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With so much going on with hedge funds these days, I am pretty excited about tomorrow’s DealLawyers.com webcast – “How to Handle Hedge Fund Activism” – where Craig Wasserman and Marc Wolinsky just joined a panel of their fellow Wachtell Lipton partners: Marty Lipton, David Katz, Josh Cammaker and Mark Gordon. Talk about an all-star line-up!

To catch this program, try a no-risk trial to DealLawyers.com, where a license for a single user only costs $195. This webcast alone is well worth the price of a license…

House Approves Tying Senior Manager Pensions to Funding Status

Last Wednesday, the US House of Representatives passed a motion – with a vote of 299-125 – that would restrict the pension benefits of senior managers whose companies’ pension plans are less than 80% funded. The bill primarily is aimed at companies switching to cash balance plans.

Rep. George Miller’s (D-Calif.) motion instructs conferees seeking to reconcile differing House and Senate pension reform legislation (H.R. 2830) to adopt provisions that would:

– restrict executive compensation, including nonqualified plans – in companies with pension plans that are less than 80% funded – equal to restrictions that would be imposed on benefits for workers and retirees in those plans, and

– insist that the definition of ”covered employee” include the CEO of the plan sponsor, any other employee of the plan sponsor who is a ”covered employee,” within the meaning of such term specified in the provisions contained in the Senate pension bill, and any other individual who is an officer or employee of the plan sponsor

This press release provides more information. Progress on reconciling the House motion with the Senate has been limited so far.

More on Form 10-Q Risk Factor Disclosure

One of the primary benefits of having an advisory board is receiving their sound counsel, even when they do not fully agree with you. Brink Dickerson of Troutman Sanders was kind enough to send along his thoughts on Coke’s approach to risk factors – which shows that he favors a different approach to the one I favored in this blog from last Monday:

“A well written MD&A will always contain forward-looking statements. They might be triggered by the requirement to discuss “known trends” and “uncertainties,” but they certainly will be triggered by the liquidity disclosure, which is required to address how companies expect to meet future liquidity needs. The safe harbor, as it applies to written statements, requires three things: Identification of the forward-looking statements (which, hopefully, is something more than the verb-to-be buzzword approach), the magic language that “actual results may differ materially,” and, most relevantly, accompaniment by “meaningful cautionary language.”

There now are hundreds of forward-looking statement cases. Few have focused intently on what it means to “accompany.” Two have come up with odd answers on this issue – one suggesting a “truth on the market” approach to counter the judge’s apparent distaste for the “fraud on the market” theory that might suggest that anything in the public domain that is cautionary would qualify (Judge Easterbrook, what were you thinking?) and another who dismissed based upon a safe harbor argument where the cautionary language was in a separate document.

However, the overwhelming majority of the cases involve situations where the meaningful cautionary language was in the same document and the issue did not have to be addressed, but dictum in a number of those cases suggests that is what the law requires. To me, “accompany” means “in the same document, appropriately captioned and not obscure.” Until a court holds clearly otherwise, that certainly is the best practice, if not the only practice that counsel could responsibly advocate.

Thus, a well written From 10-Q is going to contain forward-looking statements and should contain a safe harbor. But remember, safe-harbor disclosure is not required (and the SEC still appears reluctant to admit that the Reform Act is law).

“Risk factors” require the disclosure of risks that make a security “speculative or risky.” See Reg. S-K, Item 503(c). “Meaningful cautionary language” requires a discussion of the most likely reasons, but not necessarily all know reasons, that actual results may differ materially form those suggested by the forward-looking statements. See, e.g., Harris v. Ivax Corp, 182 F.3d 799 (11th Cir. 1999). These requirements are not the same, and good risk factor disclosure probably is a bit more robust than good safe-harbor disclosure.

Technically, a registrant could include Coke-like risk factor language in Item 1A of Part II of their Form 10-Q, i.e., a cross-reference to the Form 10-K risk factors and a statement that there have been no material changes and be fully compliant with their Form 10-Q obligations. But, the MD&A should be accompanied by a good safe harbor, and probably the most common practice is to put the safe harbor at the end of the MD&A section.

But, why not move the safe harbor introductory language – the “identification” plus “magic language” – to the beginning of Part II, Item 1A of the Form 10-Q and then follow it by traditional risk factor language? (And then follow that with language that expressly states that “We disclaim any obligation to update . . . except as required by law.”) This puts the safe harbor language in a readily findable spot and utilizes the, hopefully, good risk factors, and adds only minimal length to the document. We also know that meaningful cautionary language is supposed to be “alive” and change over time (common sense plus Judge Easterbrook, at least if you want him to uphold your motion to dismiss), and risk factor language should as well. So, republishing updated risk factors on a quarterly basis has other value.

I believe that this is the best approach, although I expect it to be the minority approach given the wording of the Item 1A and the fact that most registrants will not focus on the opportunity to combine their safe harbor and risk factors.”