Broc Romanek is Editor of CorporateAffairs.tv, TheCorporateCounsel.net, CompensationStandards.com & DealLawyers.com. He also serves as Editor for these print newsletters: Deal Lawyers; Compensation Standards & the Corporate Governance Advisor. He is Commissioner of TheCorporateCounsel.net's "Blue Justice League" & curator of its "Deal Cube Museum."
From this Cooley alert by Chad Mills: As a follow-up to Cydney Posner’s article from a few years back, please note that calendar-year public companies were required to adopt a new accounting standard on comprehensive income (ASU 2011-05, as amended by ASU 2011-12) in their 2012 first quarter Form 10-Q with retrospective application. As described below (and see also Corp Fin’s financial reporting manual (FRM) at Topic 13), if a company is filing a Form S-3 and had filed interim financial statements for a period that includes the date of adoption of a new accounting standard requiring retrospective application, Item 11(b)(ii) of Form S-3 normally requires the company to recast its prior period annual financial statements that are incorporated by reference to reflect the retrospective application (if material).
However, similar to the accommodation noted in Cydney’s article, in lieu of recasting the prior period annual financial statements, a company may (and assuming the company’s auditors agree) instead include a selected financial data table either included in or incorporated by reference in the Form S-3 containing certain information. Accordingly, if your clients are filing or post-effectively amending Forms S-3 this year, please take note of this and make sure to discuss with the client and its auditors. Note that in the case of a takedown from an already effective shelf S-3, a prospectus supplement is not subject to the Item 11(b)(ii) updating requirements; rather, companies would instead apply the “fundamental change” guidance in S-K 512(a) discussed in FRM Section 13110.2.
Below are a couple of recent S-3s with the selected financial data table reflecting the above:
For more background info, see this KPMG article at Part 3.
Study: A 11-Year Comparison of Restatements
In a recent study, Audit Analytics looked back over 11 years of restatements and, among other things, found that during the last three years, the quantity of total restatements appears to have leveled off, and the severity remained generally low, but hidden within the macro view of the data is the fact that restatements increased from companies trading on the NYSE and OTC.
Benchmarking Merger Agreements
In this DealLawyers.com podcast, Paul Koenig of Shareholder Representative Services explains how his company’s novel initiative SRS MAX™ that allows for M&A analysis of merger agreements, including:
– What is the problem that the SRS MAX product is solving?
– How does it work and what do the users of the product receive?
– Do you charge for this, and if so, how much?
Deal Cube Tournament: Round Two; First Match
Round Two begins! This will determine the Sweet 16. As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:
One of those things I swore I blogged about – but slipped through the cracks. Corp Fin recently changed its policy on IPO price ranges, now allowing a $2 price range for offerings up to $10 per share, and 20% if the price is over $10. Previously, the range was limited to a $2 spread. (I note Facebook’s price range was $34 to $38.) The intent is to better reflect the inherent difficulty in pricing IPOs. Learn more in this memo posted in our “IPOs” Practice Area.
Check out this Cooley alert entitled “How Can ‘Oversubscribed’ be a Sign of IPO Weakness?”
62-Pages About This Season’s Disclosures: Spring Issue of Compensation Standards Newsletter
For CompensationStandards.com members, we have posted our Spring 2012 issue of Compensation Standards print newsletter – thanks to Mark Borges! – that is a 62-page recap of how proxy disclosure went this past proxy season. Tune in next Thursday, June 28th to catch our CompensationStandards.com webcast featuring Mark, Dave Lynn and Ron Mueller entitled: “Proxy Season Post-Mortem: The Latest Compensation Disclosures.”
Transcript: “Nasdaq Speaks ’12: Latest Developments and Interpretations”
We have posted the transcript from our recent webcast: “Nasdaq Speaks ’12: Latest Developments and Interpretations.”
One member asked: “How can you tell if a EGC bothered with Corp Fin’s confidential submission process or just publicly filed its Form S-1 right away?” You can tell from the exhibit list. When a company that went through the confidential submission process makes its first filing, it has to file the confidential draft (or drafts) as Exhibit 99 to the registration statement. So for LegalZoom, they filed an “Exhibit 99.1 Confidential Draft #1” and no others – so it appears they stayed confidential for only one round of comments.
Using Rule 135 to Announce a Confidential Submission
Rule 135 says that a very limited press release announcing a proposed public offering won’t be deemed an offer for Section 5 purposes. Way back at the end of April, SolarCity became the first company to announce in a Rule 135 notice that it is making a confidential submission at the time of its private submission to Corp Fin (FleetMatics also announced one). This is something that companies are not required to do – and that I believe no other company has done since…
Dave notes one interesting unintended consequence he has heard from bankers is that having companies go through confidential submission means their visibility into the “pipeline” is all screwed up – so they don’t have as good a feel for what is out there in the market going public, which could ultimately impact marketing and valuation.
Transcript: “LLCs: Understanding Capital Account and Allocation Concepts for M&A”
We have posted the transcript for our recent DealLawyers.com webcast: “LLCs: Understanding Capital Account and Allocation Concepts for M&A.”
As noted in this Latham & Watkin’s memo, the SEC’s Enforcement Division declined to prosecute a former AXA Rosenberg executive based on his assistance under the SEC Cooperation Standards Program, which gives important guidance and definition to the promise of the program.
More on “Chaos in the SEC’s Inspector General’s Office: ‘He Said, They Said'”
Recently, I blogged about the madness in the SEC’s Inspector General’s office as a number of allegations are being investigated about a number of the Staffers there. Bear in mind that it’s a small office with a handful of people working in it. The latest drama is laid out in this detailed Reuter’s article.
Our New “Shareholder Communications with Directors Disclosure Handbook”
Did you see this NY Times column about Yahoo? Amazing that boardroom conversations get leaked to the press, particularly when the situation is in litigation. Not good governance to blab about your bad governance. Remember the H-P fiasco!
Anyways, as I blogged a few weeks ago, it seemed like a no-brainer to me that companies would conduct a background check on a director candidate (and CEO recruit) – even though they are not necessarily universal practices. Marty Rosenbaum weighed in with his own thoughts in a blog entitled “Responding to the Yahoo Resume Debacle.”
In response, I received a wide range of responses – I guess reflecting the diversity of practice in this area. As I learned, there are numerous state laws on acquisition – and use – of credit information, as well as arrest and conviction information. Apparently, states are really clamping down on employers’ use of all of this information for hiring purposes in view of the purported potential disparate impact on applicants. For example, see this Cooley alert about new California requirements for background check disclosures. And see these EEOC FAQs providing updated guidance about the ability of employers to check arrest and conviction records – as analyzed in this Locke Lord memo.
On the other hand, I had some members argue that the federal sentencing guidelines practically require criminal background checks for “substantial authority personnel.” I’m told that a key problem remains over what you can do with the background information if it indicates that the person engaged in “illegal activities or other conduct” that is arguably “inconsistent with” a compliance program. To be on the safe side under the sentencing guidelines, I imagine you’d tend to not hire someone who was in the grey zone. Some members asserted that the sentencing guidelines safe harbor provision protects an employer who hires someone in order to comply with employment laws.
So I’m still not sure what the right answer is on background checks and definitely would like to get more feedback on that. In Yahoo’s case though, the resume lie would have been uncovered with a simple Google search. This would have revealed discrepancies by comparing what Yahoo disclosed as the CEO’s background compared to what other companies – on whose board the Yahoo CEO sat – were disclosing; or what the Yahoo’s CEO’s former school was saying about him in alumni announcements. As I noted in our new “D&O Questionnaire Handbook,” this kind of basic diligence should be conducted every year when reviewing responses to the questionnaires. It’s too easy to pass up – and can certainly spare you and your company some big headaches…
As noted in his “Cady Bar the Door” blog, David Smyth explains the SEC and DOJ sort of issued their first FCPA declination opinions, noting that the agencies have decided not to pursue a particular matter. Not only are these useful to the parties involved, they can provide a useful window into the factual scenarios that do not rise to the level of a FCPA prosecution.
This Cooley alert describes a recent New Yorker article regarding economics of the FCPA.
Deal Cube Tournament: Round One; 16th Match
Last match of the first round (I decided to go with 64 cubes per tourney because 32 matches in a single round is too many) – there will be a break before 2nd Round begins. As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:
Last week, FINRA submitted a rule change that significantly increases the Corporate Financing Department filing fee – with an implementation date of July 2nd! The new filing fee will be $500, plus .015% (up from .01%) of the proposed maximum aggregate offering price of all securities included on the offering document, up to a maximum of $225,500 (up from $75,500). However, any shelf offering by a WKSI registered on an automatically effective S-3 or F-3 registration statement will be subject to the full $225,500 fee, regardless of the size of the offering. The FINRA rule change was filed as one that is immediately effective upon filing with the SEC. Thanks to Suzanne Rothwell for this news!
In other news, see this blog from “The Mentor Blog” for other proposed FINRA Rule 5110 changes…
Shareholder Proposals: KBR Wins Over Chevedden in Fifth Circuit Appeal
A few months ago, I blogged that John Chevedden appealed his loss in a lawsuit over the eligibility to submit shareholder proposals. A few days ago, the appeal was decided when the Fifth Circuit’s decision affirmed the District Court’s judgment granting summary judgment in favor of KBR and also affirming the District Court’s denials of Chevedden’s various motions.
Webcast: “How to Cope with the M&A Litigation Explosion”
Tune in tomorrow for the DealLawyers.com webcast – “How to Cope with the M&A Litigation Explosion” – to hear Wilson Sonsini’s Doug Clark, Wachtell Lipton’s David Katz and NERA’s Marcia Kramer Mayer to not only learn of the causes of the M&A litigation maelstrom, but how you can best cope with its consequences – to changes in deal structures to developments in how deals are negotiated. Please print these course materials in advance.
Deal Cube Tournament: Round One; 15th Match
As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:
I’ve added 10 more companies to the failed say-on-pay list on CompensationStandards.com for 2012! We are now at 49 companies that have failed to garner major support – with Nabors Industries becoming the fourth company to fail for two consecutive years (and the first company to fail a proxy access by-law vote). Hat tip to Karla Bos of ING Funds for keeping me updated!
Proxy Access Proposal Passes at Nabors
Ning Chiu of Davis Polk gives us the news in this blog:
In the first win of its kind, a majority of shareholders at Nabors Industries voted in favor of a proposal for the right of shareholders owning 3% or more for at least three years to nominate directors on a company’s ballot, for up to 25% of the board. The thresholds are the same as those previously adopted by the SEC, which was later struck down by the courts. The shareholder proposal was submitted by a group of New York City Pension Funds led by the City Comptroller of New York, and co-sponsored by similar funds in five other states. The company confirmed news reports that the proposal has passed, but has made no public announcement about the specific vote results.
Nabors had been criticized for their executive compensation practices last year, which entitled the then-CEO to a cash bonus of 10% of any amount of the company’s cash flow that exceeded 10% of average shareholder equity. In addition, a $100 million award was triggered when the CEO relinquished his title but did not leave the company. The outcry resulted in a failed say-on-pay vote. The company also announced an SEC investigation into its disclosure of aircraft perks after the Wall Street Journal reported that flight logs showed many flights to the CEO’s homes that did not appear to be reported in the proxy statement.
While claiming that proxy access is a basic shareholder right in an exempt filing, the proponents also cited several issues that they argued made proxy access particularly compelling at Nabors, including the $100 million award (which the CEO later waived), related party transactions with board members and the absence of majority voting. A later filing quoted from ISS and Glass Lewis reports in support of the proposal.
While much of the attention on proxy access proposals this season has been on the versions proposed by U.S. Proxy Exchange and Norges Bank since they put forth the bulk of the proposals, it was always questionable whether they would succeed, given that their low thresholds likely caused institutional investors to question their reasonableness. In addition, the SEC staff permitted the exclusion of several proposals.
Instead of peppering the landscape with proposals, seasoned shareholder proponents like the City Comptroller targeted only a few companies that have been criticized for perceived governance issues. It now appears that their strategy has succeeded, as Hewlett-Packard previously negotiated to include proxy access and the proposal won at Nabors. The next proposal of this kind to be voted on is at Chesapeake Energy’s annual meeting this Friday, but given that their recent governance changes included the ability of two shareholders to name directors to the board, the concept of proxy access seemed to have already taken effect.
Supreme Court to Revisit Fraud-on-the-Market Presumption
Yesterday, the Supreme Court agreed to hear an appeal involving certification of securities fraud class actions. The case – Amgen Inc. v. Connecticut Retirement Plans and Trust Funds, No. 11-1085, – S. Ct.-, 2012 WL 692881 (6/11/12) – presents two questions: (1) whether, in a misrepresentation case under Section 10(b) of the Securities Exchange Act of 1934 and SEC Rule 10b-5, the district court must require proof of materiality before certifying a plaintiff class based on the fraud-on-the-market theory; and (2) whether, in such a case, the district court must allow the defendant to present evidence rebutting the applicability of the fraud-on-the-market theory before certifying a plaintiff class based on that theory.
In the decision that is on appeal, the Ninth Circuit answered “no” to both questions. But other circuits have answered “yes” in other cases. The circuit-split means that, at present, defendants are being treated differently in different parts of the country. A clear answer from the Supreme Court to these questions could have a significant effect on securities litigation.
Deal Cube Tournament: Round One; 14th Match
As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:
I remember – way back when – seeing the original “Wall Street” movie right when I began my legal career at the SEC. It was an era of big time insider trading busts and I was proud when the movie concluded with the SEC crashing Gordon Gekko’s offices to make the bust. Nevermind that the agency portrayed technically wasn’t the SEC – if you review the movie’s script, you will see it was “The Securities and Exchange Investigation Office” and Gordon was busted for violations of the “Security Acts.”
Since then, I have seen quite a few movies or TV shows portray the SEC in a similar vein. The latest is a recent episode of “Revenge” where the main character – Conrad Grayson – is being investigated by the SEC for some ambiguous wrongdoing (a mix of domestic terrorism and troubling trading practices). As noted in this episode recap, the two big SEC-related moments is when Conrad’s wife meets with a SEC “agent” on a park bench to spill some beans – and later when the SEC raids Conrad’s office to cart off some boxes.
Here are three myths about the SEC that were perpetuated in this TV show:
Myth #1: The SEC has criminal authority – It doesn’t, it only has civil authority. The DOJ or state attorney generals have to bring a criminal case and often work with the SEC in tandem when the circumstances warrant investigation into a possible crime.
Myth #2: The SEC can crash an office to conduct an investigation – I highly doubt the SEC shows up unannounced to carry off boxes – in fact, I’m not sure they could legally do so consistent with the Fourth Amendment because there’s no mechanism for them to seek or obtain a search warrant. It’s a much more mundane investigative process. Typically, requests are complied with by sending the Staff what they want to see – and even the depositions are conducted down at the SEC’s offices. Enforcement investigations never involve showing up unannounced, although the examiners in OCIE can do that, and sometimes do. But they do so only at regulated entities (broker-dealers, investment advisers, investment companies, etc.).
Myth #3: The SEC will meet with someone to investigate a hot tip – It would be very rare to have a “deep throat” type meeting with any witness outside of a government office building or a private lawyer’s office. For starters, the SEC doesn’t have the resources to personally meet everyone who wants to blow a whistle, even with the new Office of the Whistleblower opening up. It is possible that the Staff will meet with someone after receiving a tip and conducting a little diligence on it. But I can’t imagine any park bench meetings…
Our “Q&A Forum”: The Big 7000!
In our “Q&A Forum,” we have blown by query #7000 (although the “real” number is much higher since many of the queries have others piggy-backed on them). I know this is patting ourselves on the back, but it’s nearly ten years of sharing expert knowledge and is quite a resource. Combined with the Q&A Forums on our other sites, there have been over well over 20,000 questions answered.
You are reminded that we welcome your own input into any query you see. And remember there is no need to identify yourself if you are inclined to remain anonymous when you post a reply (or a question). And of course, remember the disclaimer that you need to conduct your own analysis and that any answers don’t contain legal advice.
Deal Cube Tournament: Round One; 13th Match
As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:
I’ve added 7 more companies to CompensationStandards.com’s failed say-on-pay list for 2012. We are now at 39 companies in ’12 that have failed to garner major support – with Digital River garnering support only in the teens (19.2%; going even lower than Chiquita Brands)! And Safety Insurance Group became the first company to fail after receiving a ‘For’ recommendation from ISS, as noted in this Semler Brossy blurb. Hat tip to Karla Bos of ING Funds for keeping me updated!
More on “The Mentor Blog”
We continue to post new items daily on our blog – “The Mentor Blog” – for TheCorporateCounsel.net members. Members can sign up to get that blog pushed out to them via email whenever there is a new entry by simply inputting their email address on the left side of that blog. Here are some of the latest entries:
– California Considers Legislation to Repeal its Corporate Long-Arm Statute
– ABA Spring Meeting: Corp Fin Notes
– The Bought Deal Bible
– Risky Business: What If the CEO Has a Risky Hobby?
– ABA’s Internal Controls Comment Letter to COSO
Deal Cube Tournament: Round One; 8th Match
As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:
As noted by Keith Bishop in his blog, Oxfam America has sued the SEC in the US District Court in Massachusetts for failing to comply with Congress’ mandate to adopt regulations governing disclosures by resource extraction issuers under Section 1504 of Dodd-Frank (here’s more in Jim Hamilton’s blog). First the SEC gets sued for rulemaking too fast, now too slow…
“Occupy the SEC”
A few weeks ago, this Washington Post article entitled “Occupy the regulatory system!” notes that a former SEC Staffer is part of the movement. The article drew a few hundred comments. Funny that an “Occupy the SEC” group is based in NYC and not DC, where the SEC’s HQ is based.
Meanwhile, a OWS-related group has filed what appears to be its first amicus brief, urging the Second Circuit to uphold U.S. District Judge Jed Rakoff’s controversial rejection of the SEC’s $285 million settlement with Citigroup.
Our June Eminders is Posted!
We have posted the June issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Deal Cube Tournament: Round One; 7th Match
As noted in these rules (and keep sending more pics for the next tourney), please vote for two of the following four cubes below:
