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The Sarbanes-Oxley Act of 2002 may be a nightmare for company executives, but it’s the best thing to happen to corporate lawyers since the Internet boom. “If you’re a lawyer sitting around waiting for the capital markets to come back or for your next M&A deal, you’ve got nothing to do,” said Tracy Edmonson, a Latham & Watkins partner. “This has represented a huge wave of work.” The corporate reform law, which President Bush signed on July 30, has everyone in the business community scrambling to understand what it means. And that’s not an easy task. Lawyers complain the sparsely worded law is both poorly written and hastily put together so there’s little to go on when it comes to interpreting some of its murkier provisions. “There’s not a lot of words,” said Katharine Martin, a Wilson Sonsini Goodrich & Rosati partner. “I don’t think all of the implications of the bill have been fully understood yet.” One issue that isn’t clear involves the certification process of financials that chief executives and financial officers will have to endure. While one part of the bill calls for executives to declare they know of no problems with the financials, another section has them also signing off on their company’s internal financial controls. How to do that is unclear, Martin said. Throw into the pot the fact that the Securities and Exchange Commission has issued its own set of corporate disclosure rules and is expected to issue more in the months to come. The SEC’s rules set an Aug. 14 deadline for filing a certification, and that has many of the largest companies rushing to understand that set of guidelines, in addition to the Sarbanes-Oxley law. “There are some open debates about what is the proper advice,” Martin said, adding that lawyers are closely examining the filings of companies that have braved the certification process early. All of the uncertainty has made for a bump in billable hours. “I’ve been phenomenally busy, as busy as I can ever remember being,” Martin said. Among Silicon Valley companies, the second-biggest question after executives swallow the certification rules involves real estate, or more precisely, the loans companies make to executives for house purchases. The new law bans such loans, and companies can’t make any changes to the loans that currently exist. How the rule applies to loans for exercising stock options is easy to understand — they are now forbidden — but how it applies to many of the ways companies assist their employees is a gray area. Edmonson has probed the issue on behalf of small technology companies in Silicon Valley and larger, international companies, like Nike Inc. In its relocation policy, for example, Nike fronts employees the amount equal to the equity in their home so they can buy a new house right away and then repay the company when their old homes sell. The question confronting lawyers is whether such policies are still allowed under the new law. “Every single client has hundreds of these policies that have to be re-examined,” Edmonson said. Corporate lawyers are also betting there are more thorny issues yet to be uncovered. Eric Jensen, a Cooley Godward partner, said the biggest wild card in the new law will likely center on its provisions for real-time disclosure. It’s unclear what information will need to be disclosed in real time or how the company is to disseminate the information, Jensen said. “It always takes awhile after a law comes out to understand what it means,” Jensen said. “It’s not like you can look at the act and have all the answers.”

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