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."
With M&A activity heating up, many problems continue to exist with how to deal with stock options. On DealLawyers.com, I have posted this interview with Mike Melbinger – of CompensationStandards.com blogging fame – on Stock Option Problems in M&A Transactions.
More on the Niagara 10-K Blog
A number of members responded to my blog yesterday regarding Niagara’s 10-K reference. Some pointed out that the only time that the words “Form 10-K” appear is in the Cautionary Statement re Forward Looking Statements on page 15 of their annual report, likely an oversight when they copied the statement from the prior year’s Form 10-K.
Sage Keith Bishop noted that even though Niagara is a Delaware corporation, California corporations and foreign corporations having their principal business office in California (or that are governed by Corp. Code Section 2115) are required to send an annual report to shareholders within 120 days after the close of the fiscal year (fyi, corporations with less than 100 shareholders may waive this requirement in the bylaws). The annual report must contain financial statements.
If the company is not subject to the Exchange Act’s reporting requirements – or exempted pursuant to Section 12(g)(2) – under Cal. Corp. Code Section 1501, the report must also contain information concerning transactions between the corporation and its officers and directors involving more than $40,000 and indemnification of officers and directors in the amount of $10,000 or more. Therefore, companies that “go dark” may still have an annual report requirement under California law.
Paul Roye Lands at Capital Research & Management
Paul Roye, who left as Director of the SEC’s Division of Investment Management in March, has been hired by the manager of the American Funds, the 2nd largest mutual fund with $670 billion in assets. Paul will start May 9th as a Senior Vice President at Capital Research doing compliance and legal work.
Paul will not be involved with an SEC investigation that reportedly surrounds portfolio trades at the firm. Federal ethics rules ban former SEC employees from representing private clients in SEC matters for two years after leaving the agency if the employee had direct involvement in the matters.
We are excited to announce that John Reed will be kicking off our major “2nd Annual Executive Compensation Conference.” In addition to serving as the Chairman of the NYSE until recently, John Reed served as the distinguished CEO of Citigroup for many years.
As many of us may be aware, John Reed and a distinguished group of leaders are spearheading an effort to “Restore Trust in American Business.” With executive compensation in everyone’s crosshairs – from regulators to plaintiffs’ lawyers to shareholders and the American public – we could not think of a more respected and responsible person to kick off this responsible-minded conference. This year’s conference will have an even greater emphasis on the practical guidance that directors (and their advisors) now need to implement in order to meet the new standards – and avoid personal liability – and to restore trust in our system.
A number of other former CEOs and respected directors will be participating in the conference – including Ken West, Sam Skinner, Warren Batts, Ed Brennan, Michele Hooper and Jim Crown – with more to be announced shortly.
We urge our members to sign up – and schedule your directors’ calendars – NOW for this critical conference. As you might recall, SEC Corp Fin Director, Alan Beller, gave his major address on compensation proxy disclosures at last year’s Conference. Learn more in this “Ten Good Reasons To Register for the Conference Now!”
Advance Notification Bylaws
With annual shareholder meetings being held in droves, it felt like a good time to conduct this interview with Marc Weingarten on Advance Notification Bylaws.
I have been following an interesting flap between Niagara Corporation and one of its large shareholders over Niagara’s deregistration from the ’34 Act. In a press release, the shareholder claims that the company recently circulated an “annual report” that indicated it was a 10-K, yet the company had deregistered its securities in April 2004. The company responded to these allegations in its own press release later that day.
I haven’t investigated the circumstances behind the flap to determine their veracity, but if the company erroneously identified its annual report as a 10-K – that seems misleading because it represents that the filing contains all the information required by a 10-K, even if the report was not filed with the SEC. On the other hand, I think there would have to be 10b-5 scienter for the statement that it’s a 10-K to have much consequence though. Just musing…
In anticipation of today’s webcast – “The Latest Regulation FD Practices” – take a gander at the running results from our Reg FD survey below:
1. Our company has a written policy addressing Reg FD practices:
– 9%: Yes, and it is publicly available on our website
– 64%: Yes, but it is not publicly available on our website
– 11%: No, but we are in the process of drafting such a policy
– 16%: No, and we do not intend to adopt such a policy in the near future
2. Regarding reaffirmation of earning announcements, our company uses one of the following rules of thumb regarding private reaffirmations:
– 70%: We do not allow private reaffirmations
– 6%: Rule of thumb allowing for private reaffirmations of one week or less
– 5%: Rule of thumb allowing for private reaffirmations of one to two weeks
– 6%: Rule of thumb allowing for private reaffirmations of two weeks or longer
– 13%: We permit private reaffirmations – but never use a rule of thumb, instead we require confirmation of no material change with CEO, GC, etc.
3. At our company, our CEO and other senior managers (note more than one answer permitted):
– 6%: Are not permitted to meet privately with analysts
– 41%: Are only permitted to meet privately with analysts so long as someone else accompanies them (such as general counsel or IR officer)
– 50%: Are permitted to meet privately with analysts after briefing by IR officer, general counsel, etc.
– 33%: Are only permitted to meet privately with analysts during certain designated times
Please note that we have had a last minute substitution on the panel of today’s webcast as John Huber unfortunately can’t make it – but we gain the inhouse perspective of Michael Cahn of Textron and Stacey Geer of BellSouth.
Update on the Berlin-Bremen Stock Exchange
Last June, I blogged about how some members had success getting their clients delisted from the Berlin-Bremen Exchange. Now, I am hearing that this exchange has taken a more harsh position and is not willing to delist companies (remember that the Exchange lists companies without their knowledge or consent).
I would be interested in hearing from anyone that has had dealings with this Exchange recently, as this problem appears to be worse than ever. Then, I will update our “Berlin-Bremen Exchange” Practice Area.
SEC Fees Going Down Again for 2006
On Friday, the SEC issued this fee rate advisory indicating that – effective October 1, 2005 (or 5 days after the date on which the SEC receives its fiscal year 2006 regular appropriation, whichever date comes later, and it always comes later!) – the Section 6(b) fee rate applicable to registration of securities will decrease to $107.00 per million from the current rate of $117.70 per million, which is about a 9% reduction! Over the past few years, this rate has been steadily dropping.
Yesterday. the SEC charged Tyson Foods with inadequate proxy disclosures as well as with failing to maintain adequate internal controls in connection with its former Chair’s perks. The company settled by paying a $1.5 million civil fine – and the former Chair, Don Tyson, will pay an additional $700k since he caused and aided the company’s violations of disclosure rules for benefits that he, his friends and family members received while he was Chair and after his retirement in October 2001. Mr. Tyson is still a consultant to the company and sits on its board.
Reading through the list of perks that Mr. Tyson received, you can understand why companies might be loathe to disclose the perks that their senior managers receive. There is some incredible stuff disclosed in this press release: from $80,000 in lawn maintenance fees and $200,000 in housekeeping fees – to $1 million to cover the personal income tax liability associated with his receipt of the numerous benefits!
One aspect of the SEC’s order that Mark Borges blogged about yesterday was that the SEC found that the company’s use of the phrase “travel and entertainment” misleading to describe the continuation of Mr. Tyson’s perquisites under his retirement agreement. To Mark and me, this really underscores one of the conclusions from the earlier GE enforcement proceeding: executive perks have to be described with sufficient specificity so that shareholders can understand the nature and scope of these benefits.
In the May/June issue of The Corporate Counsel – which will be mailed in early June – there will extensive analysis of perk use and disclosures.
FASB Proposes New GAAP Hierarchy
Good for both accountants and us lawyers alike – in connection with its effort to improve the quality of financial accounting standards and the standard-setting process – the FASB yesterday published an exposure draft on “The Hierarchy of Generally Accepted Accounting Principles.”
The GAAP hierarchy, which currently resides in the AICPA’s Standard No. 69, ranks the relative authority of accounting principles issued from multiple standard-setters. The FASB’s codification and retrieval project will integrate existing US GAAP into a single authoritative retrievable source, thereby creating a single authoritative codification of GAAP.
Remember that we have a set of FAQs that explains all the basics of accounting and auditing in our “Accounting Overview” Practice Area.
My Beef with the DC Bar
Just finished reading an article in the Legal Times about how eight former DC Bar Presidents – including former Deputy Attorney General Jamie Gorelick – filed an amicus brief supporting a DC Bar member (who is a senior DOJ staffer) that was suspended from the Bar for not paying his dues. The brief was filed because the DC Bar is essentially saying he can’t rejoin the bar – even though he wants to pay what he retroactively owes – due to an arcane DC Bar rule.
The DC Bar’s GC doesn’t sound responsive as he is quoted is saying, “It is a mandatory bar, not a club” and explains how the rules limit retroactive reinstatement only where the DC bar makes a mistake. Got news for the GC – his staff made a mistake with my membership last year and they still refuse to acknowledge it despite multiple appeals. It is the most rigid organization I have ever dealt with – so I am glad to see this article and know I ain’t crazy. Trust me, the members don’t come first with the DC Bar!
Note that the senior DOJ staffer has a more complex situation, as he is being sued for malpractice as he has been trying cases for two years without a license in DC. Me? I just sit in my home office in pajamas and post stuff on websites all day – so I really don’t need to give my money to the DC Bar anyways. As you probably can tell, I had to get that off my chest…
I’m excited about my first podcast – and it’s a timely one as Lou Rorimer and Lisa Kunkle explain “What’s Next after the Annual Meeting.” Let me know if you have trouble getting it to play.
For those expecting podcasts captured at the ABA Spring Meeting in Nashville, I confess I didn’t have the nerve to whip out the microphone and start asking questions – still making the conversion from lawyer to journalist after all these years. But now that I got my feet wet, I think I will be podcast-happy. Let me know if you have a topic you want addressed – or want to be interviewed yerself! This one was done over the phone and the audio quality seems fine.
How Not to Conduct An Annual Meeting
Speaking of annual meetings, in this Sunday’s NY Times, this article points out how some companies still don’t quite get “it” about corporate governance in the meeting context. Look at what the article says Weyerhaeuser did:
“At its annual meeting last Thursday, the company’s board and management broke with their longstanding tradition of taking shareholder questions from an open microphone on the floor. Instead, they required that shareholder questions be submitted in writing, either before or during the meeting. And Steven R. Rogel, the company’s chief executive, announced that his directors and managers would devote just 15 minutes to answering the written questions.
It’s a disturbing precedent to abolish the single spontaneous interaction that executives — who, after all, are hired help — have with their owners every year. But Weyerhaeuser went even further, according to an investment manager who attended the meeting, by gaveling down several shareholders who tried to ask questions from the floor. And when management cut short the answer period and a proxy holder stood up to make a point of order and ask why, a beefy security guard removed him from the meeting.”
And in the article, here was the response from Weyerhaeuser:
“Frank Mendizabal, a spokesman for Weyerhaeuser, said: ”What we were trying to do was ensure the meeting was orderly and that as many questions as possible were answered. It’s a business meeting, not a forum for special interest groups.”
He said the company answered 12 of about 30 questions that were submitted and that it planned to communicate its responses to the remaining queries, though he said he did not know how it would do this. He added that Weyerhaeuser had not decided whether it would stick to the written-question format at next year’s meeting, but that more questions were answered this year than in previous years when they came from the floor.”
Anyone surprised that Weyerhaeuser recently made the focus list of CalPERS (and that was even before the annual meeting was held!) of corporate laggards? Apparently the Weyerhaeuser spokesperson was surprised – here is another quote: ”We were certainly surprised and disappointed that Calpers took that action,” he added. ”We pride ourselves on our ethics and corporate governance.” Lots of other gems in the article…
May Issue of Eminders is Available
We have posted our May issue of our monthly email newsletter – sign up for this free newsletter today!
Last week, someone posted the overvoting question below in our “Q&A Forum” – note that overvoting reportedly occurs at 95% of shareholder meetings – and I couldn’t help but have Julie conduct this interview with me to delve deeper into this unexplored topic. For the answer to the question below, see #879 in our Q&A Forum:
“Apparently it is relatively common that at proxy time, ADP and the broker community don’t properly reconcile votes. Very often brokers transmit voting instructions through DTC for more shares than they really have, in some cases substantially more. The transfer agent and ADP both wash their hands of the problem, and all point fingers at the brokers having multiple account numbers at DTC returning votes with the wrong account flagged. In years past, we haven’t heard about this problem. This year, the transfer agent explained the problem and wants us (the issuer) to tell them how to tabulate the overvotes. The transfer agent will either (a) not tabulate the vote of a broker’s shares unless the votes correspond to the broker’s DTC position or (b) tabulate the shares in such a manner as to “subtract” the over votes from management’s recommendations. Unbeknownst to us, option (b) has been used in years past. Any reaction on the choices, other alternatives and what others are doing? Have others heard of this problem?”
D&O Insurance Transcript is Posted!
We have posted the transcript from the webcast: “D&O Insurance Today.”
SEC Approves Prohibition of Analysts from Participating in Road Shows
Last week, the SEC approved a NYSE and NASD rule that prohibits analysts from participating in road shows. The 10 largest investment banks have already been subject to such a ban since a 2003 settlement with Eliot Spitzer.
Besides barring analysts from appearing at road shows, the new rules preclude analysts from any communication with current/prospective banking customers while bankers are present. Similarly, the rules forbid bankers from directing analysts to take part in sales or marketing efforts related to investment banking deals.
Under the new rules, analysts will be allowed to “educate” investors about investment banking deals, provided their presentations are fair, balanced and not misleading. Analysts may communicate in writing or make oral presentations – but only if investment banking personnel and company managers aren’t present.
Those of you following ISS policy changes know that ISS will now recommended withholding votes for “over-boarded” directors. Current ISS policy is that overboarded directors are defined as those directors that serve on more than 6 boards (or for CEOs, those that sit on more than 3 boards, including the CEO’s own board).
As can be expected under this new policy, a number of members have told me that ISS has indicated that one of their directors is over-boarded this year – and the choice the company then faces is either having the director roll off boards to reach the ISS policy limit or bear the burden of a recommendation that votes be withheld from the director.
If a director decides to roll off, ISS requires that this corrective action be made public somehow, as this public disclosure serves as notice to all interested parties and covers the promise to ISS with the anti-fraud protection of the federal securities laws. This can be done either through a SEC filing or press release; although here ISS prefers for the disclosure to appear in each relevant proxy statement(s) where the director is listed as a nominee (which can be accomplished by adding a tag line to the bottom of the director’s bio, similar to the language noted in the example below). ISS prefers disclosure in these proxy statements as a way to ensure that shareholders of each company have access to the information.
As an example of what this disclosure might look like, check out this Form 8-K filed by Cousins Properties filed on April 15th that states:
“Thomas D. Bell, Jr., President and Chief Executive Officer of Cousins Properties Incorporated (the “Company”), currently serves on the boards of directors of more than three publicly traded companies. He has announced that by the spring of 2006, and for so long as he is the Chief Executive Officer of the Company, he intends to serve on the boards of directors of no more than three publicly traded companies (including the Company).”
Calling All Reg FD Questions!
In connection with our webcast next Monday – “The Latest Regulation FD Practices” – please send any questions in advance to me via email at broc.romanek@thecorporatecounsel.net and we will try to address them during the program (you can simply hit the “Email Broc” link on the left side of this blog).
And don’t forget to cast your vote in our survey on Reg FD practices on the home page of TheCorporateCounsel.net.
Looking for Venture Capital Content
According to Inc.com, venture capital in the US doubled in 2004. We have created a new “Venture Capital” Practice Area. Check it out and let me know if you have any content or further ideas to bolster it! Any potential bloggers out there?
On Saturday, the NY Times ran this article about a “road map” from SEC Chief Accountant Donald Nicolaisen which would allow European companies to sell securities in the U.S. without having to revise their financial statements.
Outlined in this recent speech by the Chief Accountant, the road map envisions that by 2009 (and perhaps as early as 2007) companies that follow International Accounting Standards might be able to file financial reports with the SEC without reconciling the reports with US GAAP. Here is a Paul Weiss memo that discusses the road map.
The article has quotes from European regulators and this one from SEC Chairman Donaldson: “achieving the goal would depend in part on a detailed analysis of the faithfulness and consistency of the application and interpretation of international accounting standards in financial statements across companies and jurisdictions.” This jibes with what the Chairman noted in his meeting last week with EU Market Commissioner Charles McCreevy.
The article also says the SEC expects about 300 companies, primarily European, to file annual reports next year that use international standards, which are now required in Australia and in the European Union. While Australian companies must follow all of these international rules, the European Commission gave European companies permission to opt out of complying with major parts of a rule concerning derivative securities.
30 Nuggets Transcript is Up!
On DealLawyers.com, the much-sought-after transcript from “30 M&A Nuggets in 60 Minutes” is posted.
My Last Word on Lease Restatements
I’ve blogged a bit about the “biggest category of restatements we’ve ever seen” after the SEC’s Office of Chief Accountant posted a letter regarding lease accounting in February. In last Wednesday’s WSJ, I saw the most accurate description of why the SEC released that letter, indicating that the SEC Chief Accountant was merely reacting to what the Big 4 had suddenly realized regarding past lease accounting practices. Here is an excerpt from that article:
“It all started in November, when KPMG LLP told fast-food chain CKE Restaurants Inc. that it had problems with the way CKE recognized rent expenses and depreciated buildings. That led CKE to restate its financials for 2002 as well as some prior years. CKE will also take a charge in its upcoming annual filing for 2003 through its just-ended 2005 fiscal year.
By winter, the Big Four accounting firms had banded together to ask the Securities and Exchange Commission’s chief accountant to clarify rules on lease accounting. Retail and restaurant trade groups began battling rule makers about the merits of issuing such guidance.
Now, about 250 companies have announced restatements for lease-accounting issues similar to CKE’s, and the number continues to rise daily.”
“Gripe Sites” Protected in 9th Circuit
Many companies have had to deal with so-called “gripe sites” — unauthorized websites that not only criticize the company or its products, but also use the company’s own trademark as part of the website’s domain name. Here is an article that explains what gripe sites are and here is a website that comments upon – and keeps track – of gripe sites.
As noted in this Skadden Arps’ memo, earlier this month, the U.S. Court of Appeals for the Ninth Circuit found that the noncommercial use of a trademark as the domain name of a gripe site does not constitute infringement of a trademark. The court’s decision removed an important argument on which plaintiffs rely in such cases and split from an earlier Fourth Circuit decision.
Long-awaited, the notes from the 2004 meeting between the SEC Staff and the ABA’s Joint Committee on Employee Benefits were just released and reflect discussions with Staffers held after last May’s meeting. A lot of tough questions were dealt with in the JCEB meeting as the new 8-K rules were adopted during that period and the Staff’s 8-K FAQs released last Fall reflect some of those discussions. The 2005 JCEB/Staff meeting is being held in a few weeks.
In response to my blog yesterday about parts of Corp Fin moving today, several members asked where they should mail confidential treatment requests and other materials that get sent in hard copy to the SEC. The answer is that they don’t go to a new address yet; they still go to 450 Fifth Street until the SEC makes an announcement to the contrary. This might take a few months as the Staff will be spread out over the two buildings until sometime this Summer. Will keep you posted.
By the way, Corp Fin now has released the new phone numbers for those Operation offices that move today. All of the new numbers are reflected in our constantly updated “SEC Staff Organization Chart.”
Risks of Sharing Pleadings with the Media
My favorite interviews are those during which I learn a lot; I knew little about sharing pleadings with the media until I conducted this interview with Chris Ohly on Risks of Sharing Pleadings with the Media.
This Friday, the first wave of the SEC gets moved – one floor at a time – starting with Corp Fin. It’s important to note that Staffer phone numbers will change – you will be able to call any old phone number to listen to a message detailing the new number. But Staffers will not be able to access voicemail on their old phones once they move – so don’t leave any messages if a recording says the Staffer has a new number.
For the Chief Counsel’s well-known number – 202.942.2900 – the recording now says that on Monday, April 25th, the number will change to 202.551.3500. Here are the other new phone numbers for Corp Fin announced so far.
[As an aside, some Staffers had some of my old oil paintings in their offices – and they didn’t want them anymore – so I picked them up and you might see them soon on Ebay.].
Annual Meeting Preparation Extravaganza
With many annual stockholder meetings approaching, we have posted numerous sample documents relating to the annual meeting – courtesy of Stephen Older of Akin Gump – in our “Annual Stockholders’ Meeting” Practice Area. In addition, don’t forget the audio archive and transcript of last year’s great webcast: “Conduct of the Annual Meeting.”
SEC Releases Study on Administrative Proceedings
Not sure who follows what the Administrative Law Judges are up to, but if you care – here is a study of the ALJ activities over the past year that the SEC released yesterday.
