November 28, 2007

Corp Fin’s New Chief Counsel: Tom Kim

Yesterday, Tom Kim was named Corp Fin’s new Chief Counsel, filling the slot that Dave Lynn lit up until six months ago when he joined our team. Tom has rather large shoes to fill.

Tom has been serving in Chairman Cox’s office and as Counselor to the General Counsel, focusing on Corp Fin issues. Before that, he worked under former Deputy Director Mike McAlevey at General Electric and for former Director John Huber at Latham & Watkins – so he’s had plenty of exposure to the Division. Tom’s new position also includes a title of “Associate Director,” a new title (and more money) for the Chief Counsel position.

A Tale of Two Voluntary E-Proxy’ers

Over the past month, I have found only a few new companies trying voluntary e-proxy (eg. Fannie Mae; see full list in our “E-Proxy” Practice Area) – so maybe the initial reports of low retail shareholder turnout is driving companies to “wait and see.” For the companies doing e-proxy, I am still disappointed about how they fail to clearly inform shareholders about what they’re doing on their IR web pages – and more importantly for them, fail to make it easy for shareholders to vote.

One of these new e-proxy’ers – Pike Electric – has put together a 6-minute video annual report. As noted in this press release, the purpose of providing the video is “provide viewers with highlights of Pike Electric’s key accomplishments in fiscal 2007, and includes an overview of Pike Electric and its strategic initiatives. The short documentary also provides stockholders and other interested parties the opportunity to see and hear directly from Pike Electric’s management team.”

The idea of an annual report video is pretty interesting on its face, but more important in my mind is that the Pike Electric IR web page contains a prominent link to Broadridge’s page where shareholders can vote. This is something that I urge every company to do, even if they are not doing e-proxy!

In the “CEO’s Letter to Shareholders,” Pike Electric informs shareholders that they are doing e-proxy – and explains briefly how the company is using a video this year rather than a 10-K wrap. Two points – one substantive and one not:

1. I guess I’m a little confused why the video is called an “annual report.” I understand the theory that it’s part of a 10-K wrap, but looking at the video’s contents, my guess is that the company will be relying on the 10-K itself to satisfy Rule 14a-3(d) – so it doesn’t really matter what the video’s content is except from a 14a-9 perspective. However, by calling it a “video annual report,” it might imply that the video standing along somehow meets the 14a-3 requirements, which I don’t think it does. Anyone else have thoughts on this?

2. In my opinion, it would be better if the CEO’s letter was in HTML rather than a PDF. In this alert, Jakob Nielsen – the godfather of online usability – does a fantastic job of explaining why the PDF format not good for online reading.

In comparison, another new e-proxy’er – Itex – also has a bunch of videos with the CEO describing its business – but this company doesn’t label any of them as an annual report. I really don’t view Pike Electric’s video as being different than what Itex has done (although some of the statements in Itex’s latest video scare me – check out the CEO’s statements about “how buying Itex’s stock is no different than buying Microsoft and Intel, just call your broker”).

I like the idea of companies using video to illustrate what they are doing, but I hope that the legal department screens these before posting. To play it safe, I would ensure the CEO refrains from ever mentioning the term “stock” in a video.

Regarding e-proxy, Itex’s “Annual Meeting” page has a link to enroll in e-delivery – but it doesn’t mention that Itex is doing e-proxy nor does it provide a link to allow shareholders to vote. It’s also notable that Itex didn’t bother to update their “Investor FAQs” to indicate they are doing e-proxy; rather the FAQs note that shareholders can request e-delivery if they want. Although companies that do e-proxy may also want to collect consents, I worry that shareholders may find this FAQ confusing if there is no mention of e-proxy in any of the FAQs.

I randomly selected these two companies for this blog; I easily could have selected almost any other company trying e-proxy so far because I haven’t seen many that do a solid job of clearly communicating to shareholders what they are doing – and making it easy for them to vote…

Another Potential E-Proxy Implementation Issue?

Believe it or not, Keith Bishop recently came upon another potential e-proxy implementation issue. If a company has issued stock options in California at a time when it was not listed on the NYSE or the Nasdaq Global Market (fka National Market), it’s likely that the company’s option plan requires delivery of financial statements to security holders.

The reason is that California’s exemption for option plans required plans to provide for shareholders to receive financial statements (except when the issuance was limited to key employees with access to equivalent information; see 10 CCR Sec. 260.140.46). This same requirement applied if the company qualified the plan.

Although the requirement was amended this year to be inapplicable to Rule 701 compliant plans, Keith suspects that many companies still have plans requiring delivery of financial statements to shareholders. This could present a problem if they intend to use the new notice and access alternative. Therefore, Keith recommends that companies check their option plans if they intend to use e-proxy.

– Broc Romanek