August 28, 2006

NYSE Eliminates Annual Report Delivery!

Last week, the SEC approved changes to the NYSE Listed Company Manual so that Section 203.01 was changed to eliminate the NYSE requirement (a requirement which can be traced back to 1895!) for a listed company to physically distribute an annual report to shareholders – and allow a company to satisfy the annual financial statement distribution requirement by making its Form 10-K (or Form 20-F) available by a link to its corporate website, with a prominent undertaking in English to deliver a paper copy, free of charge, to any shareholder who requests it.

Listed companies also are required to issue a press release stating that its annual report has been filed with the SEC. This press release must specify the company’s website address – and indicate that shareholders have the ability to receive a hard copy of the company’s complete audited financial statements free of charge upon request. In addition, the NYSE added Section 303A.14, which requires listed companies to maintain a corporate website.

As I noted in this earlier blog, US companies are still obligated to distribute annual financial information under Rule 14a-3(b) – so the real benefits of these new NYSE standards won’t be realized for them until the SEC adopts some form of its e-Proxy proposal. However, for those foreign private issuers that are exempt from the proxy rules – they should realize cost savings right away. I’m trying to figure out when these changes take effect, as that is not mentioned in the SEC’s order…my guess is that the NYSE rule change is immediately effective, which is the normal result under Section 19(b). The NYSE already has incorporated the change into the Manual.

Congress Takes On Options Backdating

When Congress gets back to work next week, the US Senate already plans to hold two separate hearings on stock option timing. On September 6th, the Senate Finance Committee will hold a hearing – and this Committee’s Chair, Senator Grassley (R-Iowa), is making noise about the possible need for Congress to change the tax laws to tackle backdating. The Senate Banking Committee also plans to hold a hearing on option timing issues in the near future. Egads…

By the way, you might want to check out this San Jose Mercury News interview if you want another Silicon Valleyite’s perspective of the backdating scandal.

SEC Issues Nasdaq’s Proposal to Change “Independent Director” Definition

As I blogged about earlier this month, the Nasdaq has proposed to amend the definition of “independent director” – which has now been formally proposed by the SEC with a 21-day comment period. These changes make the Nasdaq rules more consistent with those of those of the NYSE. The proposed amendments would:

– modify the definition of “independent director” in Rule 4200(a)(15)(B) to provide that a finding of independence is precluded if a director accepts any “compensation” from the company or its affiliates in excess of $60,000 during any consecutive twelve month period within the three years prior to the independence determination (replacing the term “payments”)

– amend IM-4200 to clarify that after the effective date of the rule change, a company’s board may determine that a director who served as an officer of the company on an interim basis for up to a year is not precluded from being considered independent solely as a result of that service (including service that occurs before the approval of this proposed change)

– clarify that an exception to the audit committee requirements contained in Rule 10A-3(c)(2) for certain companies that have a listed parent also is applicable to Nasdaq’s audit committee requirements

– provide that a transition period for an independent director who becomes disqualified due to the amendments, which would allow the disqualified director to remain on the company’s board for 90 days