Recent SEC Developments Presentation to Society of Corporate Secretaries & Governance Professionals September 20, 2007 Presented by Katherine J. Blair, Partner K&L Gates

How the SEC spent its Summer  10 Proposing Releases  Internal Controls  Smaller Companies  Private Offerings and Resales  Proxies and Shareholder Proposals  3 Adopting Releases  Internal Controls and Significant Deficiency  E-Proxy  Misc: Study, 404 Guidance, Report, Concept Release

Internal Control over Financial Reporting  Non-accelerated Filers  Management Guidance  One Auditor Opinion  Material Weakness & Significant Deficiency  Auditing Standard No. 5  Smaller Public Company Guide

Initiatives Concerning Smaller Companies  Smaller Reporting Companies  Companies with up to $75 mm public float or $50 mm in revenues  Replaces small business issuer and non-accelerated filers  Form S-3 Primary Offerings  20% of public float limit over a 12-month period  No shell companies  Integrate S-B into S-K

Initiatives Concerning Smaller Companies  Options Exemption  Private non-reporting companies  Transfer restrictions  Confidentiality  Reporting companies  Not 15(b) companies

Regulation D Proposals  New Rule 507  Large Accredited Investors only  Persons: $2.5 mm in investments or annual income of $400,000 (for individual) or $600,000 (for joint)  Entities: $10 mm in investments  Advertising  Written: Yes  Radio & TV: No

Regulation D Proposals (cont.)  Revise definition of accredited investor  Integration reduced to 90 days  Uniform disqualification provisions  Form D simplification

Rule 144 Current RuleProposed Rule 144(k) (Non-Affiliates) 2 years6 months plus 6 months of current public info* Affiliates1 year6 months* Manner of SaleAll 144 resalesNot applicable to 144(k) resales Form shares/$10,000Affiliates: 1,000 shares/$50,000 Form 4 Non-Affiliates: No Form 144 *Additional 6 months for hedging transactions

Rule 144 Staff Positions  Section 4(6) = Restricted securities  Tacking  Holding company reorganization  Conversion/exchanges  Cashless exercises  Aggregation of pledged securities  Shell companies

Proxy Delivery  “Notice and Access” model  Option A: Notice only  Option B: Full set delivery  Not Business Combinations  Compliance Dates:  Large Accelerated Filers: January 1, 2008  Other Filers: January 1, 2009

Contents of Notice Notice OnlyFull Set Delivery IncorporationNoYes Delivery40 daysNone Hard Copy RequestsYesNo Proxy CardsProvide access & send after 10 days N/A Both: Legend, meeting information, matters, recommendations, list of proxy materials

Proxy – 5 Things to Do  Choose notice/delivery method  Coordinate with proxy solicitor or establish website  Contact intermediaries  Determine notice & proxy voting  Establish procedures for hard-copy requests and maintenance of records

Shareholder Proposals  Two Competing Proposals: Short Proposal and Long Proposal  Goal: Adopt for 2008 proxy season  Short Proposal:  14a-8 election exclusion  Only allow proposals re:  Director qualifications  Board structure  Voting procedures  Nominating procedures

Shareholder Proposals (cont.)  Long Proposal:  Permit proxy proposals for amendments to bylaws that would govern director nomination & election process  13G 5% shareholders  Institutional or passive shareholders  Proposing shareholder relationship  Shareholder internet forums

Miscellaneous  Stealth Restatements  Form 8-K vs. Periodic Report  Executive Compensation Disclosure  SEC comments  Staff Report this Fall  SEC Interpretations