TheCorporateCounsel.net

May 9, 2006

Even More on Form 10-Q Risk Factor Disclosure

Many members reacted to yesterday’s blog, here is one from an anonymous member: “The last 2 sentences of the Coke disclosure is disclosure that I have seen the SEC Staff object to – in my mind, as long as the forward-looking cautionary statement is there, you don’t need all the stuff they did and simply say “there are no material changes.” Given there is now a specific form requirement that requires disclosure of material changes to risk factors, I believe that, regardless of what one discloses, if there are no new risks included, one is saying there are no material changes. I believe that is okay if true.”

And Stan Keller noted: “Keep in mind that MD&A sometimes is used on a standalone basis, e.g., in the glossy annual report. Thus, a discrete safe harbor statement within MD&A may make sense. Often the safe harbor statement used in the earnings press release will serve the purpose for the MD&A. Also, I counsel against use of “disclaim any obligation” language because of Staff sensitivity and suggest another formulation, such as ‘we do not intend to update.’ But our advice has been consistent with Coke’s – if there is no updating, and the company is comfortable not repeating the risk factors in the 10-Q, to refer to the 10-K risk factors without any statement that there have been no changes.”

Some Progress on the NASD’s Shelf Offering Proposal

Last week, the NASD proposed an amendment to its long-standing shelf offering proposal (it was originally published for comment by the SEC at the beginning of 2004! This is the 4th amendment.). The proposal is intended to clarify the application of the NASD’s filing and substantive underwriting requirements to shelf takedowns – the NASD has revised a number of aspects of the original proposal, including no longer proposing to amend the definition of “underwriter and related person.” Any rule change would not be effective until an approval order is issued by the SEC.

No More Broker Non-Votes? NYSE Advisory Panel Consensus

Somehow I missed this interesting piece a few weeks ago from Phyllis Plitch that ran on the Dow Jones newswire:

“In what would represent a major change in current shareholder voting rights, a committee formed last year by the New York Stock Exchange has reached a consensus that brokers should no longer vote for investors in director elections.

According to a person familiar with the situation, the panel stopped short of scrapping the controversial broker vote altogether, but has reached agreement that such votes shouldn’t be counted in board elections.

A recommendation on the broker voting issue is contained in a draft report circulated to members of the committee Wednesday. Once the report is finalized it is expected to go to the NYSE for approval in June. The recommendation isn’t likely to change as it is supported by most members of the committee, said the person, who requested anonymity.

The NYSE rule, which lets brokers cast votes in place of shareholders who don’t return voting instructions, has been long maligned by some activist investors as a “ballot-stuffing” device. Consideration of the thorny issue was part of the panel’s mandate to undertake a broad review of shareholder communications and proxy voting. The proxy working group’s chairman, Palo Alto, Calif., attorney Larry Sonsini declined comment on the substance of the report, but cautioned that the committee’s work is not yet complete. “There are a number of moving pieces that have to be rationalized,” he said.

The decades-old NYSE rule gives brokers the right to vote shares held in investors’ accounts – so-called street-name shares – on “routine” matters, when shareholders don’t provide voting instructions. What has been particularly vexing to some investor activists is that the NYSE considers director elections a routine matter. To their minds, adding insult to injury, brokers cast their votes with management, under long-time industry practice.

In some cases, without the broker vote being added to management’s tally, the outcome of dissident campaigns could have looked very different. In the high-profile election of Disney board members in 2004, 45% of the votes were cast against, or “withheld,” from the election of former Chairman and Chief Executive Michael Eisner. But hundreds of millions of shares were cast in favor of Eisner, even though the true stockholders never returned their broker-supplied proxies. If the broker vote wasn’t included in the tally, a majority of votes cast would have been withheld.

If the draft report doesn’t change, other shareholder voting issues would still be considered routine for purposes of the broker vote, such as auditor ratifications. The panel is throwing the question of whether the broker vote is needed at all back to the NYSE for further evaluation. A key argument heard from the NYSE and supporters of the rule over the years is that without the broker vote thrown into the mix, it would be harder for companies to reach an annual meeting quorum.

Any rule change would have to be approved by the Securities and Exchange Commission. An NYSE spokesman had no immediate comment.”