Monthly Archives: September 2005

September 16, 2005

FASB to Issue Relief on Option Grant Date Issue

At next Wednesday’s open Commission meeting, the SEC will consider pushing back the 404 deadline so that companies that are not accelerated filers then can wait to comply with the internal control over financial reporting requirements until their first fiscal year ending on or after July 15, 2007. Not sure how I missed that item for yesterday’s blog. Must be working too hard…

During our October 3rd webcast – “Internal Controls Update: The Big 4 Speak” – there will be discussion about what non-accelerated filers should still be doing in the 404 area despite the pushback of the internal controls deadline.

FASB to Issue Guidance on Option Grant Date Issue

On Wednesday, the FASB met to discuss providing further guidance on the determination of grant dates under FAS 123(R). The FASB decided to treat the date the board approves an award as the grant date, provided that:

• employees are not able to negotiate the terms of their grants after the board has approved them, and

• the terms of the grants are communicated to employees within a reasonable period of time. The determination of what is considered a reasonable period of time depends on the circumstances of the grant (e.g., the size of the company, number of grant recipients, and other considerations)

The FASB staff has proposed a FASB Staff Position, subject to a 15-day comment period. The FASB’s intention is to issue the final FSP in time for companies that are required to adopt FAS 123(R) on July 1, 2005 to rely on it in their first quarter financial statements.

Listen to the audio archive of the FASB meeting (see agenda item #4) and read the Board Meeting Handout (see pages 12-13). More information on this issue, along the NASPP comment letter and memos from leading practitioners, is included in the NASPP’s full analysis of this development.

Evelyn Y. Davis Update: Fourth Time A Charm?

According to this article, Evelyn Y. Davis, 76, recently got married to someone 26 years her junior. For those of us that have dealt with Evelyn, here’s wishing her the best on her fourth marriage (and maybe now she will be too busy to push her shareholder proponent agenda).

Here is an excerpt from the article: “He sent me three fan letters,” said Davis in a phone interview Thursday from her home in Washington’s Watergate building. “I was very reluctant to meet him at first, because I get so many fan letters from all over the country, and I never answer them. But what caught my eye was that he was in my neighborhood.” For more on Evelyn, here is an interview with her from a few years back.

SEC Formalizes Hurricane Relief

Yesterday, the SEC issued an exemptive order that provides an array of relief for companies directly impacted by Hurricane Katrina, including relief related to periodic reporting deadlines, proxy delivery obligations and S-3 eligibility, among other items.

What’s In Your Press Release?

From Lyle Robert’s “The 10b-5 Daily Blog“: The content of the disclosure that led to a stock price drop continues to be the focal point of post-Dura loss causation analyses. In Sekuk Global Enterprises v. KVH Industries, Inc., 2005 WL 1924202 (D.R.I. Aug. 11, 2005), the plaintiffs claimed that the company engaged in improper accounting practices related to the sales of a key product. The plaintiffs’ alleged losses occurred after the company issued a press release announcing reduced quarterly revenue based on lower than expected sales.

In their motion to dismiss, the defendants argued that “the press release and the resulting drop in the price of KVH common stock fails to establish loss caustion because the press release does not attribute the declining revenue to the sales of the [key product].” The court found, however, that the key product was a possible contributor to the lower than expected sales, even if it was not expressly discussed in the press release. Accordingly, the plaintiffs adequately plead loss causation.

Holding: Motion to dismiss denied (except for the claims based on a limited number of inactionable statements).

September 15, 2005

SEC to Propose Changes to “Accelerated Filer” Definition and Phase-In Dates

New SEC Chair Chris Cox has his first open Commission meeting scheduled for next Wednesday, September 21st at 10 am eastern. It’s always interesting to observe the style of how a new Chair presides over Commission meetings.

Among the items on the agenda is a proposal to narrow the definition of “accelerated filer” to include reporting companies with a public float of $700 million or more and a proposal to ease some of the current restrictions on the exit of companies from accelerated filer status.

In addition, the Commission will consider amending the final phase-in of the Form 10-K and Form 10-Q accelerated filing deadlines that are scheduled to take effect next year. As of now, accelerated filers are scheduled to become subject to a 60-day filing deadline for their Form 10-K filed for fiscal years ending on or after December 15, 2005, and a 35-day deadline for the three subsequently filed Form 10-Qs – that will be proposed to be changed, but their is no indication yet what that proposal will be.

The SEC: Cracks the Top Five!

According to this press release, the SEC is now in the Top Five of federal agencies to work for (I guess FEMA has dropped a few notches). The ranking of federal agencies is based on a scoring system explained on this “Best Places to Work” site.

I loved working on the SEC Staff – only thing holding me back from a third tour of duty is the lack of a cafeteria – but I have to admit the competition isn’t too strong for the SEC. Ever been in the ancient building that houses the Department of Agriculture? It’s spooky; you can hear a pin drop – no phones ringing anywhere.

Amendments to the NASD’s “New Issue” Rule

As noted on yesterday’s webcast, the SEC approved a NASD rule filing on August 4th that amends the “new issue” rule, Rule 2790. The adoption of these amendments follows the 2004 implementation of the New Issue Rule, which itself was a successor to the “Hot Issue” interpretation.

The amendments to Rule 2790 become effective this Monday, September 19th. Here is a Shearman & Sterling memo that describes the amended rule in more detail.

The Most Bizarre Registration Statement of All-Time?

Tearing a page from “Ripley’s Believe It or Not,” the SEC has scheduled an administrative law judge hearing under Section 8(d) to take action regarding this fraudulent registration statement filed by Apollo Publication Corp.

The only reason this isn’t an immediate emergency injunctive action in federal court is because the person who filed the registration statement appears to be insane – no one could possibly take it seriously. As noted in this article, Apollo’s board allegedly includes former Presidents Bush and Jimmy Carter, along with numerous other past and present world leaders. Overall, it reads like a pro se complaint from an insane prisoner.

If I were to file a bogus registration statement, I would go with a little more humor – by including Captain Kangaroo, George Costanza, Wonder Woman and Colonel Klink on my board. One member emailed me about how easy it must be to procure a set of EDGAR codes to perpetuate a scheme like this – but note that there will be some very real consequences for this tomfoolery. So please don’t try this at home…

September 14, 2005

SEC Issues 14 FAQs on Transitional ’33 Act Reform Issues

As I blogged yesterday, the SEC has issued the much-anticipated transitional guidance about ’33 Act reform in the form of 14 FAQs.

So What Should You Do Now With Your Outstanding Shelfs?

Transitional issues for all types of companies – such as “what you should do now with your outstanding shelfs” – will be covered during next Thursday’s webcast. For example, according to FAQ 5, WKSI companies can’t convert their outstanding shelfs to an automatic shelf via post-effective amendment (but they can carry over unused filing fees to a new shelf). So what should WKSIs do now? Tune in next Thursday to find out.

Hurricane Katrina: Sample Disclosures About the Impact and Thoughts on MAC Clauses

In the “Hot Box” on the home page of, we have posted a compilation of excerpts from recent SEC filings regarding the impact of Hurricane Katrina. The Hurricane’s impact will extend well beyond the Gulf Coast as indicated by many of the samples.

On the blog, Cliff Neimeth of Greenberg Traurig provides some interesting thoughts about the “material adverse change” clause and other aspects of the pending Capital One/Hibernia merger.

Understanding Cooperative Conversions

Recently, a number of cooperative associations have converted into publicly-traded companies. Having worked on similar types of deals many moons ago myself (eg. conversion of mutual savings banks into public companies), I recognize that it takes special expertise to get these complicated deals done.

Learn more about cooperative association conversions – including potential pitfalls to avoid – in this text interview with Scott Ortwein and Harvey Hill of Alston & Bird LLP.

September 13, 2005

Doing an IPO After the ’33 Act Reform and in Today’s Market

Join us for tomorrow’s webcast – “Drilling Down: Doing an IPO After the ’33 Act Reform” – featuring Justin Bastian of Morrison & Foerster; Steve Bochner of Wilson Sonsini, Goodrich & Rosati; and Michael Wishart of Goldman Sachs. With the help of a banker on this panel, there will be a discussion on recent developments in the IPO market beyond just the impact of the ’33 Act Reform.

SEC Posts ’33 Act Reform Q&A

Today, the SEC Staff posted the much-anticipated transitional Q&A guidance on the ’33 Act reform.

Fidelity Votes Against Board Over Executive Pay

As an indication that executive pay will play a prominent role in the majority vote movement, Fidelity Investments opposed the reelection of the board at Clear Channel Communications after the company renewed about $90 million in severance arrangements for the Chair, CEO and CFO.

This action came to light when Fidelity recently disclosed in one of its many Form N-PXs that its mutual funds withheld their votes for all 10 directors at the company’s annual meeting in April (starting last year, mutual funds are required to annually disclose their voting records). Fidelity ranked as the largest shareholder at the time with a 15.5% stake. This resulted in at least 18% of the total votes being withheld for each director.

Many of you will recall that it was not too long ago that Fidelity traditionally sided with management when casting ballots – here they opposed management even though ISS had recommended votes in favor of 9 of the 10 Clear Channel directors!

Fidelity withheld its support for the Clear Channel board after the company renewed employment agreements in March with the founder (who is the board chair) and his sons (who serve as the CEO and CFO). The new agreements retained provisions from their former contracts that provide each officer with a cash severance payment of 7 times their base salary and highest annual bonus during the prior three years, as well as 1 million options. Under its voting policy, Fidelity casts its ballots against directors who permit severance payments exceeding three times annual salary and bonus without obtaining a shareholder vote.

Fidelity also administers Clear Channel’s 401(k) retirement plan – at least three of the funds offered in the Clear Channel 401(k) plan withheld votes for the company’s board. In other words, Clear Channel employees who invested in these funds ended up siding against their own company’s board. The company was not aware of Fidelity’s vote until published reports came out last week.

Besides this obvious lack of communcation between the company and its largest shareholder, there are enough lessons learned in this story to fill up my blog for a week. I will save it for the many experts, who are better qualified than me, who will speak at the “2nd Annual Executive Compensation Conference.” For those of you planning to attend live in Chicago – rather than by video webcast – I understand that the hotel is nearly sold out, so you might want to reserve rooms now.

September 12, 2005

SEC’s First Thoughts on Option Valuation Through Market Instruments

On Friday, the SEC issued a press release with a statement by Chairman Cox regarding the use of market instruments to value employee stock options, along with a Statement from the SEC’s Chief Accountant and an Office of Economic Analysis Memo.

According to this NY Times article on Saturday, the SEC rejected Cisco’s proposal to issue exchange-traded employee options – but stated that it was open to other ideas about how market instruments could be used to value employee options (and the SEC’s OEA even suggested two alternatives, albeit the SEC’s Chief Accountant expressed skepticism about whether companies would quickly embrace them).

In the article, the Cisco CFO is quoted as saying that the company would continue to explore ways of using market instruments to value its options. Cisco’s dead proposal received investor backlash because it was seen as an attempt to avoid disclosing the true value of options in its financials.

At the NASPP’s “13th Annual Conference,” there will be eight panels – plus an address by the FASB Chair Bob Herz – that will deal with option expensing. Plus the NASPP just announced that it has enhanced its “Option Expensing Portal” to include a FAS 123(R) Q&A Forum that is manned by a special 123(R) Task Force.

Disney Case Appealed

Last week, Milberg Weiss Bershad & Schulman filed a notice of appeal with the Delaware Supreme Court over the August 9th opinion by Delaware Chancery Chancellor William Chandler that the Disney board did not breach its fiduciary duties over the firing of Ovitz and paying a severance package of $130 for the “non-cause” termination.

On, we continue to post oodles of memos analyzing the Disney decision – one of my favorites is this Davis Polk memo.

More on the Meaning of the Federal Court Dismissing the SEC’s Reg FD Lawsuit Against Siebel

In this podcast, Stan Keller, Partner of Palmer & Dodge, explains the implications of the federal court dismissing the SEC’s Regulation FD lawsuit against Siebel Systems and two of its officers, including:

– What is the background of the Siebel case?
– What did Judge Daniels decide in dismissing the SEC’s lawsuit?
– What is the meaning of this case for company spokespersons?
– Do you think the SEC will appeal the case?

September 9, 2005

Corp Fin’s ’33 Act Reform Hotline

Many thanks to Robyn Manos and Heather Maples – the dynamic duo in Corp Fin’s Office of Chief Counsel that will be handling interpretive questions on the ’33 Act reform – for joining yesterday’s webcast: “Drilling Down: Doing a WKSI Offering After the ’33 Act Reform.” Of course, Jack Bostleman, John Huber and David Martin did a great job of trying to predict and analyze what WKSI deals will look like after the December 1st effective date. The audio archive of the webcast is available now – a transcript won’t be ready until late next week at the earliest.

You can direct any interpretive questions to Robyn and Heather via the special ’33 Act reform hotline that Corp Fin has established at 202.551.3200.

More on SEC v. Smyth

Following up on Jay Dubow’s “Future of the SEC’s Civil Injunction Authority” podcast, a member had this question: Are “obey the laws” injunctions issued by the SEC for companies residing in the 11th circuit still enforceable?

Jay responds: “Yes, injunctions within the 11th Circuit are enforceable until a court orders them otherwise. Even if the court in Georgia, on remand, issues an order that the specific injunction is not enforceable – until the 11th Circuit issues an order that is not dicta to the contrary – one should assume that other such injunctions are still enforceable.”

Changes to ISS’ CGQ Rating Criteria

Effective Monday, the most recent changes to ISS’s CGQ rating criteria will be used to calculate a company’s CGQ governance rating. These changes were announced in July.

We have updated our “Corporate Governance Ratings Comparison” chart for these changes – and our “Governance Ratings” Practice Area includes this 11-page memo and 21-page PowerPoint presentation from ISS that explains the changes (also, ISS held a webcast on its changes a few months back and a transcript is available of that webcast – you must register to receive it, but it’s free).

Thoughts About Hurricane Katrina

I have endlessly debated in my head whether it was appropriate for me to blog about this terrible tragedy that has impacted all of us; some more than most of course. Even though I will continue to focus on our professional life, I just wanted you to know that I have been affected too and thanks to those members who have shared personal stories and urged me to help (here is a basic list of links). We have donated to the Red Cross as well as more directly to others in need that we know personally or through friends.

I do hope the Administration and the applicable governments now get their act together and spend time helping those that need it rather than wasting resources avoiding blame. The recent stories about how the media is being kept at arms’ length from reporting on what is happening in New Orleans is disturbing to me. The First Amendment is the bedrock of our society.

There are many blogs and other resources to help us understand what has happened and what is happening. I enjoy NBC anchor Brian William’s blog for unbiased coverage and the Technorati blog search tool is useful to find other voices.

September 8, 2005

Developing Delegations of Authority

Check out our new “Delegations of Authority” Practice Area, complete with several sample delegations of authority to enter into new contracts/arrangements and this new podcast with Kay Bradley, Assistant General Counsel of Sabre Holdings Corporation, who explains how to develop and implement standing delegations of authority, including:

– Are there “best practices” for standing delegations of authority? If not, what factors impact the type of delegations a company should adopt?
– How does Section 404 of Sarbanes-Oxley regarding internal controls impact delegation practices?
– How do the standing delegations look like at your company?
– What issues should companies consider as they develop their own standing delegations?

SEC Chief Accountant to Leave

Yesterday, SEC Chief Accountant Don Nicolaisen announced he will leave the Commission in October to return to the private sector after two years in the job. Here is the press release. Not surprising given that Don has a new boss; more of these senior staff positions likely to become open soon.

Closure for the Disclosure Document Folding Controversy

Following up on my blog from July, as noted in this press release, it appears that the National Credit Union Administration has settled its dispute over the folding of disclosure documents. From what I hear, this settlement came after a magistrate determined that the NCUA had acted arbitrarily and capriciously in refusing to certify a vote of the credit union members regarding a mutual-to-stock conversion.

September 7, 2005

Drilling Down: Doing a WKSI Offering After the ’33 Act Reform

Join us tomorrow for the webcast – “Drilling Down: Doing a WKSI Offering After the ’33 Act Reform” – featuring Jack Bostelman of Sullivan & Cromwell; John Huber of Latham & Watkins; David Martin of Covington & Burling.

Prepare by reviewing the vast amount of materials available in “Securities Act Reform Memos” – in particular, look at the memos provided by the panelists’ firms:

Sullivan & Cromwell’s 110-page memo (with some fabulous charts at the back) – or this shorter S&C memo
Latham & Watkins’ memo (nice creative title – Christmas in July)
Covington & Burling’s memo (like the usable Q&A boxes)

The Future of the SEC’s Civil Injunction Authority

Lots of talk still about the recent SEC v. Smyth case I blogged about last week. In this podcast, Jay Dubow, a Partner with Wolf, Block, Schorr and Solis-Cohen and former SEC Enforcement Staffer, analyzes the importance and ramifications of this 11th circuit decision, including:

– What happened in the recent 11th Circuit decision in SEC v. Smyth?
– How does the decision question the enforceability of the SEC’s civil injunctions?
– How is this decision different from decisions in other courts?
– What do you think the SEC will do in response to SEC v. Smyth?

September E-Minders is Up!

We have posted the September E-Minders for your reading pleasure. It’s amazing how much change still occurs on a monthly basis. That’s gotta end at some point, right?

Comment Letters on Option Expensing

The NASPP has submitted a comment letter to the FASB regarding grant dates (see this blog regarding why). I understand that the Society of Corporate Secretaries & Governance Professionals and other organizations will also be submitting letters on this topic soon.

On an unrelated note, the Council of Institutional Investors has submitted a letter to Thomson Financial regarding the use of option expenses in consensus estimates. Apparently, Thomson Financial is considering providing two consensus estimates, one including and one excluding option expense – and the CII wishes that Thomson Financial only provide consensus estimates including option expense (after an initial transition period) as part of Thomson’s widely-followed First Call estimates.

September 6, 2005

Federal Court Finds Siebel Did Not Violate Regulation FD

Last Thursday, on a summary judgment motion, Judge Daniels of the United States District Court for the Southern District of New York dismissed the SEC’s Regulation FD lawsuit against Siebel Systems and two of its officers. This is the first federal court to interpret Regulation FD. Here is a copy of the court opinion.

Back in July 2004, the SEC filed charged Siebel Systems with its second violation of Regulation FD. The SEC also charged Siebel Systems’ CFO and IR Director with criminally aiding and abetting the company’s violation due to their role in disclosing “material, nonpublic information” about the sales pipeline during two separate private meetings with members of the investment community.

The disclosures were alleged to be materially different from prior public statements made by the company in analyst conference calls and at a conference. In his opinion, Judge Daniels disagreed with the SEC’s conclusion that the CFO’s private statements were either material or non-public, a narrow conclusion that is limited to the facts alleged in this case – and the Judge was not happy with the way that the SEC parsed “every particular word used in the statement, including the tense of verbs and the general syntax of each sentence. No support for such an approach can be found in Regulation FD itself, or in the Proposing and Adopting Releases. Such an approach places an unreasonable burden on a company’s management and spokespersons to become linguistic experts, or otherwise live in fear of violating Regulation FD should the words they use later be interpreted by the SEC as connoting even the slightest variance from the company’s public statements.”

The Judge refused to address some broader challenges to Regulation FD, such as whether it violated the First Amendment – and he dismissed the SEC’s allegation regarding inadequate disclosure controls and procedures saying that the complaint had not cited sufficient facts to support this cause of action (other than the claimed violation of Regulation FD). It is not yet known whether the SEC will appeal the case.

What Does the Siebel Case Mean?

First of all, it’s important to remember that Regulation FD remains a valid rule – and the SEC likely will continue to look for instances of selective disclosure. The best way to avoid a Regulation FD problem is to limit private discussions of material information and to keep any such discussions entirely consistent with what was already said publicly. Judge Daniels even acknowledged that Regulation FD could be violated by non-verbal communications. For example, tacit communications such as a wink, nod, or a thumbs-up or -down gesture can trigger a violation.

On the other hand, Judge Daniels strongly suggests that courts are not going to use Regulation FD as a trap for the unwary. In particular, it is unlikely that the courts are not going to second-guess close calls about the materiality of oral disclosure. The Judge noted that the SEC itself has publicly commented that in order for an incorrect assessment of materiality to violate Regulation FD, the conclusion must represent an extreme departure from standards of reasonable care – note that the standard of care may be higher for written disclosure or for prepared remarks compared to spontaneous speech, such as in a Q&A session.

Stan Keller notes that this is an important decision that brings Regulation FD back to where it was supposed to be – and holds the SEC to the promises that were made as to its application. In his opinion, Judge Daniels sends a clear message that enforcement of Regulation FD should occur only in clear cases, as the SEC signaled when the rule was adopted. We will hear more from Stan on this topic soon – and we have posted some law firm memos analyzing the case in our “Regulation FD” Practice Area.

SEC Provides Hurricane Katrina Relief

To help those in need, the SEC has established both telephone and e-mail hotlines to provide immediate responses to questions or to hear from those that want to advise the SEC of their needs, such as relief from the SEC’s reporting and delivery mandates. In fact, the SEC plans to consult with public companies based in the disaster area, to ensure that its mandates do not interfere with any response and recovery.

If you have such a need, telephone calls should be directed to (202) 551-3300 – and e-mail should be directed to

September 1, 2005

More on Reg FD at the Movies

Regarding my apology yesterday for a perceived gaffe, my alter ego here – Keith Bishop – thinks that I have been too hard on myself. Keith says, “I had understood that the issue was screenings to analysts and that is what you wrote in your blog. If the pre-screening was available exclusively to analysts, then that element of Regulation FD would seem to have been met. (In fact, I was inferring, perhaps incorrectly, that the investigation involved pre-screenings given to analysts exclusively.) If others were invited to pre-screen the movie with the analysts, then wouldn’t the issue be whether the presence of the non-FD people resulted in simultaneous public disclosure?”

Keith goes on to note that “even if one gets past the issues of whether there has been (1) disclosure of information to Ref FD listed people; and (2) no simultaneous public disclosure, then one still must deal with the question of whether the pre-screening resulted in disclosure of material, non-public information about the issuer or its securities. I doubt that the SEC could reasonably take the position that it is the movie concept, my guess is that this has been broadly disseminated in trailers and other promotions. Thus, it would hardly fit within the meaning of nonpublic. If it is the actual quality of the movie as revealed by the screening – isn’t this a judgment formed by the analyst and not the disclosure of non-public information? How can the issuer disclose to the analyst what the analyst thinks about how a movie will do?”

The NYSE CEO “Agenda”

Recently, the NYSE released its first annual NYSE CEO Agenda. This “agenda” is based on a survey of the CEOs serving at 100 large companies – and states that 42% of the respondent CEOs said overregulation tops the list of challenges over the next five years.

Liability Issues for Directors of Insurance/Financial Companies Today

In this podcast, Jim Brown, President of Risk Consultants, LLC and former Louisiana Insurance Commissioner, explains how directors of insurance and financial-oriented companies face increasing liability exposure today, including:

– Explain your controversial career in Louisiana as Insurance Commissioner, including the problems you faced and the number of companies you had to shut down.
– What kind of responsibility and exposure do directors of financial institutions, insurance, banking and the like, have under new state and federal laws?
– How do you find the insurance business climate in the U. S. today? Are there numerous foreign investors? How does this climate affect the cost of insurance to business in the US?

I taped this podcast with Jim late last week before the hurricane hit and we all hope he is alright.