.03. CREATION OF A DIRECT 8-K if a triggering event causing the advance of the triggering event. For example, FINANCIAL OBLIGATION OR AN OBLIGATION increase or acceleration of a direct financial when negotiating an agreement, the determina- UNDER AN OFF-BALANCE SHEET obligation of the company occurs and the tion as to whether it will be “material” and filed ARRANGEMENT OF A REGISTRANT should be made very early in the process, not consequences of the event are material to • This item requires disclosure if a company after its execution. The following summarizes the company. The company must provide becomes obligated under a direct financial the new Form 8-K requirements. (i) the date of the triggering event; (ii) a

4 „ MORGAN LEWIS ON SECURITIES brief description of the agreement or description of the course of action includ- ing (i) that the company or such class of transaction under which the direct financial ing the facts and circumstances leading to its securities does not satisfy a rule or obligation was created and is increased or the expected action; (iii) an estimate of standard for continued listing; (ii) that the accelerated; (iii) a description of the trig- the total amount expected to be incurred exchange has submitted an application gering event; and (iv) the amount of the for each major type of cost associated with under Exchange Act Rule 12d2-2 to the SEC material direct financial obligation that may the course of action; (iv) an estimated to delist such class of the company’s secu- arise, increase or become accelerated as a amount expected to be incurred in connec- rities; or (iii) that the association has result of the triggering event. tion with the action; and (v) the taken all necessary steps under its rules to company’s estimated amount of the charge delist the security from its automated • If a triggering event occurs causing a that will result in future cash expenditures. inter-dealer quotation system. company’s obligation under an off-balance sheet arrangement to increase or be accel- ITEM 2.06. MATERIAL IMPAIRMENTS • A company that receives this type of notice erated, or causing a company’s contingent • This item requires disclosure when a must disclose (i) the date that it received obligation to become a direct financial company’s board of directors (or authorized the notice; (ii) the listing requirement or obligation of the company, and the conse- officers if board action is not required) standard that the company fails, or has quences of the event are material to the concludes that a material charge for failed, to satisfy; and (iii) any action or company, the company must disclose (i) impairment to one or more of its assets, response that, at the time of filing, the the date of the triggering event; (ii) a including, without limitation, an impair- company has determined to take in brief description of the off-balance sheet ment of securities or goodwill, is required response to the notice. arrangement; (iii) a brief description of the under generally accepted accounting prin- • In addition, a company that notifies its triggering event; (iv) the nature and ciples applicable to the company. The exchange or association that it is aware of amount of the obligation, as increased if company must disclose (i) the date of the any material noncompliance with a listing applicable, and the terms of payment or conclusion that a material charge is requirement or standard must disclose (i) acceleration that apply; and (v) any other required; (ii) a description of the impaired the date the company provided such notice material obligations that may arise, asset or assets and the facts and circum- to the exchange or association; (ii) the increase, be accelerated or become direct stances leading to the conclusion; (iii) the listing requirement or standard that the financial obligations as a result of the trig- estimated amount of the impairment company fails, or has failed, to satisfy; and gering event or the increase or acceleration charge; and (iv) the estimated amount of (iii) any action or response that, at the of the obligation under the off-balance the impairment charge that will result in time of filing, the company has determined sheet arrangement or its becoming a direct future cash expenditures. to take regarding its noncompliance. financial obligation of the company. • However, note that no disclosure is • A company also must disclose when it has • No filing is required until all conditions required pursuant to this item if the taken definitive action to cause the listing precedent to the triggering event have conclusion regarding the material charge is of a class of its securities to be withdrawn occurred, such as the giving of notice by made in connection with the preparation, from the national securities exchange, or the creditor; excluding, however, the mere review or audit of financial statements at terminated from the automated inter- passage of time. the end of a fiscal quarter or year and the dealer quotation system of a registered ITEM 2.05. COSTS ASSOCIATED WITH EXIT impairment is disclosed in the company’s national securities association that is the OR DISPOSAL ACTIVITIES Exchange Act report for that period. Any principal trading market for those securi- regular impairment analysis that is timed ties, including by reason of a transfer of • This item requires disclosure when the to coincide with the preparation of quar- the listing or quotation of its securities to board of directors or a committee of the terly or annual statements will not have another securities exchange or quotation board of directors (or authorized officers if the potential of triggering a Form 8-K filing. system, describing the action taken and board action is not required) commits the stating the date of the action. company to an exit or disposal plan or ITEM 3.01. NOTICE OF DELISTING OR otherwise disposes of a long-lived asset or FAILURE TO SATISFY A CONTINUED LISTING ITEM 4.02. NON-RELIANCE ON PREVIOUSLY terminates employees under a plan of ter- RULE OR STANDARD; TRANSFER OF LISTING ISSUED FINANCIAL STATEMENTS OR A mination, under which the company will • This item requires a company to report any RELATED AUDIT REPORT OR COMPLETED incur material charges under generally notice from the national securities INTERIM REVIEW accepted accounting principles. The exchange or national securities association • This item requires disclosure when a company must disclose (i) the date on that is the principal trading market for a company’s board of directors (or authorized which the commitment was made; (ii) a class of the company’s securities, indicat- officers if board action is not required)

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MORGAN LEWIS ON SECURITIES „ 5 A YEAR IN TURMOIL FOR MUTUAL FUNDS — VIEWS OF AN INDUSTRY INSIDER continued from page 1 things it knew about for years, e.g., revenue equity or venture capital funds–must register. another move by the SEC to leverage its own sharing, and things it likely knew little about, Whether the SEC will have an adequate budget scarce resources by placing greater expecta- e.g., market timing. Second, it is studying the to examine and inspect those additional tions upon and increasing the distance between industry more intensely and comprehen- advisers in a meaningful way, and have the will boards and the mutual fund advisers. Further, sively than it has in years. It appears to be to do so despite everything else that is tran- requiring funds and their advisers to adopt focusing, in particular, on conflicts arising in spiring, is another question. The proposed written procedures reasonably designed to connection with portfolio execution issues. redemption fee rule opens another can of assure compliance with the federal securities Third, it is expanding the prospectus disclosure worms. The SEC has historically been ambiva- laws not only creates, for the first time, a com- that must be made to fund investors about a lent about redemption fees, viewing them as an prehensive safety net of written compliance variety of conflicts of interest. Fourth, it is impediment to the very notion of redemption, procedures, it also could create a new wave of enhancing the power of the board by strength- the hallmark of a mutual fund. The rule failure-to-supervise allegations against fund ening its independence and giving it proposal is significant, then, if for no other fiduciaries. For so long as the SEC and its staff compliance support. Finally, it is significantly reason than that it demonstrates the concentrate their attention on the fund expanding the compliance function within the Commission’s concern over market timing. industry and its management, the new compli- fund industry by requiring funds and advisers to Redemption fees, however, are already used by ance officer and compliance policy rules, and have written procedures reasonably designed to portions of the industry, particularly with the new corporate governance rules could prove prevent, detect and correct violations of the respect to those funds, e.g., international the most far-reaching and profound of the SEC’s federal securities laws. stock, microcap, etc., most prone to being many mutual fund initiatives. timed. This proposal deserves close scrutiny Thomas Harman is a partner in the Washington, D.C. This flurry of activity is at least partially before being adopted and, given the likely office of Morgan Lewis. motivated by the SEC’s desire to head off con- opposition from within and without, may be gressional legislation. The SEC hopes that if it modified in some respect. reforms the fund industry itself, then congres- sional action can be minimized. Given the clip The corporate governance changes (e.g., MORGAN LEWIS CALENDAR at which the SEC is moving, and the fact that relating to the compliance officer) deserve this is an election year with significant foreign further scrutiny. The SEC’s focus on the content october and domestic issues on the agenda, it appears of fund disclosure, as well as the quantity and NRS 19th Annual Fall that the SEC will be permitted, at least for now, quality of disclosure provided by the fund 12 Compliance Conference to reform things itself. industry, inevitably waxes and wanes over time. Topic: Recordkeeping How much of it is read, understood or otherwise Procedures for Today’s Of all of the potential rulemaking, private relied upon by investors is another question. Electronic World fund advisers and redemption fees may be the Bolstering the independence of the board, and John McGuire most problematic. The SEC has proposed that requiring it to have some sort of dedicated New Orleans, LA only managers of hedge funds–and not private compliance staff, however, represents yet NRS 19th Annual Fall Compliance Conference UTSIDE IRECTORS AND ED LAGS Topic: Building Broker/Dealer O D R F and Rep Compensation continued from page 2 Packages that Satisfy the Regulators Thus we conclude that the fraud provisions of Delaware Chancery Court recently put it, Steven W. Stone the federal securities laws may not be used as a director liability is premised on a “showing that New Orleans, LA weapon against every breach of fiduciary duty, the directors were conscious of the fact that absent evidence of manipulation and deception. they were not doing their jobs.” Guttman v. 2004 NSCP National Meeting Huang, 823 A.2d 492, 506 (Del. Ch. 2003) 23 Topic: IA Conflicts of Interest In contrast, director liability under state law (citing In re Caremark Int’l Derivative Litig., 698 Steven W. Stone is tied directly to breaches of fiduciary duty. A.2d 959 (Del. Ch. 1996)). Arlington, VA Delaware, the benchmark for state corporate law, traditionally recognizes a triad of fiduciary Even as the SEC is toughening its stance Investment Advisor Workshop duties: the duty of loyalty, the duty of care and against outside directors, two Delaware 26 State of Connecticut - the duty of good faith. Director liability is Chancery Court decisions (both decided at the Department of Banking’s Annual predicated on concepts of gross negligence in pleading stage) reflect that court’s requirement Securities Forum the exercise of, or conscious disregard of, these that plaintiffs surmount a very high threshold Thomas Lemke fiduciary duties. See generally Emerald Partners for director liability. For example, in Beam v. Cromwell, CT v. Berlin, 787 A.2d 85, 90 (Del. 2001). As the Stewart, 833 A.2d 961 (Del. Ch. 2003), aff’d, continued on page 7

6 „ MORGAN LEWIS ON SECURITIES OUTSIDE DIRECTORS AND RED FLAGS continued from page 6

845 A.2d 1040 (Del. 2004), the court dismissed rities laws suggest that plaintiffs must show rejected this contention, finding plaintiffs’ alle- several breach of fiduciary duty claims against more egregious activity by a director before the gations, and the minutes upon which they certain directors of Martha Stewart Living antifraud provisions of the federal securities relied, “too brief, general and imprecise to Omnimedia, Inc., finding that the directors had laws may be applied. Even where directors’ establish scienter. . . . At most they might no duty to monitor Stewart in her personal attention — or perhaps more properly, inatten- suggest negligent failure to ask more questions affairs. The court also rejected plaintiff’s tion — has failed to uncover gross impropriety, or investigate the corporation’s affairs in claims related to the company’s payment of the courts have shown an unwillingness to greater detail.” Id. at 627-28. premiums on a split-dollar insurance policy, in uphold allegations against outside directors view of recent questions as to the propriety of who are not alleged to have acted with requi- CONCLUSION such policies. Liability would lie, the court site scienter to impose liability. concluded, only if “the directors knew or should None of this is meant to suggest that corpo- have known that a violation of the law was For example, in In re WorldCom, Inc. rate directors, inside or outside, should be less occurring” and “the directors took no steps in a Securities Litigation, 02 Civ. 3288, 2003 WL than vigilant in dealing with the affairs of their good faith effort to prevent or remedy that sit- 21219049 (S.D.N.Y. May 19, 2003), Judge Cote corporations and carrying out their fiduciary uation.” Id. at 976 (citation omitted). in the Southern District of New York addressed responsibilities. Indeed, one might hope that potential liability under Section 10(b) for such vigilance may help prevent future In In re The Walt Disney Co. Derivative certain directors who were members of the scandals. Litigation, 825 A.2d 275 (Del. Ch. 2003), the audit committee who were alleged to have court declined to dismiss plaintiffs’ claims of totally missed what the complaint charges to That said, we need to recognize the basic breach of fiduciary duty and nondisclosure have been a massive accounting fraud. Indeed, distinction between negligent corporate related to the approval of an employment WorldCom acknowledged improperly treating behavior and breach of duty (with appropriate agreement and severance for Michael Ovitz. In $3.8 billion in ordinary costs as capital expen- civil remedies) on the one hand and securities doing so, however, the court recognized the ditures in violation of GAAP; overstating fraud which, these days, often leads to criminal deference generally afforded directors, and the earnings by $3.3 billion; and that it would prosecution, on the other. Congress authorized high benchmark required to impose liability. likely write off $50 billion in goodwill. Id. at a variety of actions for securities fraud, both *5. Plaintiffs attempted to demonstrate that civil and criminal, against persons who can be “It is rare when a court imposes liability on the audit committee members acted with con- shown to have acted with fraudulent intent and directors of a corporation for breach of the duty scious misbehavior or recklessness (i.e., purpose; and the sanctions and penalties for of care, and this Court is hesitant to second- scienter) based on (i) the magnitude of the such fraudulent activities are severe. However, guess the business judgment of a disinterested fraud; (ii) the committee’s general oversight it did not authorize such proceedings and and independent board of directors. But the responsibilities and commitment in SEC filings penalties for nonmanipulative or deceptive facts alleged in the new complaint do not to review financial statements and internal breach of fiduciary duty or negligent behavior, implicate merely negligent or grossly negligent controls; and (iii) certain alleged red flags that which traditionally have been the province of decision making by corporate directors. Quite arose after the misrepresentations were made. state law and which may not merit the same the contrary; plaintiffs’ new complaint suggests Despite the alleged failure of the directors on sanctions and penalties. If we are to change that the Disney directors failed to exercise any the audit committee to catch this gross fraud, that scheme, the proper approach would be business judgment and failed to make any good the court dismissed the claims, rejecting each through new legislation with appropriate faith attempt to fulfill their fiduciary duties to of the enumerated theories as an insufficient opportunity for comment, including considera- Disney and its stockholders. . . “ basis for liability.7 Id. at *22-23. tion of the correct interplay between state corporate law and the federal securities laws. Id. at 278. The case was allowed to proceed Similarly, in In Re Enron Corp. Securities, past the pleading stage only because the com- Derivative & “ERISA Litigation,” 258 F. Supp. 2d John F.X. Peloso is senior counsel and Ben A. plaint alleged “knowing and deliberate 576 (S.D. Tex. 2003), the court dismissed Indek is a partner in the New York office of indifference to a potential risk of harm to the Section 10(b) claims against certain Enron Morgan, Lewis & Bockius LLP. Brian A. corporation” on the part of the directors. outside directors, based on a failure to ade- Herman, an associate in the New York office, Id. at 289. quately plead scienter. Plaintiffs, relying on assisted in the preparation of this article. This article was originally published in the New York minutes of various board and committee Law Journal on February 19, 2004. RECENT TRENDS IN THE FEDERAL meetings, alleged that the outside directors ARENA had “if not actual knowledge of, at the very least access to full information about, and were While the threshold for liability in Delaware severely reckless in disregarding” the activity at 7 The court allowed claims to proceed against another is high, recent decisions under the federal secu- the center of the Enron fraud. The court director defendant under unique circumstances.

MORGAN LEWIS ON SECURITIES „ 7 OBTAINING A LISTING ON THE LUXEMBOURG STOCK EXCHANGE continued from page 3 right to, and frequently chooses to issue new (f) Information concerning administra- Exchange. If the issuer prepares consolidated comments that were not raised in its first tion, management and supervision. annual financial statements only, they must be comment letter. This practice seems unusual to (g) Information concerning the recent included. If more than nine months have U.S. securities lawyers but a certain amount of development and prospects of elapsed between the end of the last financial flexibility on the part of the working group goes the issuer. year to which the last statements relate, an a long way when addressing any new comments. interim financial statement covering at least the To the extent that these categories are not first six of those nine months must be included. The Exchange requires that revised offering appropriate for the issuer’s activities, “equiva- documents be submitted in clean and blacklined lent information” may be provided. The For issuers that already have securities format, with deletions marked with a Exchange routinely accepts offering documents trading on an exchange elsewhere, the financial strikethrough. “Carets” to mark deletions are no that are formatted like a U.S.-style prospectus. statement requirements may be satisfied if an longer acceptable. Financial printers in Europe A prospectus included in a registration state- offering document contains information are developing the capability to mark deletions ment that would meet the requirements for regarded by the Exchange as “equivalent” to accordingly, but this is not yet universal. If the registration under the Securities Act of 1933 is that required under the Admission Requirements financial printer does not have this capability, likely to have most of the information that and which has been published in Luxembourg in issuer’s counsel will maintain a version of the would satisfy the Exchange’s listing require- the previous 12 months. If the issuer has expe- offering document in order to run the appropri- ments. However, additional disclosure items rienced significant changes to its financial ate blacklines. not typically found in the Securities Act of 1933 position, updates to this original document may prospectus are required, including, for example, be required. CONTENTS OF THE PUBLIC OFFER undertakings with respect to the publication of PROSPECTUS AND LISTING notices required by the Exchange’s rules, the There is no explicit guidance as to what PARTICULARS date of board approval of the offering, confir- should be provided when the issuer is a new, mation of the absence of a material adverse special-purpose entity and therefore does not The offering document must contain the change to the issuer’s financial position since have historical financial information to provide. information which, according to the particular the date of the last audited financial statements As noted above, the general requirement is that nature of the issuer and of the transferable and the absence of material litigation, and the offering document shall contain “the infor- securities, “is necessary to enable investors and undertakings with respect to the maintenance mation which, according to the particular their investment advisers to make an informed of a Luxembourg listing agent and paying agent. nature of the issuer and of the transferable assessment of the assets and liabilities, finan- securities concerned by the operation, is neces- cial position, profits and losses and prospects of EXEMPTIONS FROM PUBLISHING sary to enable investors and their investment the issuer and of the rights attaching to such CERTAIN INFORMATION advisors to make an informed assessment of the securities.” More specifically, the information assets and liabilities, financial position, profits to be included, as listed in Appendix III of the The Exchange may exempt the issuer from and losses and prospects of the issuer and of Admission Requirements, is as follows: publishing certain information if it is of minor the rights attaching to such securities.” As a importance and not likely to affect an assess- practical matter, in the context of a securitiza- (a) Information concerning those ment of the issuer’s assets, liabilities, financial tion or similar transaction, the Exchange will responsible for the offering document position and prospects. require financial information demonstrating the and the auditing of accounts. relative quality of underlying assets of the (b) Information concerning admission to FINANCIAL STATEMENT issuer, including cash flows. the official stock exchange listing and REQUIREMENTS the shares for which application is MINIMUM ISSUE SIZE being made. An issuer that does have securities which are (c) General information about the issuer traded on another exchange must include in its The minimum amount of an issue for admis- and its capital. offering document audited balance sheets and sion of debt securities to official stock exchange (d) Information concerning the profit and loss accounts for the previous two listing is not less than 10,000,000 Luxembourg issuer’s activities. fiscal years, together with notes on the annual Francs (or currency equivalent). If this condi- (e) Information concerning the issuer’s financial statements for the previous year. tion is not fulfilled, admission to listing may assets and liabilities, financial There must not be a gap of more than 18 nonetheless be granted if the Board is satisfied position and profits and losses (includ- months between the end of the fiscal year to that there will be an adequate market for the ing the last two balance sheets and which the last statements relate and the date of debt securities. profit and loss accounts). filing draft listing particulars with the continued on page 10

8 „ MORGAN LEWIS ON SECURITIES EXPANDED NEW FORM 8-K REQUIREMENTS BECAME EFFECTIVE IN AUGUST continued from page 5

concludes that any of the company’s previ- or removal; (ii) any positions held by the committees to which the new director has ously issued financial statements covering director on any committee of the board of been, or at the time of the disclosure is one or more years or interim periods no directors at the time of the director’s expected to be, named; and (v) informa- longer should be relied upon because of an resignation, refusal to stand for re-election tion regarding certain related transactions error in such financial statements or if the or removal; and (iii) a brief description of between the new director and the company. company is advised by, or receives notice the circumstances representing the dis- ITEM 5.03. AMENDMENTS TO ARTICLES OF from, its independent accountant that agreement that management believes INCORPORATION OR BYLAWS; CHANGE IN disclosure should be made or action should caused, in whole or in part, the director’s FISCAL YEAR be taken to prevent future reliance on a resignation, refusal to stand for re-election previously issued audit or completed or removal. In addition, any written corre- • A company with a class of equity securi- interim review related to previously issued spondence from the director concerning ties registered under Section 12 of the financial statements. A company must the circumstances surrounding his or her Exchange Act, that amends its articles of disclose (i) the date on which the conclu- resignation, refusal to stand for re-election incorporation or bylaws under circumstances sion was reached; (ii) an identification of or removal must be filed as an exhibit to where the proposal for the amendment was the financial statements and years or the report on the Form 8-K regardless of not disclosed in a proxy statement or periods covered that should no longer be whether the director requests that the information statement, must disclose (i) relied upon; (iii) a brief description of the company take such action. the effective date of the amendment; and facts underlying the conclusion to the (ii) a description of the provision adopted • Disclosure is required when a company’s extent known to the company at the time or changed by amendment and, if applica- principal executive officer, president, prin- of filing; and (iv) a statement of whether ble, the previous provision. cipal financial officer, principal accounting the audit committee, or the board of officer, principal operating officer or any • A company that determines to change its directors in absence of an audit commit- person performing similar functions retires, fiscal year from that used in its most tee, or authorized officer or officers, resigns, or is terminated from that recent filing with the SEC other than by discussed with the company’s indepen- position. Disclosure is also required when means of a vote of security holders or an dent accountant the subject matter giving a director retires, resigns, is removed or amendment to its articles of incorporation rise to the conclusion or notice. declines to stand for re-election for or bylaws must disclose (i) the date of • This item also requires disclosure when a reasons other than as specified above. such determination; (ii) the date of the company is notified by its independent new fiscal year end; and (iii) the form on • Disclosure is required if the company accountants that a previously issued audit which the report covering the transition appoints a new principal executive officer, opinion can no longer be relied upon. period will be filed. president, principal financial officer, princi- pal accounting officer, principal operating DISCLOSURE ITEMS TRANSFERRED,IN EXPANDED DISCLOSURE ITEMS officer or person performing similar func- PART,FROM THE PERIODIC REPORTS ITEM 5.02. DEPARTURE OF DIRECTORS OR tions. The company must disclose (i) the PRINCIPAL OFFICERS; ELECTION OF • Two disclosure requirements from Forms officer’s name and position; (ii) the date of 10-Q, 10-QSB, 10-K and 10-KSB have DIRECTORS; APPOINTMENT OF PRINCIPAL the appointment; (iii) information regarding OFFICERS been transferred, in part, to Form 8-K. the background of the officer and certain Because these items generally will be dis- • Item 5.02 broadens the scope of former related transactions between the officer closed in the Form 8-K, companies do not Item 6 of Form 8-K. and the company; and (iv) a brief descrip- have to repeat these disclosures in annual tion of the material terms of any employ- • Disclosure is required if a director has and quarterly reports. ment agreement between the company resigned or refuses to stand for re-election and the officer. ITEM 3.02. UNREGISTERED SALES OF to the board of directors since the date of EQUITY SECURITIES the last annual meeting of shareholders • Disclosure is required if a new director is because of a disagreement with the elected to the board, except by a vote of • This item requires a company to disclose company, known to an executive officer of security holders at an annual meeting or the sales of equity securities in a transaction the company, on any matter relating to the special meeting convened for such purpose. that is not registered under the Securities company’s operations, policies or practices, The company must disclose (i) the new Act. This disclosure is currently required in or if a director has been removed for cause director’s name; (ii) the election date; (iii) Item 2(c) of Forms 10-Q and 10-QSB and from the board of directors. The company a brief description of any arrangement or Item 5(a) of Forms 10-K and 10-KSB. must disclose (i) the date of the director’s understanding pursuant to which the new • No Form 8-K need be filed if the equity resignation, refusal to stand for re-election director was selected as a director; (iv) any securities sold in the aggregate since the

continued on page 10

MORGAN LEWIS ON SECURITIES „ 9 OBTAINING A LISTING ON THE LUXEMBOURG STOCK EXCHANGE continued from page 8

The Luxembourg Franc became obsolete with the introduction of the Euro at the beginning of 2002. It is curious therefore (especially since the Rules and Regulations have been amended since that time) that this figure is not now expressed in Euros. However, following the official conver- sion rate in effect upon the introduction of the Euro, 10,000,000 Luxembourg Francs equal approximately 250,000 Euros, or approximately US$300,000 at the current exchange rate levels.

ONGOING REQUIREMENTS

In order to maintain a listing of debt securities on the Exchange, the issuer must, among other things, (i) maintain a paying agent and listing agent in Luxembourg; (ii) provide to the Exchange copies of its annual reports, including audited financial statements, and interim financial infor- mation made available to shareholders, and (iii) publish notices of any matters that might affect the securities in a newspaper having general cir- culation in Luxembourg. Rachel Gonzalez is a partner in the London office of Morgan Lewis.

EXPANDED NEW FORM 8-K REQUIREMENTS BECAME EFFECTIVE IN AUGUST continued from page 9

company’s last report filed under this under Exchange Act Section 10(b) and must be current in its Form 8-K filings item or last periodic report, whichever is Rule 10b-5 for a failure to timely file a with respect to those items at the actual more recent, constitute less than 1% of Form 8-K regarding seven of the new time of a Form S-2 or S-3 filing. the company’s outstanding securities of reporting requirements: Item 1.01 • A company need not have filed all that class (5% for a small business (Material Agreements), Item 1.02 required Form 8-K reports during the 12 issuer). Periodic reports must still be (Termination of Material Agreements), months preceding a sale of securities filed for all issuances not reported on Item 2.03 (Material Financial Obligations), pursuant to Securities Act Rule 144 to Form 8-K. Item 2.04 (Triggering Events Under satisfy the rule’s “current public informa- Material Financial Obligations), Item 2.05 ITEM 3.03. MATERIAL MODIFICATIONS TO tion” condition. (Costs Associated with Exit or Disposal RIGHTS OF SECURITY HOLDERS Activities), Item 2.06 (Material In order to maintain compliance with the • This item requires a company to disclose Impairment) and Item 4.02(a) SEC’s requirements for adequate disclosure material modifications to the rights of the (Restatement of Financials). The safe controls and procedures, companies should make holders of a class of the company’s regis- harbor only applies to a failure to file a the necessary adjustments to their existing dis- tered securities and to briefly describe report on Form 8-K. Thus, material mis- closure controls and procedures to ensure the general effect of such modifications statements or omissions in a Form 8-K compliance with the new Form 8-K requirements. on such rights. Note that this disclosure will continue to be subject to Section A full text of the final rule is available at requirement can be triggered by a modifi- 10(b) and Rule 10b-5 liability. In www.sec.gov/rules/final/33-8400.htm. cation to the documents governing the addition, the limited safe harbor only Howard Kenny is a Partner in the New York office terms of the securities themselves or by applies to Section 10(b) and Rule 10b-5, of Morgan, Lewis & Bockius LLP. Teresa Minger, an the issuance of a new class of securities and not to the obligation under Section Associate in the New York office, assisted in the prepa- that has the effect of materially modify- 13(a) or 15(d) to comply with the ration of this article. ing the rights of the registered securities. periodic reporting obligations. The safe The substance of the disclosure is the harbor extends only until the due date of same as previously required by Items 2(a) the periodic report of the company for the and (b) of Forms 10-Q and 10-QSB. relevant period in which the Form 8-K was not timely filed. SAFE HARBOR;ELIGIBILITY TO USE FORMS S-2 AND S-3 AND CHANGE TO • A company’s failure to file timely reports RULE 144 of any of the safe harbor disclosures spec- ified above will not affect the company’s • Companies are entitled to a limited safe eligibility to use Forms S-2 and S-3 regis- harbor from public and private claims tration statements. However, a company

10 „ MORGAN LEWIS ON SECURITIES MORGAN LEWIS News

U.S. JUSTICE DEPARTMENT’S ENRON TASK FORCE LEADER TO JOIN MORGAN LEWIS

Leslie R. Caldwell, who recently served as Director of the U.S. magazine’s “People to Watch” in February 2003, and has been Department of Justice’s special task force investigating the profiled in The New York Times, BusinessWeek, The Washington Enron corporate scandal, has joined Morgan Lewis as a partner Post, the Houston Chronicle, and the San Francisco Chronicle, in its New York City office. among others. Ms. Caldwell, one of the most respected and best-known federal prosecutors in the country, joins Morgan Lewis’ Global Litigation Practice, where she will take the lead role in the MORGAN LEWIS firm’s corporate investigations and criminal defense team. ON SECURITIES In addition to leading Morgan Lewis’ criminal defense team MORGAN LEWIS SECURITIES PRACTICE in New York City, Caldwell will spend considerable time in the firm’s California offices, enhancing the litigation group’s West CHAIRPERSONS Coast practice. In 1987, Caldwell joined the U.S. Attorney’s Office for the CO-CHAIRS OF THE SECURITIES PRACTICE Eastern District of New York, where she worked, trying more John F. Hartigan 213.612.2630 than 30 cases, until 1998. From 1999 to 2002, Caldwell [email protected] served as Chief of the Securities Fraud Section and Chief of the Criminal Division in the U.S. Attorney’s Office for the Northern Robert C. Mendelson 212.309.6303 District of California, where she oversaw the prosecution of [email protected] dozens of corporate and financial fraud cases. INVESTMENT MANAGEMENT In a June 14, 2004 article, The Washington Post reported Richard W. Grant 215.963.4790 Caldwell was one of the four attorneys most sought after by [email protected] the nation’s top law firms. She was named one of Fortune BROKER-DEALERS AND MARKET REGULATION Steven W. Stone 202.739.5453 [email protected]

CORPORATION FINANCE AND DISCLOSURE LA MANAGING Linda L. Griggs 202.739.5245 ARTNER OINS [email protected] P J George G. Yearsich 202.739.5255 UCLA’S FACULTY [email protected]

STAFF SECURITIES INDUSTRY EMPLOYMENT LAW Andrew J. Schaffran 212.309.6380 John Hartigan, managing partner of [email protected] the firm's Los Angeles office, has joined UCLA's program faculty for its eighth Director Training and Please contact any of these individuals for information Certification Program to be held on Oct 20 - 22, 2004. Mr. concerning the Securities Practice. To comment on or Hartigan will be teaching in the Governance and Nominating ask questions concerning this newsletter, please contact: Committee Module on Oct. 20. The Director Training and Certification Program will be held on Oct. 21 and 22. The CO-EDITORS: Howard A. Kenny at 212.309.6843 or modules are individual seminars focused on audit, compensa- [email protected] or David A. Sirignano at tion and governance and nominating committees, and may be 202.739.5420 or [email protected] taken separately or with the Director Training and DESIGN AND FORMAT by Gina L. Craven Certification Program. All events will take place at the Anderson School on the UCLA campus.

MORGAN LEWIS ON SECURITIES „ 11 morgan lewis SECURITIES PRACTICE PARTNERS and OF COUNSEL 1111 Pennsylvania Avenue, NW Washington, DC 20004 tel. 202.739.3000 John V. Ayanian Ethan W. Johnson Christian R. Bartholomew miami fax 202.739.3001 Michael Berenson 101 Park Avenue Jack P. Drogin New York, NY 10178-0060 Mark D. Fitterman David J. Brown tel. 212.309.6000 John M. Ford fax 212.309.6001 Linda L. Griggs Franklin Brockway Gowdy Thomas S. Harman Scott D. Karchmer 1701 Market Street Thomas P. Lemke John W. Larson Philadelphia, PA 19103-2921 washington W. John McGuire san francisco Ronald B. Moskovitz tel. 215.963.5000 Christian J. Mixter William A. Myers fax 215.963.5001 Monica L. Parry David A. Sirignano 5300 Wachovia Financial Center Steven W. Stone 200 South Biscayne Boulevard George G. Yearsich Miami, FL 33131-2339 John F. Hartigan Frank G. Zarb, Jr. tel. 305.415.3000 Steven M. Ruskin fax 305.415.3001

los angeles Thomas L. Taylor III One Market Spear Street Tower San Francisco, CA 94105 Paul J. De Rosa Michele A. Coffey tel. 415.442.1000 David A. Gerson Stephen P. Farrell fax 415.442.1001 Eric D. Kline Sharon Ferko pittsburgh Marlee S. Myers 300 South Grand Avenue Christopher (Kip) P. Hall Twenty-Second Floor Ben A. Indek Los Angeles, CA 90071-3132 Christopher T. Jensen tel. 213.612.2500 Howard A. Kenny Steven M. Cohen fax 213.612.2501 Robert C. Mendelson Alfred J. (Jim) Lechner, Jr.

David G. Nichols, Jr. princeton One Oxford Centre John F.X. Peloso Thirty-Second Floor new york David W. Pollak Pittsburgh, PA 15219-6401 Christopher P. Reynolds tel. 412.560.3300 Armando Castro Robert M. Romano fax 412.560.7001 Rahul Kapoor Kevin T. Rover palo alto Thomas W. Kellerman Stuart M. Sarnoff 502 Carnegie Center Andrew J. Schaffran Princeton, NJ 08540-6241 Howard L. Shecter tel. 609.919.6600 Eduardo Vidal Rachel A. Gonzalez fax 609.919.6639 John C. Whitehead london Peter P. Wallace Two Palo Alto Square 3000 El Camino Real Suite 900 Palo Alto, CA 94306 tel. 650.843.4000 fax 650.843.4001 To contact our lawyers by G. Jeffrey Boujoukos Mark S. Dichter e-mail: Morgan Lewis e-mail 2 Gresham Street Elizabeth Hoop Fay addresses usually are first London EC2V 7PE tel. 44.20.7710.5500

Richard W. Grant initial and complete last name, www.morganlewis.com fax 44.20.7710.5600 James W. Jennings as in: John F. Hartigan, Timothy W. Levin philadelphia [email protected]. Other office locations: Alan Singer* contact information Boston Marc J. Sonnenfeld Chicago Joanne R. Soslow Dallas Harrisburg Irvine Brussels * Alan Singer maintains offices in both Philadelphia and Princeton Frankfurt Paris Tokyo

12 „ MORGAN LEWIS ON SECURITIES