We have posted our September issue of our complimentary monthly e-mail newsletter. FYI, you can sign up to receive it by email by just inputting your email address into this form.
By the way, Blawg rates this blog as the 2nd most popular legal-related blog, out of 630 blogs (by the way, “number of hits” on that site is the number of folks that click on their link to my blog; this blog averages about 3900 visits per day). Not bad, but I’m gunning for #1 – you can rate this blog on that site too …
Update on Ability to Hold Online Annual Meetings
Without much publicity, several states have joined Delaware to allow companies to hold their annual meetings solely online. In 2001, the Michigan Corporate Statute was amended to provide for shareholder meetings to be held “solely by means of remote communication” unless otherwise restricted by the articles or bylaws (see MCLA Sections 450.1405(3) and (4)). Oklahoma also amended Section 1056 of its Corporations Code in 2001 to permit a meeting consisting solely of remote attendance. Both of these provisions are essentially the same as Section 211 of the Delaware General Corporation Law.
Maryland also now allows for meetings by remote communication, but with a twist. Maryland law provides that the board shall provide a physical place for a meeting of the shareholders at the request of a shareholder (see §2-503 Corporations and Association Article, Annotated Code of Maryland). In comparison, Delaware’s §211 gives the board sole discretion and doesn’t provide a right of shareholders to request a physical meeting site, so Maryland law is considerably more restrictive than Delaware or Michigan.
Highlighted by the fact that companies are required to disclosure the nature of director attendence at their meetings, holding a pure online meeting continues to be dangerous from an IR perspective.
Why Discounted Stock Options (or Discounted Stock SARs) – And Not Premium-Priced Options – Might Become Popular After FAS 123 Is Revised
This new sample memo is designed to help explain the tricky thresholds within the concept of “material definitive agreements” to employees in the reporting chain, complete with instructions on how to proceed if an agreement might be considered material for a particular company based on the parameters specified in the memo (the memo has blanks to tailor these parameters for a particular company).
SEC Finally Blesses PCAOB’s New Documentation Standards
Last week, the SEC approved the PCAOB’s Auditing Standard No. 3, which require auditors to retain their records for seven years – and in sufficient detail so that an experienced auditor with no previous connection to the engagement could read them and understand clearly what work had been performed, who performed the work and why the auditor reached its conclusions. The PCAOB had finalized this standard back in early June, so it still is taking the SEC quite a bit of time to approve the PCAOB’s standards.
Yesterday, the SEC proposed to postpone for one year the accelerated filing deadline for reports on Forms 10-K and 10-Q by “accelerated filers.” Under the current rules, the filing deadline for annual reports on Form 10-K would accelerate to 60 days (from 75) for fiscal years ending on or after December 15, 2004. The deadline would accelerate to 35 days (from 40) for subsequently filed quarterly reports on Form 10-Q. The proposed postponement is intended to allow additional time for accelerated filers and their auditors to focus on complying with the new internal control report and attestation requirements.
This is good news as the results from our current quick survey on this topic reveal that about two-thirds of the respondents might or will have trouble meeting the 60-day deadline – and nearly three-quarters might or will have trouble meeting the 35-day deadline.
SEC Staff Provides Written 8-K Guidance
Okay, I know that sometimes I can be cruel. The guidance – in the form of an August 20th no-action response - is very limited and provides equal treatment for Fannie Mae under Instruction 5 to Item 2.03 of 8-K. Fannie needed the interp because its debt isn’t ’33 Act registered due to an exemption available by Section 4(5) of the ’33 Act (and Instruction 5 is limited by its terms to securities sold in registered offerings).
In the wake of the ABA Annual Meeting, there has been a bit of confusion as to whether companies need to file a 8-K each time an option is granted under the new 8-K rules. Some law firms mistakenly sent out memos indicating that indeed is the case after hearing SEC Staffers speak at the meeting.
Thankfully, I understand that the SEC Staff has provided oral informal guidance that if the form of an option agreement is on file then – in accordance with Instruction 1 to S-K Item 601(b)(10) – the grant of an option does NOT trigger the need to file an 8-K (assuming the award grant fits within the form of award already on file with the SEC). Further, the adoption of an equity compensation plan that must be approved by shareholders does not trigger an 8-K until shareholder approval is obtained.
I have posted a number of law firm memos that address these points – and more – in Section B.26 of the Sarbanes-Oxley Law Firm Memos (look at the bottom of B.26, the last 4-5 memos).
Nasdaq Posts More Staff Interpretative Letters On Governance Listing Standards
The Nasdaq has updated the PDF of staff interpretative letters that it has posted on its website. The PDF is now 66 pages and is dated August 17th – and includes all the staff’s interps for 2002 and 2003. The latest set of staff interpretative letters
begin with Letter 2003-25 and address:
- qualification of a director under revised definition of “independent director” (2003-26, 27, and 35)
- availability of exemptions from corporate governance requirements for non-US issuers (2003-28, 44 to 48, 50 and 51)
- completing transactions prior to the end of the 15-day approval period
for listing additional shares if Nasdaq has completed its review of proposed transactions (2003-42 and 2003-52)
- shareholder approval requirements for a change of control (2003-31, 39, 32, 43, and 52)
- shareholder approval requirements for equity compensation plans (2003-29, 30, 33, 34, 36-38, and 49)
- need for shareholder approval of exchange or rights offerings (2003-31 and 43)
- need for shareholder approval for private placements (2003-25, 32, 39-42, and 52)
- voting rights (2003-53)
Thanks to Suzanne Rothwell of Skadden Arps for the heads up as usual!
The Use of Clawback Provisions: Putting a Price on Disloyalty
The PCAOB is opening a new hotline today that will make it easier for employees and others to report problems. The PCAOB hopes that the hotline will encourage people to come forward with information by making it easier to report tips and complaints.
People can contact the PCAOB via a toll-free number (1-800-741-3158), email (firstname.lastname@example.org), fax (202-862-8435), by filling out the online form for filing a complaint that is available on the website (pcaobus.org), or snail mail (PCAOB Complaint Center, 1666 K St., NW, Washington, D.C. 20006).
Don’t forget to use the new 8-K form starting today! To help out, remember that we have posted a cover page of the new form, that includes all the changes from the SEC’s technical amendments adopted a few weeks ago.
Also note that the SEC has posted a corrected PDF version of the entire form on its website – if you printed out a PDF anytime before late last week, it was missing the two instructions for new Item 5.02.
And note that I got a little publicity from WSJ.com on Friday – now I really am somebody!
New Corporate Governance Survey
On GreatGoverance.com, we have posted a new survey by Shearman & Sterling regarding the corporate governance practices of the 100 largest companies. The survey results reveal that these companies have taken a wide variety of approaches in complying with the new requirements that took effect this year.
One notable development is the frequency and degree to which a number of the companies exceed the minimum requirements of the new rules and standards either in policy or practice. For instance, almost half adopted more stringent independence requirements than required by the applicable listing standards – but in practice, independent directors comprise 75% or more of the boards of an even larger number of the surveyed companies. Similarly, many of the surveyed companies voluntarily chose to disclose publicly the name of more than one audit committee financial expert, though only required to name one.
There are several areas in which the survey results differ from expectations. It is clear that directors have been devoting more time to fulfilling their responsibilities – and although this expectation is reflected in the significant increase in the aggregate amount of annual cash retainers paid to directors, the number of board meetings increased only slightly from the previous year and less than one-third of the surveyed companies limit the number of public company boards on which their directors may sit (and at least one director at over 40% of the surveyed companies serves on five or more public company boards).
We have posted bullet point highlights from the two sessions at the recent ABA Annual Meeting that featured Corp Fin Director Alan Beller. These ABA Meeting Notes are in Section F of the Sarbanes-Oxley Law Firm Memos.
New Nasdaq Proposal for Non-US Issuers
Currently, Nasdaq doesn’t impose initial listing requirements relating to share price or market value with respect to non-Canadian foreign issuers seeking to list on the Nasdaq SmallCap Market. By contrast, domestic issuers must have a bid price of at least $4 and a market value of publicly held shares of at least $5 million for initial listing. On August 11th, the SEC issued a proposal by Nasdaq to amend Nasdaq Rule 4320 to apply these same initial inclusion requirements to non-Canadian foreign issuers.
Musings on Google’s Acceleration Request
As a two-time Corp Fin’er, I couldn’t help but smile after reading the varying accounts in the business media yesterday that speculated about the “technical” reasons why the Google S-1 had not yet been declared effective. Brought back memories of seeking an Assistant Director (preferably one that didn’t ask a lot of questions) to sign off on those triplicate delegated authority forms before a deal could hit the street – the Staff still uses those ancient forms. Dem were da days…
Yesterday, it was reported that the SEC Enforcement Staff is planning to bring a civil lawsuit against Tyson Foods related to certain perks given to its top officers and board members, including Tyson family members. Specifically, the SEC Staff alleges that company’s proxy statements for 1997 through 2003 didn’t fully disclose $1.7 million in perks enjoyed by former Senior Chairman Don Tyson, and the company failed to maintain adequate internal controls on the personal use of company assets and the disclosure of perks and personal benefits.
Notably, Tyson said the SEC Staff also told the company it is considering recommending that the Commission bring administrative cease-and-desist actions against two Tyson employees who are not executives – these are the employees that were responsible for reporting the perks; not those that enjoyed the perks! Folks like me and you…
We are on the verge of announcing the program for the October 20th Executive Compensation conference – and a practical panel discussing how to properly report perks has been penciled in since day one. Now, that panel takes on even greater signficance. Register now to learn how to save your hide – as well as obtain access to the practice pointers already posted on CompensationStandards.com.
8-K In-House Memo for Reporting Chain Insiders
As the August 23rd effective date for the new 8-K rules approaches, many companies are rushing to adopt policies that designate who can approve certain things, identify who is either responsible for learning of (or most likely to learn of) certain events and charging those people with implementing disclosure processes as well as forming a subgroup of their disclosure committee to assess whether a trigger has occurred.
Amendments to NYSE Corporate Governance Listing Standards
The NYSE has posted a rule filing it made with the SEC on August 3 that would amend its corporate governance listing standards. In a number of cases, the amendments codify prior interpretations of the NYSE corporate governance rules provided in a series of FAQs.
Among other things, the amendments (which still must be approved by the SEC):
- clarify the definition of “executive officer”
- amend the independence tests generally to clarify the operation of the 3-year look-back
- revise the independence definitions related to employment and receipt of direct compensation to clarify that service as an interim executive officers (as well as an interim Chairman or CEO) will not disqualify a director
- clarify that exception for charitable contributions from the independence standard related to payments for services exceeding the greater of $1 million or 2% of consolidated gross revenues is only intended to apply to “contributions” and, therefore, the independence standard covers any business-based payments to such a charitable organization
- narrow the independence standard related to prior employees of the company’s auditor, but bring a director with a family member who is a current partner of the audit firm under the standard
- clarify that the non-CEO compensation arrangements that are the responsibility of the compensation committee are those of “executive officers” and that the board may delegate its authority to approve “executive officer” compensation to the compensation committee
- provide that qualifications to the annual CEO certification must be specified and disclosed
- require that listed companies submit Annual and Interim Written Affirmations to the NYSE, including foreign private issuers and preferred- and debt-listed companies (but only to the extent these types of companies must comply with the audit committee requirement in NYSE Rule 303A.6).
Ray Be from Corp Fin’s Office of Rulemaking has joined our September 23rd panel -“Reality Bites: More on the New 8-K Rules.” Ray was the primary draftsman of the 8-K rules. Don’t forget to email me your questions for the panel to address!
We have posted the transcript from “50 Nuggets in 50 Minutes III.”
Negotiated M&A Deal Point Trends
Based on the early response to my interview with Wilson Chu and Larry Glasgow on Negotiated M&A Deal Point Trends, I think that we need to cover more M&A issues on our site. Let me know if you think that is true…
This was a headline from SiliconValley.com – and if you haven’t figured it out by now, I can’t resist throwing in some Seinfeldism whenever I get a chance.
Well, Google continues to give plenty of securities law fodder to the business media – this time, a violation of the quiet period that has led to Amendment No. 7 to Form S-1 that includes an interview of the two Google founders with Playboy magazine as Appendix B, complete with three corrections to statements they made in the interview (the interview was conducted in April, just before the S-1 was originally filed).
The three corrections are made in a new risk factor on page 22 that notes that the interview may constitute a Section 5 violation – but the three corrections are not noted or cross-referenced in Appendix B itself. However, in my opinion, none of the corrections relate to matters that are investment deal-breakers since they don’t deal with financial performance (they relate to amount of storage in Gmail; number of employees at Google; and how often searches are made daily with Google’s search engine).
According to media reports, the SEC Staff required Google to include the entire interview in the prospectus – which at least one account labeled as unprecedented. The practice in the past is that the Staff would force the issuer to include only the statements that realistically could impact investment decisions. But in this case, perhaps Google was faced with the prospect of a delay in the offering and the easiest solution was to include the entire interview rather than do a prolonged negotiation with the SEC Staff as to what statements should be included.
As the Wall Street Journal notes today, if Google had gone public in a year or so, the ’33 Act reform that Corp Fin is working on these days might have made the Playboy interview a non-issue.
NYSE Regulatory Reorganization
As part of a NYSE regulatory reorg, the Listed Company Compliance division – including Corporate Compliance headed by Janice O’Neill and Financial Compliance headed by Glenn Tyranski – has been structured so that it reports to Rick Ketchum, who is Chief Regulatory Officer. As a result, now all regulatory, governance and compliance units are aligned under the leadership of Rick Ketchum and separate from the NYSE’s business divisions.