"Plain English:  A Work in Progress"
                                
                                
                                
                                
                                
                           Remarks By
                                
                                
                                
                                
                                
                Isaac C. Hunt, Jr., Commissioner,
             U.S. Securities and Exchange Commission
                                
                                
                                
                                
                                
                                
                                
                                
                                
                                
       First Annual Institute on Mergers and Acquisition:
         Corporate, Tax, Securities and Related Aspects
                      Key Biscayne, Florida
                                
                                
                        February 6, 1997

     Good afternoon.  It's my pleasure to be with you today.



     I can't imagine a more appropriate location to hold your

first conference on mergers and acquisitions.  It's always nice

to get out of the hustle and bustle of Washington to reflect on

the great legal issues of the day.  The hotel concierge tells me

that Andre Agassi and Brook Shields stayed here a couple of days

ago -- I wonder if they're here for the conference?



     Looking over your schedule, I see that you'll be focusing on

some of the more hyper-technical issues that you face as

practitioners.  Tomorrow, Cathy Dixon, chief of the SEC's mergers

and acquisitions' office, will give you an update on the

Commission's current thinking on some of these issues.  I think

I'll will step back for a minute to talk about a culture change

that we are trying to foster at the SEC.



     Over the past several decades, many of us have lost sight of

the fact that the disclosure documents that are filed with the

SEC every year are not only liability documents -- but are

intended to be one of the primary ways that the corporate

community communicates with investors.  The marketplace has

become so complex.  Corporate transactions and financial

instruments are more complex.  And, I am well aware, that SEC

regulations are not a shining example of simplicity.  I'm also

aware that as M & A practitioners you must be mindful of the

requirements of the SEC, the Justice Department, the Federal

Trade Commission, federal and state judicial pronouncements, and,

of course, the IRS.



     Given these competing forces, it's not surprising that you

add new items to you legal check lists with every deal.  It is

even understandable that during the long days and late nights

when you're preparing a proxy statement you don't ask yourself --

who is our intended reader?  What percentage of the company's

shareholders are retail investors versus institutional investors?

What will investors need to know to make an informed investment

decision?



     Each of us must accept some of the blame for the current

situation.



                          *  *  *  *  *



     Where do we go from here?  As you are well aware, we at the

SEC, under the leadership of Chairman Levitt, are engaged in a

campaign to change the corporate culture in America.  We want

documents that are meant for investors to read are prepared so

that investors can use them.  This is the reason we are promoting

the use of "plain English."  As Chairman Levitt has said many

times, "Disclosure is not disclosure if it does not communicate."



     This is the reason that the Commission recently proposed a

plain English rule.  This proposal is part of our continuing

effort to bring the protection that our federal securities laws

promise to many more investors.



     The proposed plain English rule would apply to all

prospectuses.  It would require you to prepare the cover page,

summary and risk factors sections using plain English principles.

The required disclosures would have to avoid legal jargon and

highly technical business terms, use everyday words and short

sentences.  The design of the sections may include pictures,

charts, graphs and other design elements so long as the required

information is presented clearly.



     Our proposal also would add a note to the present

requirement that the information in a prospectus should be

presented in a clear, concise and understandable fashion.  Overly

complex presentations will be out.  Vague "boilerplate"

explanations that are imprecise will be out.  And complex

information copied directly from other legal documents will be

gone.



     Let me state the obvious:  Good writing is hard work.  It

takes time and effort to clearly summarize complex material; but

it can be done.  Let me give you an example. Just the other day,

the Commission adopted rules that would require better disclosure

of derivative investments.  The adopting release covered many

complex areas, including complicated financial products,

accounting, and market sensitively analysis.  Nevertheless, the

release is an excellent example of good writing.



     If I were still teaching, I would have given the accountants

who wrote the release an "A."   The intended audience of the

release was other accountants and corporate lawyers, and the

staff wrote the document with these persons in mind.  You may not

agree with all of the substantive provisions in the new rules;

but -- at least -- you'll know what the provisions mean.  After

working through the substance of the new requirements and putting

them down on paper, the staff started the process of presenting

the information in as clear a fashion as possible. They had plain

English consultants, who knew nothing about the subject, read the

drafts and made suggestions on how it could be improved.  They

wrote and rewrote.  I'm sure you will appreciate the extra effort

they put into the project.



     Along with proposing the plain English rule, the Commission

issued a draft of its "Plain English Handbook."  It was released

in draft form to encourage you to review it and send us your

suggestions on how it can be improved.







     In the Handbook's introduction, Chairman Levitt

appropriately points out that:



     Whether you work at a company, law firm, or the SEC,

     the shift to plain English requires a new style of

     thinking and writing.  We must question whether the

     documents we are used to writing highlight the

     important information investors need to make informed

     decisions.  The legalese and jargon of the past must

     give way to everyday words that communicate complex

     information clearly.



     The investing public is greeting the SEC's efforts with open

arms.  I hear this first hand each time I speak at one of our

investor or small business town meetings. There are some persons,

however, who must be pulled into the 21st century kicking and

screaming.





     For instance, imagine my chagrin when I read a recent

editorial in Barron's.  The editorial starts off with what I

think is a complement by stating that the SEC is "far from the

most destructive federal regulatory agency."  It goes on to state

that the SEC is an agency that periodically takes leave of its

senses; we have too many people doing too many mundane tasks, and

we need to be watched.  Some of us, the editorial chides, get

ambitious for higher office and others become nostalgic for a

Wild West enforcement style.



     The Barron's editorial suggests that this is what lies

behind the SEC's plain English campaign.  It was the paper's view

that a plain English rule would take a lot of the fun out of

reading disclosure documents.  The editorial noted that "there's

nothing like a team of lawyers spreading glutinous prose over an

executive's previous incarceration or a selling owner's self-

enrichment to provide evidence of a company's intent to deceive."



     My response. With all the plain English that's fit for

public consumption -- Give me a break!  What we want, as stated

by Nancy Smith of the SEC's Educational Office, is a new

generation of disclosure documents that investors can easily

understand.



     We applaud those who walk with us.  We applaud the corporate

personnel and securities lawyers who prepared the proxy statement

for the Bell Atlantic/ NYNEX merger.  The document opened with a

Question and Answer section about the merger.  That section is

followed by a five-page summary of the deal that can actually be

read and understood. Along with Chairman Levitt, I would like to

acknowledge the leadership and the vision of Kathleen Gibson,

Bell Atlantic's securities counsel, and her colleague at NYNEX,

Paul McConville.  In addition, the attorneys at Morgan, Lewis and

at Weil, Gotshal should be acknowledged for supplying their

goodwill and excellent writing skills.



     The final Bell Atlantic/NYNEX proxy statement clearly

answered the primary question every shareholder had: what will

happen to my company if the merger take place?  This disclosure

was a victory for the investing public, and I am told that the

process of preparing the merger documents was a lot of fun for

everyone involved.  SEC staff even participated in some of the

drafting sessions.



     One of the attorneys at Weil, Gotshal commented that "it was

a little more work because in addition to the SEC's legal review,

we got an SEC editorial review -- comments in the margin like `We

have your summary, and we don't see one word clearly explaining

why shareholders should vote for the merger.'"  In good spirits,

the attorney admitted that the SEC staff was correct, and he made

some changes.



     As I relay this experience to you, I by no means want to

imply that we have no room for improvement at the SEC.  I have

publicly stated that we must work harder to clean up many of our

rules and forms.  We also should ensure that our releases are

clearly presented.  Maybe this will cut down on the number of no-

action requests that staff considers every year.



     I also know that when you file documents for staff review,

the staff's comments should be consistent with producing a better

disclosure document -- while at the same time meeting the

requirements of SEC regulations.  If you should ever have

concerns in this regard with your M & A documents, I encourage

you to call Cathy Dixon or me directly. Our goal is to work with

you, not against you, in this process.



     Now I would like to squarely address a related issue that

seems to always pop up, and that's the issue of legal liability.

Some practitioners have expressed concern that the use of plain

English will expose companies to greater liability.  We strongly

believe that this concern is misplaced.



     I would like to emphasize that no one seeks to reduce the

substantive information that must be given to investors.

Moreover, I know of no case that has held anyone liable for

clearly and accurately disclosing material information to

investors. In all likelihood, liability should decrease with the

use of plain English because it results in less confusing

disclosure.



     So let us all move forward and make a cultural change.  In

preparing our documents, let's bear in mind our intended

audience. Sometimes that audience is other lawyers, sometimes

it's institutional investors, and at other times, it's retail

investors.  Maybe if documents are clearly drafted with their

intended audience in mind, the Delaware courts will review fewer

of them.



     When your audience is retail investors, I would follow

Warren Buffet's advice.  He says that when he's writing Berkshire

Hathaway's annual report, he pretends that he's talking to his

sisters.  He has no trouble picturing them:  Though highly

intelligent, they are not experts in accounting or finance.  They

will understand plain English but not legal jargon.



     If you don't have any sisters to write to, Mr. Buffet says

you can borrow his. If you'd like to write to someone else --

maybe try Andre Agassi and Brook Shields.

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