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E-Minders February 2010In This Issue:E-Minders is our monthly e-mail newsletter containing the latest developments and practical guidance for corporate & securities law practitioners. We view TheCorporateCounsel.net as the gathering place for the community and encourage those who may not yet be members to take advantage of a 2010 no risk trial to see what you are missing. Here are 10 Good Reasons to try us now. You can subscribe below to receive a complimentary E-Minders subscription - even if you don't subscribe to TheCorporateCounsel.net. Our hope is that once you get to know us, you will understand the true value of a subscription to TheCorporateCounsel.net. Note that subscribers to TheCorporateCounsel.net should sign up below for E-Minders too, as we don't have the e-mail addresses for many people in our community.
Available Now: Our Guidance on How to Avoid SEC Comment Fallout As you may recall from Corp Fin Deputy Director Shelley Parratt's speech at our Conference in November, the SEC Staff appears to be drawing a "line in the sand" this year regarding when proxy statement amendments may be necessary. The Staff expects companies to carefully consider the Staff's positions--including those expressed in comments to other companies--when drafting executive compensation disclosure, and that material noncompliance with the rules and the Staff's positions will potentially trigger a request for an amendment of the disclosure (rather than fixing the disclosure in future filings). We just mailed the January-February issue of The Corporate Executive, which includes a comprehensive analysis of typical Staff comments and how you may avoid related pitfalls, including: - Representative Staff Comments--and Our Practical Guidance Act Now: Please try a 2010 no-risk trial to have this issue rushed to you. Lynn, Borges & Romanek's "2010 Executive Compensation Disclosure Treatise and Reporting Guide:" Now that we have seen the SEC's rules and Treasury's legislation that will force you to radically change your executive compensation disclosures and practices before next proxy season - we have wrapped up the ‘10 version of Lynn, Borges & Romanek's "Executive Compensation Disclosure Treatise and Reporting Guide" - order your copy now and take advantage of the no-risk trial. Upcoming Webcasts on TheCorporateCounsel.net: Join us on February 4th for the webcast (note the new date and time) - "How to Implement E-Proxy in Year Three" – to hear Lyell Dampeer of Broadridge, Thomas Ball of Morrow & Co., Keir Gumbs of Covington & Burling, Carl Hagberg of The Shareholder Service Optimizer and Paul Schulman of The Altman Group discuss new e-proxy developments, including the elimination of broker nonvotes in director elections and "lessons learned" from the first two seasons, and they will also explain the voting patterns you should expect—and provide solicitation strategies to help you be better prepared. And join us on April 14th for the webcast - "Big Changes Afoot: How to Handle a SEC Enforcement Inquiry Now" – to hear Colleen Mahoney of Skadden Arps, Chris Mixter of Morgan Lewis and Russ Ryan of King & Spalding discuss how the Division of Enforcement's investigative process works now that the SEC has dramatically overhauled some of its Enforcement processes and procedures. There is no cost for these webcasts if you are a member of TheCorporateCounsel.net. If you are not a member, take advantage of our no-risk trial to access the programs. You can sign up for this no-risk trial online, send us an email at info@thecorporatecounsel.net – or call us at 925.685.5111. Upcoming Webcasts on DealLawyers.com: Join us on February 3rd for the webcast – "The Latest on Fairness Opinions" – to hear Kevin Miller of Alston & Bird, Steve Kotran of Sullivan & Cromwell, Stuart Rogers of Credit Suisse Securities and Chris Croft of Houlihan Lokey explore the latest trends and developments in fairness opinion practices, including the new rules from FINRA and a host of new cases. Join us on February 24th for the webcast – "All the Rage: Tenders Offers" – to hear Alex Gendzier of Jones Day, Bob Hayward of Kirkland & Ellis and Jim Moloney of Gibson Dunn discussing the latest dynamics—and processes—of conducting tender offers. And join us on March 23rd for the webcast – "Seller's Key Issues in 2010: Still a Tough Seller's Market" – to hear Wilson Chu of K&L Gates, Mary Korby of Weil Gotshal and Carl Sanchez of Paul Hastings. No registration is necessary – and there is no cost – for these webcasts for DealLawyers.com members. If you are not a member, take advantage of our no-risk trial to access the programs. You can sign up online, send us an email at info@deallawyers.com – or call us at 925.685.5111. Upcoming Webcast on CompensationStandards.com: Join us on March 16th for the webcast – "What the Top Compensation Consultants Are NOW Telling Compensation Committees" – to hear Ira Kay of Ira T. Kay & Company, Mike Kesner of Deloitte Consulting and James Kim of Frederic W. Cook & Co "tell it like it is. . . and like it should be," including what every director and compensation committee member should be asking—and focusing upon—as well as how to get a true handle on the CEO's and NEOs' total compensation—and how to properly evaluate and set those levels. No registration is necessary – and there is no cost – for this webcast for CompensationStandards.com members. If you are not a member, take advantage of our no-risk trial to access the programs. You can sign up online, send us an email at info@compensationstandards.com – or call us at 925.685.5111. Upcoming Webcasts on Naspp.com: Join us on February 23rd for the webcast – "Current Developments Impacting Brokers & Transfer Agents (And What They Mean to You)" – to hear Joshua McGinn of BNY Mellon Shareowner Services, Tami Bohm of Radian Group, Carl Hagberg of Carl T. Hagberg & Associates, Brennan Latham of Fidelity Stock Plan Services and Charles Rossi of Computershare discuss the recent legislation requiring brokers and banks to report cost-basis information to shareholders and to the IRS and also important case law and regulatory developments that have led to increased attention around abandoned property and escheatment compliance. In addition, panelists will provide perspective on DWAC transmission costs, including a discussion on which industry participant should bear these fees and alternative methods of share delivery. And join us on March 18th for the webcast – "A Closer Look at Leading-Edge Performance-Based Plans" – to hear Terry Adamson of Radford, Brit Wittman of Intel, Kathryn Neel of Frederic W Cook & Co and Doug Friske of Towers Perrin discuss the key design and accounting considerations that you'll need to understand to implement your own successful TSR or MSU program. And join us on April 20th for the webcast - "25 Ways to Improve Stock Plan Documents" – to hear Mike Melbinger of Winston & Strawn, Howard Dicker of Weil Gotshal and Martha Steinman of Dewey & LeBoeuf discuss best practice language to address in your stock plan documents; change-in-control, forfeiture, and non-compete provisions; corporate governance and institutional shareholder concerns that impact your stock plans; and updates you need to make for recent tax law changes, including Sections 162(m) and 409A. The non-member fee for these webcasts is $595. If you wish to access these valuable programs without paying this fee, you may simply take advantage of a no-risk trial for the NASPP. A Biggie: US Supreme Court Opens Corporate Coffers to Political CampaignsIn mid-January, in a 5-4 decision, the US Supreme Court delivered a surprising - and groundbreaking - opinion in Citizens United v. Federal Election Commission that held, among other things, that a prohibition on corporations, unions, etc. from using their general treasury funds to pay for campaign advertisements regarding an issue or political candidate was unconstitutional. Note that corporations are still prohibited from making direct political contributions to candidates or political parties. This decision is expected to radically alter the role that companies will play in political elections, as it turns back the clock a century on laws in this area. It represents quite an aggressive intervention into politics by SCOTUS. We will be posting memos on this decision in our "Political Contributions" Practice Area. Here are a few blogs that lay out the issues and possible consequences of the decision pretty nicely: -
Citizens United: What Happens Next? What Does Citizens United Mean for Director Elections? Turns Them Into Political Ones?One topic not addressed so far in the media pieces we have read is how Citizens United may impact the boardroom. Given that a company's board will likely be the greatest influencer on how a company spends money in political campaigns, we imagine the politics of each director could well be scrutinized now and perhaps it's more likely that third-parties will attempt to place alternative candidates - ones with a different political bent - on a company's ballot. Plus, Senator Schumer is talking about Congress adopting a law that would require shareholder approval of political expenditures as one of several alternatives to limit the decision's impact. A true mix of politics and investing. The importance of proxy access just jumped three-fold in our opinion. And the importance of the roles played by chief governance officers, corporate secretaries and investor relations departments also jumped as they will be called upon to help directors conduct real campaigns, a topic Broc has written about often (here is one example and another). The change never stops. . . SEC Adopts Climate Change Disclosure Guidance (By 3-2 Vote)In late January, the SEC adopted by a 3-2 vote (Commissioners Casey and Paredes voted against adoption) an interpretive release to provide guidance to companies about how they should make climate change disclosures (the release is not out yet; here is the press release). There was heated discussion during the meeting - particularly from Commissioner Casey - as to whether the SEC was getting into the tricky intersection of climate change and politics. Although not discussed during the meeting or in the press release, since the guidance is in the form of an interpretive release, many are presuming it is immediately effective - meaning that it applies to the proxy statements that will be filed fairly shortly by calendar-end companies. Below is an excerpt from a memo from Troutman Sanders: The SEC stated that its release does not create a new legal requirement or modify existing disclosure rules, regulations or interpretations, which the SEC remarked included the framework and flexibility necessary for meaningful disclosure. Instead, the release provides "guidance that can help public companies in determining what does and does not need to be disclosed" according to Chairman Mary Schapiro. The release was adopted by a vote of 3 to 2. In presenting the release, the SEC reiterated the existing provisions requiring disclosure of climate change risks and implications when material to a public company: - Item 101 of Regulation S-K: Item 101 provides for a general description of a company's business and requires disclosure as to "the material effects that compliance with federal, state and local provisions. . . regulating the discharge of materials into the environment, or otherwise relating to the protection of the environment, may have upon the capital expenditures, earnings and competitive position of the company." This item also may require disclosure as to the anticipated impact of future environmental regulation. - Item 103 of Regulation S-K: Item 103 requires disclosure as to "any material pending legal proceedings, other than ordinary routine litigation incidental to the business." The instructions to Item 103 state that disclosure is required regarding "an administrative or judicial proceeding . . . arising under any federal, state or local provisions. . . regulating the discharge of materials into the environment. . . for the purpose of protecting the environment." - Item 303 of Regulation S-K: Item 303 provides for management's discussion and analysis of the company's financial condition and requires disclosure of "known trends or uncertainties" that a company believes will result, or are reasonably likely to result, in material changes in the company's liquidity, net sales, revenues or income from continuing operations. - Item 503(c) of Regulation S-K: Item 503(c) provides for the disclosure of risk factors that make investments in the company speculative or risky to the extent that they are not generally applicable to any issuer. The SEC stated that meaningful disclosure might address these four topics: 1. The impact of state and federal legislation and regulation, including potential legislation While the current rules and regulation require companies to disclose things that are material to investors, and the Staff noted that the SEC is not changing the traditional standard for materiality, which is a substantial likelihood that disclosure would be viewed by the reasonable investor as having significantly altered the total mix of information made available. But the Staff also emphasized that if there is any doubt to whether something is material or not, it should be resolved in favor of the investor and, thus, disclosed. We are particularly concerned that the interpretive guidance, as described by Chairman Schapiro, might require a company to speculate on what legislation will pass and what its consequences will be. This is an unprecedented disclosure requirement and one that is frought with the risk of evaluation in hindsight. Those opposing the adoption of the release noted the great flux of the state of science, law and policy addressing climate change and suggested that the release was being adopted because of political pressures. They noted that disclosure on the four topics noted above would include much speculation and lead to greater investor confusion. While the SEC did not issue new rules today, the discussion at the SEC's meeting indicates that the Staff believes that public companies need to revisit their disclosure practices. We believe that if the SEC does not see improvements in the amount and detail of discussion, we will see a responsive flow of comment letters that could by their nature impose standards on all reporting companies. We also believe that there is the potential that the SEC may resort to a formal rulemaking requiring specific disclosure, including discussion of carbon footprints and quantitative measurements. Companies wishing to avoid a "one size fits all" approach in the future should carefully draft their 2010 disclosure under the current framework to provide investors with useful information about the potential risks and implications of climate change.
SEC Proposes to Modernize Stock Buyback Safe HarborIn mid-January, the SEC posted this proposing release to update Rule 10b-18's safe harbor when companies repurchase their own stock. The safe harbor hasn't been updated much since the rule's adoption in 1982 - and trading strategies and technologies have dramatically changed since then. Corp Fin Posts 32 "Non-GAAP Financial Measures" CDIsIn mid-January, Corp Fin posted this new batch of 32 Compliance & Disclosure Interpretations that deal with Non-GAAP Financial Measures, including interps that deal with business combinations; Item 10(e) of Regulation S-K; EBIT and EBITDA; segments; Item 2.02 of Form 8-K; FPIs and voluntary filers. These CDIs replace a set of old FAQs that the Staff issued in 2003. Just a week after the SEC initially issued the CDIs, they reversed course and reinstated old non-GAAP FAQ 23, as CDI 105.07. At the same time, the SEC also deleted new CDI 105.4. It appears that in initially issuing CDI 105.4, the intent was not to change the meaning of old FAQ 23 - but to make it clearer. In doing so, the new CDI omitted the key fact that the earnings release was not furnished on a Form 8-K before the conference call. To correct this, the SEC deleted new 105.4 and reissued old FAQ 23 as new CDI 105.07, omitting the Reg FD sentence since nothing in that fact pattern raises an FD concern. Courtesy of Davis Polk, here's a redlined version of how the '03 FAQs compare to the new CDIs. The New Rules: Corp Fin Issues Nine More CDIsIn mid-January, the SEC issued nine new Compliance and Disclosure Interpretations to deal with issues posed by the new executive compensation and proxy disclosure enhancement rules adopted in December. These CDIs are in addition to the transitional CDIs already issued. Below are links to the new CDIs, the last two of which are transitional in nature (in the alternative, we have placed all of the new CDIs in one document for your reading pleasure): -
CDI 116.05 Shareholder Proposals: Corp Fin's New "Magic Sentence" ResponsesIt looks like Corp Fin is making good on its promise to provide more detail in its responses to exclusion requests under Rule 14a-8, the shareholder proposal rule. See this Bank of America letter and this Verizon letter issued in late December under (i)(7) - and this General Electric letter issued under (i)(2). There is not much detail, just an extra sentence or two for the rationale of the Staff's decision. This is understandable as the SEC doesn't have the resources to write full blown opinions like judges do. . . Corp Fin Permits Section 3(a)(9) Reliance for Securities Exchanges with Upstream GuaranteesHere's a new development as explained by Davis Polk: The Staff of the SEC's Division of Corporation Finance issued a no-action letter to Davis Polk, Cleary Gottlieb and O'Melveny & Myers permitting reliance upon Section 3(a)(9) of the Securities Act of 1933 for the issuance of a new parent security in exchange for an outstanding parent security that has one or more "upstream" guarantees from the parent's 100%-owned subsidiaries. All of the prior Staff no-action positions involving the availability of Section 3(a)(9) for exchanges of guaranteed securities had involved "downstream" guarantees (i.e., situations where the parent guaranteed a security issued by one or more of its subsidiaries) as opposed to "upstream" guarantees. Here is the incoming request. As a result of the 3(a)(9) Upstream Guarantee Letter: - issuers of securities with upstream guarantees will not be required to keep a shelf registration statement effective for the life of the outstanding convertible security to cover exercises and - issuers of securities with upstream guarantees will have an attractive third option for effecting exchange offers in addition to registration (which has timing implications) and relying on a private placement exemption (which limits the potential offerees). SEC Adopts Rules Governing Say-on-Pay Votes for TARP CompaniesIn mid-January, the SEC adopted rules implementing the requirement under Section 111(e) of EESA that requires companies that have received TARP money to conduct a separate shareholder advisory vote to approve the compensation of executives during the period in which any obligation arising from financial assistance provided under the TARP remains outstanding. Since most companies have repaid their TARP money, not many will be subject to these new rules. The SEC amended Rule 14a-6(a) to clarify that a TARP recipient is not required to file a preliminary proxy statement (see pages 8-11 of the adopting release) - but the adopting release is silent as to whether non-TARP companies must file preliminary proxy materials as a consequence of voluntarily including a management-sponsored shareholder advisory vote on executive compensation on the ballot. As a result, we believe non-TARP companies continue to need to file preliminary materials because it is not carved out under the existing rules (and we believe that every company that has put up a MSOP proposal - with one exception - has filed preliminary materials). The SEC Enforcement Division's Big Day: Changes GaloreWith a media blitz to drive home the point, the SEC showed its determination to overcome a year of bad publicity by announcing, in mid-January, a series of changes in its Enforcement Division. In fact, there are so many changes that there were two press releases and a special "Cooperation" web page. Here is this release announcing internal structural changes (i.e., new heads of specialized units and a new "Office of Market Intelligence") And here is this release announcing an initiative to encourage cooperation during investigations (which is driven by this new policy statement, as reflected in a new Section 6.2 in the SEC's Enforcement Manual). To help you navigate the new regulatory approach, we have planned this upcoming webcast: "Big Changes Afoot: How to Handle a SEC Enforcement Inquiry Now." You may want to catch Russ Ryan's interview regarding the state of the Enforcement Division, posted in "The Mentor Blog." Dave & Marty: Live at the Hotel Del Coronado!In mid-January, Dave Lynn and Marty Dunn got together during Northwestern's annual Securities Regulation Institute in San Diego to tape this podcast, including a discussion of:
Board Diversity Policies: Do You Need One? Samples AvailableIn reaction to the SEC's new board diversity disclosure requirement, several members have asked for sample board diversity policies, so we have posted a few in our "Diversity" Practice Area. But in deciding whether you need one, you should consider the input provided yesterday in our "Proxy Season" Blog as well as the commentary made during our recent webcast: "How to Implement the SEC 's New Rules for This Proxy Season." White Paper: 51 Firms Weigh In on New York's New Power of Attorney StatuteAs Broc has blogged, there appear to be deficiencies with the amendments to New York's power of attorney statute that were adopted last summer, which have changed the requirements for creating certain types of valid powers of attorney in New York and - when read in isolation - may have had the unintended consequence of invalidating a wide variety of common corporate, commercial and financial documents. Now, 51 law firms have weighed in with this White Paper with the aim of providing a blueprint for a consensus among practitioners on some of these troublesome issues because of the concern that an overly conservative interpretation may become the accepted version of the law. The White Paper focuses specifically on proxies to vote shares of corporations, endorsements to effect the registration of transfer of certificated securities and powers of attorney granted in connection with the formation and governance of non-New York limited liability companies and non-New York limited partnerships. The firms conclude that - consistent with New York 's customary and long-standing principles of statutory interpretation as well as the internal affairs doctrine - at least substantial portions of the statute do not apply to the issues covered in the White Paper. Mailed: November-December Issue of The Corporate CounselThe November-December issue of The Corporate Counsel was mailed in late December and includes pieces on: - 2010 Proxy Season Items Act Now : Get this issue on a complimentary basis when you try a 2010 no-risk trial today. Mailed: January-February Issue of The Corporate CounselThe January-February issue of The Corporate Counsel was mailed in mid-January and analyzes these topics: - Will Delaware Issuers Be Utilizing the New Bifurcated Record Dates for Their Upcoming Annual Meeting? Act Now : As all subscriptions are on a calendar-year basis, renew now if you haven't yet to receive this issue. If not yet a subscriber, try a 2010 no-risk trial. More on our "Proxy Season Blog"With the proxy season in full gear, we are posting new items regularly on our "Proxy Season Blog" for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries: - Effective Board Engagement with Shareholders More on "The Mentor Blog"We continue to post new items daily on our new blog - "The Mentor Blog" - for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries: - Becoming an "Outlier": Leveraging Social Media People: Who's Doing What and WhereAt the SEC , Division of Trading and Markets Deputy Director Dan Gallagher is leaving the SEC to join WilmerHale; Enforcement Associate Director Rick Firestone is leaving the SEC to join McDermott, Will & Emery; and Carlo di Florio has joined the SEC as Director of the Office of Compliance Inspections and Examinations. In Enforcement, the leaders of five newly established specialized units were named: (1) Asset Management: Bruce Karpati and Robert Kaplan, Co-Chiefs; (2) Market Abuse: Daniel Hawke, Chief, and Sanjay Wadhwa, Deputy Chief; (3) Structured and New Products: Kenneth Lench, Chief, and Reid Muoio, Deputy Chief; (4) Foreign Corrupt Practices: Cheryl Scarboro, Chief; and (5) Municipal Securities and Public Pensions: Elaine Greenberg, Chief, and Mark Zehner, Deputy Chief. Enforcement has also created a new Office of Market Intelligence that is responsible for the collection, analysis, and monitoring of the thousands of tips, complaints and referrals that the SEC receives each year. Thomas Sporkin was named the head of that Office. In Corp Fin, Professor Lawrence Hamermesh of Widener University Law School has joined the division as an attorney fellow, and will serve thru mid-2011. Professor Hamermesh is a well-known Delaware law expert and, not surprisingly, will be focusing on areas where federal and state law intersect. Probably something do with proxy access. . . Taken public just two years ago, this WSJ article claims that RiskMetrics is considering selling itself. The article notes a few prospective buyers and that the premium may be as high as 30%. Although the company does more than provide proxy advice, it's interesting timing for a potential sale given the uncertainty over whether say-on-pay and proxy access will be mandated, either of which should give somewhat of a boost to its ISS Division. Conference Calendar
What's New on Our WebsitesAmong other new additions, during the last month we have:
Your Input, PleasePlease let us know what you like - and don't like - so we can tailor TheCorporateCounsel.net to be more of a hands-on resource for you and your colleagues. Because we view TheCorporateCounsel.net as a "community" site, let us know if you would like to contribute content to our site. E-mail comments, suggestions and other input to broc.romanek@thecorporatecounsel.net. How to Receive this E-minders E-Newsletter Each MonthIf you are not yet a member of TheCorporateCounsel.net, we encourage you to take advantage of the special offer and enter a no-risk trial, particularly with all of the changes we will all be facing in the months ahead. Email us at info@thecorporatecounsel.net or call us at 925.685.5111 for more information. You also have our permission - and indeed are encouraged - to forward this issue of E-Minders to anyone that might not yet benefit from it. In the alternative, you can sign them up to receive E-minders each month by going to http://www.thecorporatecounsel.net/E-minders/listmanager.asp - then, input an email address, check the box to receive it each month and click "Submit." Current members of TheCorporateCounsel.net receive this newsletter as one of their benefits of being part of the community if we have their email address. You can provide your email address to broc.romanek@thecorporatecounsel.net or sign up on the web page as noted above. To no longer receive these E-Minders newsletters, go to http://www.thecorporatecounsel.net/E-minders/listmanager.asp, input your email address, check the box to no longer receive it and click "Submit." (c) 2010 Executive Press. This email newsletter is provided for informational purposes only and does not constitute legal advice. Executive Press is not engaged in rendering legal or other professional services. Publication of this newsletter is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. Do not act or rely upon the information and advice given in this publication without seeking the services of competent professional counsel. You may decline to receive further email solicitations from us by sending an email to info@thecorporatecounsel.net or contacting us at Executive Press, PO Box 21639 Concord, CA 94521-0639.
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Note that we have posted the