TheCorporateCounsel.net Blog |
|
|
|
Friday, February 20, 2004
Updated For Your Pleasure Okay, maybe it's not so pleasurable. But we have updated our list of links to samples of: - corporate governance guidelines - audit committee charters - compensation committee charters - nominating/governance committee charters In addition, we have updated our list of links to the Twenty Most Widely Held Proxy Statements and 10-Ks in our "Proxy Season Resource Center." Among others, new documents have been filed by Agere, Avaya and Lucent. Doonesbury and Cheney Redux I stand corrected on my blog from Wednesday as a loyal reader points out that Halliburton does indeed list Cheney as a risk factor. Halliburton's Form 8-K dated January 21, 2004 provided risk factors in a senior notes offering, including: "Our government contracts work has been the focus of numerous allegations and inquiries, and there can be no assurance that additional allegations and inquiries will not be made or that our government contract business will not be adversely affected. […] To the extent we or our subcontractors make mistakes in our government contracts operations, even if unintentional, insignificant or subsequently self-reported to the applicable government agency, we will likely be subject to intense scrutiny. Some of this scrutiny is as a result of the Vice President of the United States being a former chief executive officer of Halliburton. Since his nomination as Vice President, Halliburton has been and continues to be the focus of allegations, some of which appear to be made for political reasons by political adversaries of the Vice President and the current Bush administration. We expect that this focus and these allegations will continue and possibly intensify as the 2004 elections draw nearer. These allegations have recently centered on our government contracts work, especially in Iraq and the Middle East. In part because of the heightened level of scrutiny under which we operate, audit issues between us and government auditors like the DCAA or the inspector general of the Department of Defense are more likely to arise, are more likely to become public and may be more difficult to resolve. As a result, we could lose future government contracts business or renewals of current government contracts business in the Middle East or elsewhere. We could also be asked to reimburse material payments made to or through us or be asked to accept lesser compensation than provided in our contracts. In certain circumstances, we could be subject to fines and penalties under the U.S. False Claims Act, under which treble damages could be sought. In addition, we may be required to expend a significant amount of resources explaining and/or defending actions we have taken under our government contracts. There can be no assurance that these and any additional allegations made under our government contracts would not have a material adverse effect on our business and results of operations." I don't find this to be an indictment of Cheney (a departure from Doonesbury's view, I'm sure) - to me it is more of an indictment of the ignorance of his attackers about Halliburton's business. Thursday, February 19, 2004
New NYSE FAQs on Shareholder Approval of Equity Compensation Plans Yesterday, the NYSE modified some of its FAQs regarding shareholder approval of equity compensation plans and added new FAQs in Sections G, H and I regarding foreign plans. The SEC's Office of Global Security Risk? Here is a wacky one - an interesting memo from Covington & Burling points out that a recent Congressional report directs the SEC to form an Office of Global Security Risk. This new office would be a part of Corp Fin - and require companies to disclose business activities in countries designated by the State Department as sponsoring international terrorism. The memo explains the convoluted route by which this development arose (too convoluted for me to rehash here!). This topic likely will be addressed during the SEC's appropriation hearing set for March. As the memo notes, the SEC consistently has opposed efforts to mandate disclosure based on political or social concerns - so I would expect the SEC to push back on this one. Securities Fraud Class Action Dismissal Rate Drops in Wake of SOX This is from a Hale & Dorr alert: "Federal courts have been far less willing to dismiss securities fraud class actions since Congress enacted the Sarbanes-Oxley Act in July 2002. NERA Economic Consulting recently reported that, in the wake of Sarbanes-Oxley, the dismissal rate has fallen by as much as 30%, thereby subjecting many more public companies to the uncertainty of major-stakes litigation--and with it the lengthy discovery process in which plaintiffs' lawyers seek to build a case by reviewing the issuer's otherwise private internal records and deposing its directors and officers. The marked drop in the dismissal rate and the heightened litigation risks facing public companies in the post-Sarbanes-Oxley climate cannot necessarily be attributed directly to the Act itself. (Although Congress dramatically expanded federal securities regulation with the enactment of Sarbanes-Oxley, for the most part the Act did not change the statutory provisions under which these class actions typically are brought.) The courts' reluctance to dismiss cases outright more likely reveals evolving attitudes toward these cases, perhaps reflecting concern that shareholder claims should not be resolved at an early stage of the litigation process, and a greater skepticism of public companies and their management. In other respects, the securities fraud landscape in 2003 resembled that of prior years. The volume of lawsuits slowed somewhat from 2002; last year, on average, a new class action was filed every 1.75 days, which was consistent with the pace of filings prior to Sarbanes-Oxley, excluding one-time waves of litigation, such as lawsuits alleging that research analysts compromised their objectivity to sell banking services. As in the past, of the twelve federal circuits, the greatest number of securities fraud lawsuits were filed in the Second Circuit (which includes New York) and the Ninth Circuit (West Coast), followed by the First, Third and Eleventh Circuits (New England, New Jersey/Pennsylvania and the Southeast, respectively). More class actions were settled in 2003 than in 2002 (163 versus 122), which is not surprising given that fewer cases are being dismissed. The average settlement ($19.8 million) was lower than in 2002 ($23.3 million), but still substantially more expensive than in 2001 ($13.8 million), which was the last full year prior to enactment of Sarbanes-Oxley. Although it is difficult to predict settlement trends, which are driven by an array of factors (including the amount of investor losses, the nature of the allegations, the issuer's industry and locale, and the attorneys involved), we take little comfort in the small decline in median settlement amounts last year. The statistics suggest that the overall time from filing to resolution of securities class actions may be increasing. The fact that many large cases that are time intensive for plaintiffs' counsel have not been resolved (e.g., Enron) suggests that it is the smaller and weaker cases that are being resolved relatively quickly. If this is true, average and mean settlements will continue to increase over time, and the total transaction costs associated with these cases (which are directly proportional to the time necessary to resolve them) will also increase. Public companies and their directors and officers continue to face a significant risk of shareholder class actions, and the costs associated with these cases are likely to increase. Assuming consistent filing rates, over a five-year period the average public company faces a 9% probability that it will be the subject of at least one securities class action. Those in certain industries (such as technology and life sciences) are exposed to even greater risk. Although the high volume of class action litigation has remained relatively stable, the marked decline in the dismissal rate since the passage of Sarbanes-Oxley suggests that these problems will become increasingly difficult to resolve." Wednesday, February 18, 2004
How You Should Communicate With Your Directors I have spent a bit of time blogging how shareholders can communicate with directors - but perhaps even more important is how the corporate secretary and other members of management communicate with directors. Learn more on this topic from my interview with Richard Parr, Executive Vice President and General Counsel of Concentra on Communicating With Your Directors. Among Richard's interesting comments is how his company built a "home-grown" extranet for the board. Corp Fin Speaks on Asset-Backed Securities Jeff Minton from Corp Fin's Office of Rulemaking recently addressed an asset-backed audience at the American Securitization Forum conference in Arizona. As reported in this excellent Thacher Profitt memo, it appears that the SEC staff is actively working on its long-standing project to develop a registration & reporting framework that is tailored to the asset-backed industry (hey, this project is so old that I briefly worked on it back in '97 when I was on the staff). Based on Jeff's comments, it appears that the SEC staff is leaning towards using S-3 rather than creating a new form for registration of securities - and that presently there is an unacceptably high level of '34 Act reporting non-compliance by ABS issuers (e.g. over half of 10-Ks from ABS issuers that were reviewed by the staff were not timely filed). Another common problem is the failure of ABS issuers to file under the correct EDGAR serial number - a byproduct of each depositor having multiple trusts, each with their own '34 Act numbers. And all of this is partially due to the fact that securitization lawyers typically don't know the securities law as well as securities lawyers, as could be expected. Doonesbury Talks about "Risk Factors" You know that SEC filings are becoming part of middle America when Doonesbury references annual reports and risk factors. Today's cartoon notes that Halliburton lists Dick Cheney as a risk factor. However, this is not true - a recent S-3 mentions the SEC investigation as a risk factor but does not identify Cheney by name. Last year's 10-K doesn't even have a risk factor section. Monday, February 16, 2004
NYSE Tweaks Its Rolling 3-Year "Look-Back" FAQ In what will be welcome news to NYSE companies, here is what the NYSE staff sent to listed companies on Friday: "Following the release of the Section 303A FAQs on January 29th, the Exchange has been alerted that the interpretation of Section 303A.02(b)(ii) set out in FAQ C-12 was unexpected because in some cases it resulted in a "look-back" period in excess of 3 years. The Exchange agrees that the look-back period should not exceed 3 years, and accordingly is withdrawing the original response to FAQ C-12. Below please find the original question and revised response which has also been updated in the FAQ document on our public web site. C-12: What period must be used in applying Section 303A.02(b)(ii) relating to the payment of more than $100,000 per year in direct compensation and how does that interact with the three-year look-back requirement? The appropriate inquiry under Section 303A.02(b)(ii) is whether a director or his or her immediate family member has received, during any twelve-month period within the last three years, more than $100,000 in direct compensation from the listed company (other than director fees and pension or deferred compensation as specified in the rule)." By the way, TheCorporateCounsel.net just announced an April 21st webcast on "The Many Faces of Director Independence," during which our expert panel will analyze the best ways to determine independence - as well as the optimal frequency of determination - and analyze several dozen increasing complex fact patterns under both the NYSE and Nasdaq standards. NY Judge Rules on Ability of Insurgent to Mail Management's Proxy Card Following up on my blog last Wednesday regarding the MONY merger, Judge Holwell (S.D.N.Y.) issued an important decision later that day regarding the applicability and scope of Rule 14a-2(b)(1), the proxy rule that provides an exemption from the filing and disclosure requirements of Rules 14a-3 through 14a-6. In short, Judge Holwell denied plaintiff's request for a preliminary injunction. In doing so he reaffirmed the ability of insurgents to circulate a copy of management's proxy card without simultaneously triggering the requirement to independently file a proxy statement and card. I have posted a copy of the Judge's opinion in our "Merger & Acquistions" Practice Area under "Proxy Fights/Hostile Takeovers." |
