The Practical Corporate & Securities Law Blog

By Broc Romanek

Go to TheCorporateCounsel.net

 
More Shareholder Access Rumors

Just as I was blogging a set of rumors on Tuesday, The Daily Deal was reporting that the SEC may expand its shareholder access proposal to give shareholder groups with a 15% stake in a company the right to nominate a director on the company's proxy card in any given year. Allegedly, such nominations would have to be made at least 90 to 120 days before an annual meeting. Obviously, this would give shareholders the power to take action more quickly and not have to worry about triggers.

My question is - how are all of these rumors leaking out of the SEC? I doubt anyone at the SEC staff level would take the chance and provide info to the press - it could be someone who has met with the staff (or maybe a Commissioner)...but I'm still convinced that the SEC won't take action on this proposal anytime in the very near future.

Nifty 8-K Chart

Thanks to my good friend Larry Spirgel of Morrison & Foerster for this chart that can serve as a bedside resource for remembering the SEC's new regs on 8-Ks.

We have added the chart to our memos - some of which also contain charts - on this topic (now numbering over 50) in Section B.26 of the Sarbanes-Oxley Law Firm Memos - as well as our "Real-Time Disclosure" Practice Area (which will be growing quite rapidly).
posted by broc at 6:39 AM

 
Definition of "Material Definitive Agreement"

On pages 4-8 of the March/April issue of The Corporate Counsel, there is a discussion about how the SEC staff might interpret the crucial definition of "material definitive agreement" under the new 8-K regulations. Included in that analysis are notes about comments made by Alan Beller at the ABA meeting in Seattle, particularly in the area of compensation arrangements.

In noting Alan's comments, we took pains to point out that Alan qualified his comments by stating they didn't reflect the staff's final positions. And from what I hear transpired at the ABA-JCEB meeting last week with the staff, we were wise to include that disclaimer. For example, it appears that the staff is now leaning towards requiring an 8-K for each grant to a NEO, even under previously filed plans (contrary to what Alan stated in Seattle).

Learn more about the staff's latest thinking from our webcast next Wednesday - "Overcoming the Challenges of Real-Time Disclosure" - during which the panel will discuss grey areas and provide practical guidance in those areas that might not be grey, but still will be challenging.

California Dreaming

We have developed a Practice Area devoted to issues raised by California Corporations, including links to the corporate governance web pages of some of the more prominent companies incorporated in California.



posted by broc at 9:02 AM

 
Rampant Rumors about Shareholder Access

The mainstream media continues to run articles containing rumors of where the SEC is heading with its shareholder access proposal. On Friday, the NY Times ran a controversial Floyd Norris column indicating, among other rumors, that the withheld vote trigger would be racheted up to 50% in exchange for not counting broker non-votes.

And yesterday, the WSJ ran an article indicating that the SEC was going to drop its 1% opt-in trigger in exchange for speeding up the ability for investors to force a contested election (but didn't provide details as to what this latter trade-off really was). The article also noted that the SEC was considering the BRT's suggestion to allow companies to implement a "cure" after a triggering event (i.e. remove one or more directors that received high withheld votes).

Despite these media musings, I would wager that the SEC is at least a few months from adopting their final rules in this area (hey, the World Series of Poker started last night, I gotta bet something...).

These articles come on the heels of the MBNA Corp. annual meeting last week at which a TIAA-CREF shareholder proposal received a majority vote regarding the appointment of additional directors without personal or financial ties to senior management/founders. Two MBNA directors received more than a 40% withheld vote due to their ties to management. Interestingly, both of those directors are lawyers - and MBNA just appointed two other lawyers to vacant seats on the board, Mary Boies and former SEC Commissioner Laura Unger (my old boss racking up her third board seat) - so that nearly half of MBNA's directors are lawyers (4 out of 9)!

The SEC's Shell Company Proposal

The SEC has been jawboning about perceived abuses of shell companies for some time. So last month's proposal to prohibit the use of Form S-8 by shell companies should not be a surprise. Still, some of us represent clients that engage in these transactions and the question remains, what now? Learn more in my interview with David Kaufman on the SEC's Shell Company Proposal.
posted by broc at 6:35 AM

 
The PCAOB Speaks

Last Wednesday, I attended PLI's 1st Annual "PCAOB Speaks" held in Washington DC. I was surprised that live attendees numbered over 200 (although a significant percentage of that were PCAOB and SEC staffers)- because the "SEC Speaks" audience always consists of a handsome number of SEC alumni and the PCAOB doesn't yet have alumni.

One point brought home during the conference is that, under Auditing Standard No. 2 (which is awaiting final SEC approval), audit committees must pre-approve all services related to internal controls if these services are performed by the same firm that conducts the company’s audit. Audit committees cannot pre-approve these services by categorical standards. As a result, in this area, Auditing Standard No. 2 effectively trumps the SEC’s auditor independence rules adopted in January 2003 to implement Section 201 of Sarbanes-Oxley.

The rationale is that auditor independence is not viewed as a simple compliance matter; it is much more important than that. So audit committees are required to scrutinize each possible internal controls engagement to ensure that the auditor can be impartial and objective. By the way, the grandfathering of some non-audit services ended last Thursday.

We have posted more PCAOB Speaks notes on our home page and in Section F of our Sarbanes-Oxley Law Firm Memos portal.

Late Breaking 703 Developments

In case you missed this blog that I posted Friday afternoon: I understand that the SEC staff has reached an agreement on the treatment of restricted stock that is forfeited for purposes of the 703 stock repurchase table. The key determinant here is whether the company pays any consideration when the stock is returned - even a de minimis amount is sufficient consideration so that the returned stock must be included in the table. If there is no consideration given for the forfeited stock at all - it need not be included in the table.

By the way, at the ABA-JCEB meeting this week, the SEC staff apparently stated that stock repurchases by a 401(k) plan or other employee benefit plan may be required to be reported when the plan is an "affiliated purchaser" within the meaning of Rule 10b-18(a)(3). This could be a real problem in cases where a benefit plan is administered in-house, instead of being handled by a brokerage firm, transfer agent or other outside party. I would wait until the staff has a position in writing on this one before taking any drastic actions, such as hiring a third-party administrator.

Under Rule 10b-18, an "affiliated purchaser" is:

(i) A person acting, directly or indirectly, in concert with the issuer for the purpose of acquiring the issuer's securities; or
(ii) An affiliate who, directly or indirectly, controls the issuer's purchases of such securities, whose purchases are controlled by the issuer, or whose purchases are under common control with those of the issuer; Provided, however, that "affiliated purchaser "shall not include a broker, dealer, or other person solely by reason of such broker, dealer, or other person effecting Rule 10b-18 purchases on behalf of the issuer or for its account, and shall not include an officer or director of the issuer solely by reason of that officer or director's participation in the decision to authorize Rule 10b-18 purchases by or on behalf of the issuer.
posted by broc at 7:08 AM