January 13, 2009

The Battle Over TARP Heats Up

As expected, Rep. Barney Frank introduced HR 384 – the “TARP Reform and Accountability Act” – and scheduled a hearing for today. On, Mark Borges blogged his analysis of the executive pay provisions – and here is analysis from Mike Melbinger.

Meanwhile, EESA’s Congressional Oversight Panel issued its 2nd report. We continue to post memos on TARP developments as they happen in our “Credit Crunch” Practice Area.

New SEC Relief for Companies That May Lose WKSI Status

Given the down market, I’ve blogged about companies potentially losing their WKSI status recently. Richard Sandler of Davis Polk reports that the SEC Staff has taken a position that may provide relief for some companies in this situation:

Due to continuing equity market turmoil, many companies are at risk of losing the ability to issue securities off of an automatic shelf registration statement. When a company files its annual report on Form 10-K or Form 20-F, a new determination date for well-known seasoned issuer (WKSI) status is triggered. To remain eligible to use an existing automatic shelf, the company’s worldwide equity float must equal or exceed $700 million, excluding shares held by affiliates, at a point during the preceding 60 days.

After discussions with the SEC Staff, the staff provided us with guidance on the following steps that such a company can take in order to preserve its ability to access the U.S. public capital markets (provided it remains eligible to use a non-automatic shelf registration statement):

1. Prior to filing its annual report, the company must file a post-effective amendment to its automatic shelf (which will become automatically effective), which conforms the automatic shelf in all respects to the requirements of a non-automatic shelf registration statement filed by a seasoned issuer that is not a WKSI.

2. Promptly after filing its annual report, the company must file either: a new non-automatic shelf registration statement on Form S-3 or Form F-3, or a second post-effective amendment to its existing shelf. Either filing would be subject to SEC review before being declared effective, and would presumably be largely the same as the post-effective amendment referred to in step 1.

According to the SEC Staff, a company that complies with these steps may continue to sell securities under its automatic shelf registration statement, until the new shelf registration statement (or second post-effective amendment) is declared effective. We expect the SEC Staff to confirm this guidance in writing.

Here is a related memo from another firm.

IFRS’ Impact on Executive Compensation

My colleague, Julie Hoffman, recently caught up with Dave Johnson, Executive Compensation Practice Leader at Ernst & Young, in this podcast to discuss putting IFRS’ impact on compensation on HR and Finance’s radars, including:

– How might IFRS impact executive compensation arrangements?
– As a result, who (besides the accounting/finance teams) needs to be conversant with IFRS at a company?
– What should companies be doing to prepare now for IFRS’ impact on compensation?

– Broc Romanek