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."
The answer is: “I don’t know.” Those companies (and their advisors) with proxy access shareholder proposals are still scrambling – particularly since we still have no guidance from ISS. My guess – and it’s a total guess – is that we will see different types of reactions. And I do believe that proxy access shareholder proposals that make it onto the ballot will garner significant shareholder support. In this blog, Davis Polk’s Ning Chiu notes that “a proxy access proposal submitted by John Harrington received 53.46% of the votes cast in favor at Monsanto’s annual meeting on Friday. In a press release, the company indicated that the board will take the vote into consideration, including the discussions they have had with shareholders regarding the evolving role of proxy access, and will also seek additional shareholder input.” Given the madhouse, I just calendared a webcast for March 24th: “Proxy Access: The Halftime Show.”
Meanwhile, CII has written this letter in response to the Business Roundtable letter to ISS and Glass Lewis. And in our “Q&A Forum” yesterday, I answered a question about whether there was a list of companies that have received proxy access shareholder proposals (#8329)…
Section 16: SEC Posts New Forms 3 & 4 – But They Expire Soon
Here’s some Section 16 trivia. The SEC recently updated the Form 3 and Form 4 posted on its website – but the expiration date on those forms changed only from December 31, 2014 to February 28, 2015 (the expire date is listed in the upper right corner in a box). Alan Dye & I have no idea why it’s just a two-month extension – perhaps the SEC (or the OMB, which is the federal agency which approves the forms) can extend automatically for up to two months while a re-approval application is pending. It will be interesting to see what happens after February 28th. Anyways, it has no real world impact because the SEC accepts Section 16 filings on expired forms – but it’s definitely an oddity…
Note that the SEC’s Form 5 has an April ’17 expiration date…
Just Launched: The “Section16.net Listserv”
At the recent “Section 16 Workshop” in DC, Alan Dye & I came up with the idea of creating a Section 16 listserv because the audience was so interactive. That new listserv is now up live on Section16.net (for Section16.net members only) and I encourage you to sign up so that you can gain the benefit of the knowledge of your peers. It’s simple to join – just input your email address and click the “subscribe” button. Here are FAQs about the listserv, including instructions about how to email to group and how to unsubscribe…
Transcript: “Alan Dye on the Latest Section 16 Developments”
We have posted the transcript for our recent Section16.net webcast: “Alan Dye on the Latest Section 16 Developments.”
“Form 5” Poll: What Keeps You Up At Night?
For companies whose fiscal year ends December 31, 2014, the due date for Form 5 is Tuesday, February 17th. So you have a few extra days to file this year, as Valentine’s Day falls on a Saturday (two reminders in one blog!), followed by a Monday holiday – and Rule 0-3 under the Exchange Date allows you to push the due date forward accordingly. Take a moment to participate in this anonymous poll:
In this blog, Cooley’s Cydney Posner does a nice job of analyzing a recent 7th Circuit case – Greengrass v. International Monetary Systems – that illustrates the potential problems of disclosing the name of an employee in your legal proceedings disclosure. Here’s an excerpt from Cydney’s blog:
Disclosure in SEC filings is usually considered to be protective in most cases, but disclosures regarding litigation can often be something of a mixed bag. For example, disclosures might result in indirectly revealing the company’s assessment of the viability of its own defense or the extent of potential loss, especially under the GAAP requirements. This particular case presents an instance where the disclosure itself triggered further claims because of the nature of the disclosure, the inconsistent presentation and the alleged harm inflicted on the plaintiff, which may or may not ultimately prove to have been retaliatory.
Reading this case, a public company might feel caught between Scylla and Charybdis: what to do if SEC rules require disclosure of the principal parties but the company could face charges of retaliation if it discloses the litigating employees’ identities? Once a case is determined by the company to be material under Item 103, as noted above, that Item requires disclosure of the principal parties, and it seems unfair to impose these consequences on a company that consistently complies with the mandate of the rule. The Court in this case appeared to place a lot of weight on the inconsistencies and the “suspicious” timing of the company’s disclosures, not to mention the incriminating email traffic from members of management. Describing her charges as “meritless” probably didn’t help either; stating instead that the company “denies the charges” or just indicating that the company intends to defend itself vigorously, without more, might have been more palatable.
If the company concludes that a case involving an employee is not material under Item 103, the company might determine that it should still be disclosed under general materiality principles or even on a purely voluntary basis. Neither disclosure would involve specific mandatory requirements, including naming the plaintiff, and, in determining whether to disclose the names of employee-plaintiffs, the company should take into account the risks associated with this case as well as the importance (or lack thereof) to investors of disclosing an employee-plaintiff’s identity. If disclosure is elected, the company should ensure consistency in the nature and extent of that disclosure.
Interestingly, among a number of companies, even for mandatory disclosure under Item 103, there appears to be a practice in class actions to describe the class but not to disclose named plaintiffs. Given the potential adverse consequences to employees resulting from public disclosure of their involvement in cases against their employers, perhaps the SEC might consider interpretive guidance that would allow omission of employee names in these cases. Certainly, from an investor standpoint, as in class actions, the generic description of “employee” or “former employee” would usually provide as much insight into the case as the actual name of the employee-plaintiff.
And here’s a blog about this case from some employment lawyers at Dorsey Whitney entitled “Naming Names in SEC Filings?” – it’s interesting to compare how employment lawyers look at this case and the related disclosure obligations…
Delaware Chancery Rejects Delaware Choice of Law
In this blog, Keith Bishop describes the latest case in the battle of choice of laws. Here’s the intro paragraph:
The public policies of California and Delaware both espouse freedom. Ironically, the freedoms that they espouse are antithetical to each other. California embraces the freedom of people to pursue any lawful and employment of his or her choice. Hence, Section 16600 of the California Business & Professions Code declares, with narrow exceptions, covenants not to compete unenforceable. Delaware, in contrast, embraces the principle of freedom of contract, even with respect to reasonable covenants not to compete. The fundamental antagonism between these freedoms is evidenced by Vice Chancellor Sam Glasscock III’s recent ruling in Ascension Ins. Holdings, LLC v. Underwood, 2015 Del. Ch. LEXIS 19 (Jan. 28, 2015).
Webcast: “Rural/Metro & the Role of Financial Advisors”
Tune in tomorrow for the DealLawyers.com webcast – “Rural/Metro & the Role of Financial Advisors” – to hear Steve Haas of Hunton & Williams, Kevin Miller of Alston & Bird and Blake Rohrbacher of Richards Layton discuss a whole host of topics, including the viability of claims for aiding and abetting breaches of fiduciary duty in connection with M&A transactions as well as the widely-talked about paper from Delaware Chief Justice Leo Strine about “documenting the deal.”
Glass Lewis is pleased to announce enhancements to the performance metrics used in its US and Canadian pay-for-performance (P4P) models, as well as its US equity plan model. These changes will go live on February 2, 2015. Glass Lewis’ P4P models evaluate the linkage between pay and performance at companies versus their peers. Weighted-average executive compensation percentiles and weighted-average performance percentiles are reviewed to determine how well a company aligns its executive pay with its corporate performance. When calculating the performance percentiles, the current models evaluate the following five metrics: Change in Operating Cash Flow, Change in Earnings Per Share, Total Shareholder Return, Return on Equity, and Return on Assets.
Glass Lewis has determined that changing some of the performance metrics for certain industries will better reflect how the operating performance of companies in these industries is measured and evaluated by management, boards, and industry analysts. Along those lines, Glass Lewis will:
– Replace Change in Operating Cash Flow with Tangible Book Value Per Share Growth for companies in the Bank, Diversified Financials, and Insurance sectors
– Replace Change in Operating Cash Flow with Growth in Funds From Operations for REITs, with the exception of Mortgage and Specialized REITs.
In order to be consistent with these updates, Glass Lewis will also make the same changes to the performance metrics used in its US equity plan model. Glass Lewis has back-tested these changes in the P4P and equity plan models. The results indicate that there will be minimal impact on the grades generated by the P4P models, as well as minimal impact on the pass/fail assessments generated by the equity plan model.
SEC Budget: Obama Seeks 15% Raise to $1.7 Billion
According to this WSJ article (and this Bloomberg article), President Obama submitted his budget yesterday for the SEC. Here’s the WSJ’s opening paragraph:
The Securities and Exchange Commission would see its funding levels rise about $200 million to $1.7 billion under the White House’s 2016 budget blueprint, according to people familiar with the matter. The Obama administration is set to unveil the proposal Monday. The plan would fund the federal government for the fiscal year beginning Oct. 1. The blueprint is widely seen as an opening bid for budget negotiations with congressional Republicans and is unlikely to be enacted without tweaks. It marks the second consecutive year the White House has sought $1.7 billion in funding for the SEC. For the current fiscal year, lawmakers agreed to boost the agency’s funding by $150 million—$250 million less than what the White House sought—as part of a last-minute federal spending plan enacted in December.
Here’s what SEC Chair White said in a statement:
The FY 2016 $1.7 billion budget request is a 15 percent increase above the enacted level for FY 2015. The request would allow the SEC to hire an additional 431 staff for key priorities, including 225 examination staff, 93 enforcement personnel and 37 positions to enhance market oversight. The SEC’s funding comes from securities transaction fees and does not impact the federal deficit or the funding available for other agencies.
If you’re a “gotta know everything about the budget” kind of person, this “What’s New” page on the SEC’s site has no less than 7 documents related to the SEC’s proposed budget, including this “budget request by program” with Corp Fin’s stuff on pages 73-74. Corp Fin seeks 7 new positions next year – and reviewed 5100 filings last year (the same number forecast for this year & next)…
Recorded Conversations with In-House Counsel Permitted as Evidence in FCPA Trial
This Akin Gump blog would give any lawyer the chills. Here’s the intro:
Earlier this month, a federal judge in New Jersey held that a secretly recorded conversation between a former chief executive officer and his general counsel may be used by prosecutors as evidence against the former executive in a bribery trial. The ruling serves as an important reminder regarding the limitations of the attorney-client privilege.
Here are the survey results from our recent poll about whistleblower policies & procedures:
1. Over the last year, when it comes to our whistleblower policy, our company:
– Has changed existing policies to address the latest whistleblower developments – 12%
– Hasn’t yet, but intends to change existing policies within the next year – 24%
– Not sure yet if will change existing policies – 24%
– Has decided not to change existing policies – 41%
2. The board committee charged with consideration of the SEC’s whistleblower rules is:
– Audit Committee – 94%
– Corporate Governance Committee – 6%
– Risk Committee – 0%
– Compliance Committee – 0%
– Compensation Committee – 0%
– Board as a whole – 0%
3. Our company:
– Has provided incentives for whistleblowers to report internally first – 0%
– Hasn’t yet, but intends to provide incentives for whistleblowers to report internally first – 6%
– Has decided to not provide incentives for whistleblowers to report internally first – 94%
4. Our company:
– Has created a system to alert employees of the benefits of reporting internally (eg. sign updated employee handbook, fill out compliance questionnaires) – 28%
– Hasn’t yet, but intends to create a system to alert employees of the benefits of reporting internally – 6%
– Has decided not to create a system to alert employees of the benefits of reporting internally – 67%
5. Since the SEC adopted its whistleblower rules, our company has had:
– More whistleblower claims reported internally – 0%
– Same number of whistleblower claims reported internally – 100%
– Fewer whistleblower claims reported internally – 0%
In this podcast, Russell Maher of QDiligence explains how electronically organizing your D&O questionnaires provides benefits, including:
– What does QDiligence do?
– What is the process to move a company’s D&O questionnaires online?
– Companies often have questionnaires that are personalized and have attachments and appendices. How do those work online?
– Can companies pre-populate the responses? If they do pre-populate, how do they know what they changed?
– Can companies print the questionnaires that are electronic?
Our February Eminders is Posted!
We have posted the February issue of our complimentary monthly email newsletter. Sign up today to receive it by simply inputting your email address!
Last week, the “Burdensome Data Collection Relief Act” (HR 414) was introduced to repeal Dodd Frank’s Section 953(b), the pay ratio disclosure requirement. The bill is real simple – a single paragraph. This same bill was introduced in 2013 and went nowhere. Not sure what will happen this time around…
Transcript: “The Latest Developments: Your Upcoming Proxy Disclosures”
We have posted the transcript for our recent CompensationStandards.com webcast: “The Latest Developments: Your Upcoming Proxy Disclosures.”
SEC Grants Second Bad Actor Waiver With Conditions
SEC Commissioner Kara Stein recently described what many saw as a possible model for harsher bad actor waivers after settling a matter with the SEC. According to Ms. Stein “The waiver was for a limited time, and only if certain conditions were met, creating essentially a probationary period for the firm with a right to reapply after a second showing of good cause. And the conditions are important. For example, the recent case included a review by an independent compliance consultant, and a document signed by the principal executive or principal legal officer when the consultant’s recommendations have been implemented.” Ms. Stein added “This approach represents a breakthrough in the Commission’s method of handling waivers, and I hope to see more of this and other thoughtful approaches in the future.” She also remarked “Each waiver request should receive an individualized, detailed, and careful analysis based on all of the relevant facts and the particular waiver policy.”
Many wondered if her remarks actually foreshadowed a change in policy by the SEC in granting waivers. The question may now be answered. The SEC charged Oppenheimer & Co. with violating federal securities laws while improperly selling penny stocks in unregistered offerings on behalf of customers. Oppenheimer agreed to admit wrongdoing and pay $10 million to settle the SEC’s charges.
The SEC granted Oppenheimer a waiver as a bad actor under Rule 506(d). The SEC’s order says “Oppenheimer will comply with the conditions stated in its December 10, 2014 waiver request letter, including that it will retain a law firm to review its policies and procedures relating to Rule 506 offerings, and that it will adopt improvements or changes, both as private placement agent in its investment banking business and as issuer and as compensated solicitor in its wealth management business. Oppenheimer’s waiver is also conditioned upon its completing firm wide training for all registered persons on compliance with Rule 506 of Regulation D.”
On Monday, I blogged about a statement from Glass Lewis on proxy access shareholder proposals that was contained in a WSJ article. Now, Glass Lewis has posted this on its own blog on the topic:
In 2015, approximately 100 companies will face shareholder proposals seeking a proxy access right that would allow certain large, long-standing shareholders to nominate directors to a company’s board without going through a typical proxy contest. The lion’s share will come from New York City’s pension funds as Comptroller Scott Stringer announced in the fall of 2014 the intention to submit proxy access proposals at 75 companies.
On January 16, 2015 , the SEC announced that for the 2015 proxy season it will not opine on the application of Rule 14a-8(i)(9) that allows companies to exclude shareholder proposals, including those seeking proxy access, that conflict with a management proposal on the same issue. The SEC’s decision is a reversal from its initial approach that would have allowed Whole Foods (and likely other companies seeking similar no-action treatment) to rely on the conflict rule to exclude a shareholder-submitted proxy access proposal in favor of a management proposal despite substantial differences between the proposals’ terms, including a significantly higher minimum ownership threshold in the management proposal than in the shareholder proposal.
Glass Lewis will continue to review each proxy access proposal, along with the company’s response, on a case-by-case basis. Please refer to the Glass Lewis 2015 Proxy Paper Guidelines on Shareholder Initiatives to review the Glass Lewis approach to evaluating proxy access proposals http://www.glasslewis.com/resource/guidelines/.
Glass Lewis believes that significant, long-term shareholders should have the ability to nominate their own representatives to the board. Given reasonable minimum ownership thresholds in both percentage of shares and length of ownership, we believe that a proxy access right will be rarely invoked and even more rarely successful since a majority (or plurality, if contested) of shareholders must then elect the shareholder nominee(s), preventing the election of directors not supported by most shareholders. Nevertheless, given that contested director elections are distracting and potentially disruptive to a company, its board and management, Glass Lewis believes it is therefore reasonable that the exercise of the proxy access right be subject to certain minimum ownership thresholds and holding periods as well as limitations as to the number of directors nominated through proxy access.
Consistent with our case-by-case approach to evaluating management and board responsiveness to shareholders in general, Glass Lewis will review a company’s response to the submission of a shareholder proposal on proxy access, including an alternative management proposal submitted to shareholders in lieu of or in addition to the shareholder proposal, based on the specific facts and circumstances of the company and its actions. Glass Lewis will analyze the reasonableness and proportionality of the company’s response to the shareholder proposal, bearing in mind that during the 2015 proxy season the SEC’s Division of Corporation Finance will not express views on the application of Rule 14a-8(i)(9).
For alternate management proxy access proposals, Glass Lewis will evaluate whether a company’s proposal varies materially from the shareholder proposal in minimum ownership threshold, minimum holding period and maximum number of nominees to determine whether the company’s response is reasonable or would thwart the intent of the shareholder proposal (e.g. establishing a minimum ownership threshold/period significantly higher/longer than that submitted by the shareholder, thereby rendering the provision all but unusable). In addition, Glass Lewis will review the company’s performance and overall governance profile, the board’s independence, leadership, responsiveness to shareholders and oversight, the opportunities for shareholders to effect change, e.g. call a special meeting, other differences in the terms of the competing proposals, the number/type/nature of the shareholders above the proposed threshold as well as the nature of the proponent. Glass Lewis will review the rationale provided by the company regarding its reaction to the shareholder proposal, including explanation for the difference in the terms of the management proposal compared to the shareholder proposal’s terms, and in limited cases may recommend against certain directors if the management proposal varies materially from the shareholder proposal without sufficient rationale.
Glass Lewis does not have a preferred number/percentage of directors that may be nominated through the proxy access procedure as we recognize the appropriate level may vary depending on many factors. However, we believe companies should strike a balance between allowing shareholders to nominate a meaningful percentage of directors to adequately represent them while providing safeguards against a relatively small shareholder seeking to nominate a disproportionate number of directors to a level that is tantamount to gaining control of the board.
In addition to examining proposed ownership thresholds and percentage limits on proxy access nominees, in evaluating proxy access proposals submitted by shareholders Glass Lewis will review all aspects of the proposal to ensure the terms are not overly prescriptive, do not introduce minimum ownership calculation methods open to abuse or would not impose undue or unnecessary burdens on the company or the board. Similarly, Glass Lewis will closely review the terms of a management proxy access proposal to ensure that provisions would not present overly burdensome hurdles such as excessive restrictions on shareholders working as a group that would by themselves or coupled with restrictive rules regarding ownership size, length and number/percentage of directors fundamentally vitiate the proxy access right.
Spanking brand new. By popular demand, this comprehensive “Form 8-K Handbook” covers all you need to know about “real time” disclosures via Form 8-K (it’s now posted on our “Form 8-K” Practice Area). This one is a real gem – 189 pages of practical guidance.
SEC Roundtable on February 19th: Proxy Voting
For some reason, when I saw this press release from the SEC yesterday about a February 19th roundtable on proxy voting, my initial reaction was “Hasn’t this been done before? Like every 3 years?” But it winds up just part of me becoming old & jaded. There have been roundtables on proxy advisors in ’13, securities lending & short sales in ’09 and proxy voting & state corporate law in ’07 – but none of these prior roundtables tackled the two topics of this upcoming roundtable: universal ballots & how technology can improve retail investor participation in the proxy process…
Webcast: “Proxy Solicitation Tactics in M&A”
Tune in tomorrow for the DealLawyers.com webcast – “Proxy Solicitation Tactics in M&A” – to hear Okapi Partners’ Chuck Garske, Alliance Advisors’ Waheed Hassan, Managing Director and Innisfree’s Scott Winter discuss the latest techniques used to sway opinion and bring in the vote – including social media – as well as how traditional tactics have evolved.
One of the goals of Corp Fin’s “Disclosure Effectiveness” project is to modernize its filing framework, EDGAR. Not an easy thing to do, but it definitely could use a look. For example, use of multimedia in SEC filings poses challenges that requires a work-around when making a filing, as illustrated in this short video I have posted entitled “How to File Video on the SEC’s EDGAR.”
Last week, Corp Fin issued new CDI 118.01 of Regulation S-T, which addresses whether a filing can ever contain graphics or images that include non-searchable information. The answer essentially is: “yes, if the filer also presents the same information as searchable text or in a searchable table within the filing.” One small step forward for bar graphs, etc. But more relief will be needed as companies strive to make their filings more usable for investors…
Corp Fin also issued CDI 279.01 of Regulation S to address the relatively rare scenario about whether restricted securities acquired in a Rule 144 transaction (other than Rule 144(a)(3)(v)) from an issuer that was a foreign private issuer at the time of the acquisition – but is now a domestic issuer – may be resold in an offshore transaction under Rule 904 without regard Rule 905. Corp Fin’s answer is: “Yes. Rule 905 only applies to equity securities that, at the time of issuance, were those of a domestic issuer.”
First Multimedia Prospectus Ever Filed? 1985!
In response to my blog about my video regarding “how to file video on Edgar,” David Westenberg of WilmerHale informed me that in 1985, he was part of the team that handled an IPO that included the first use of multimedia. Due to its novelty at the time, it flummoxed the Corp Fin Staff and the company was told at the time by the Staff it would never again be allowed. Here’s the story from David’s IPO book:
In the 1985 IPO of Kurzweil Music Systems, the printed prospectus was polybagged with an audiocassette that contained a sound recording to demonstrate the ability of the company’s polyphonic digital synthesizer to replicate the sound quality and dynamic range of acoustic musical instruments. (In response, one state blue sky law administrator who was reviewing the offering submitted recorded comments on an audiocassette.)
Tune in tomorrow for the CompensationStandards.com webcast – “Executive Compensation Litigation: Proxy Disclosures” – to hear Pillsbury’s Sarah Good, Shearman & Sterling’s Doreen Lilienfeld and Winston & Strawn’s Mike Melbinger as they drill down on how proxy disclosure-related lawsuits are faring and what you can do to avoid them. Please print these two sets of course materials in advance:
On Friday, Glass Lewis issued a statement about how it will treat proxy access shareholder proposals through this WSJ article. The article opens with:
Proxy advisory firm Glass, Lewis & Co. is considering recommending shareholders vote against management’s preferred directors when firms ignore certain shareholder proposals on their proxies in favor of their own diluted alternatives. Glass Lewis said Friday it may recommend shareholders dissent from management-backed candidates if companies block shareholder-submitted proposals on the grounds that they “conflict” with the companies’ own proposals.
The Glass Lewis statement quoted in the article is:
Glass Lewis will evaluate the reasonableness and rationale of a company’s response to a proxy access shareholder proposal, including when the company submits an alternative access proposal and excludes the shareholder proposal, based on the differences in the terms of the proposals as well as analysis of the company, its governance, performance, board independence and responsiveness to shareholders.”
This Glass Lewis statement isn’t posted on the Glass Lewis site nor on its blog, at least not yet. As I noted in my blog last week entitled “Proxy Access Punt: Top 5 Things People Are Asking,” the reaction from the proxy advisors to the SEC not ruling on proxy access no-action requests this season should be an important factor in how companies respond to these proposals. ISS declined to comment for the WSJ article – but I imagine they will eventually come out with a statement too. And hopefully sooner rather than later…
Meanwhile, the Business Roundtable recently sent this letter to ISS and Glass Lewis, asking them not to apply their voting policies in a way that substitutes their own judgment in place of the board’s judgment and essentially asking them not to act since the SEC isn’t. And don’t forget our new “Proxy Advisors Handbook”…
Corp Fin’s No-Action Relief: 5-Business Day Debt Tender Offers Allowed
Today, January 23, 2015, the Division of Corporation Finance (the “Staff”) granted a no-action letter that was submitted on behalf of a consortium of law firms, including Gibson Dunn, whereby the Staff agreed to not recommend Enforcement action when a debt tender offer is held open for as short as 5 business days. This letter builds upon an evolving line of no-action letters granted over the past three decades that have addressed not only the overall duration of debt tender offers (typically the rules require a minimum of 20 business days), but also formula pricing mechanisms (that allow a final price to be announced several days prior to expiration).
Following an extensive dialogue with members of the bar and numerous market participants, including issuers, investment banks and institutional investors that began several years ago, the Staff is now opening up the relief that it previously limited to “investment grade” debt securities. Under the no-action letter, “non-investment” grade debt securities are now eligible to be purchased on an expedited basis. In order to take full advantage of this relief, issuers will need to disseminate their offers in a widespread manner and on an immediate basis. This should enable more security holders to quickly learn about the offer and permit holders to receive the tender consideration in a shorter timeframe. In addition, the abbreviated offering period will allow more issuers to better price their tender offers with less risk posed by fluctuating interest rates and other timing and market concerns related to the offer.
Previously, the Staff limited “abbreviated” debt tender offers (i.e., seven to ten calendar days) to “all-cash” offers seeking to purchase investment grade debt securities where the offering materials were disseminated in hard copy by expedited means such as overnight delivery. The relief granted today enables issuers to conduct their offers for both investment grade and non-investment grade debt securities on a similarly short time-frame (i.e., five business days) so long as the offer is open to “any and all” of a series of non-convertible debt securities and the issuer widely disseminates its offer notice to investors and provides them with immediate access to the offering materials.
More importantly, the letter opens up the door to five business day exchange offers, provided that the offer is exempt from the ’33 Act registration requirements and the securities sought are “Qualified Debt Securities.” This term is generally defined as “non-convertible debt securities that are identical in all material respects . . . to the debt securities that are the subject of the tender offer except for the maturity date, interest payment and record dates, redemption provisions and interest rate.” Such exchange offers would need to be limited to QIBs and/or non-U.S. persons under Regulation S, with non-eligible exchange offer participants concurrently provided with the option of receiving a fixed cash amount that reasonably approximates the value of the Qualified Debt Securities.
While there are a handful of detailed conditions that an issuer must follow in order to qualify for the relief granted today, key amongst the conditions are that all five day offers must be announced by press release through a widely disseminated news or wire service disclosing the basic terms of the offer and an active hyperlink to the instructions or documents relating to the tender of securities. The press release must be issued no later than 10:00 a.m. (Eastern time) on the first business day of the offer. Public reporting companies must furnish the press release in a Form 8-K filed no later than 12:00 p.m. on the first business day of the offer. With respect to fixed spread tender offers that are tied to a benchmark such as Treasury or LIBOR, as well as exchange offers, the exact consideration offered (including the principal amount and interest rate of any Qualified Debt Securities offered) must be disclosed no later than 2:00 p.m. on the last business day of the offer. Also, the offer may expire as early as 5:00 p.m. on the last business day, which is significantly earlier than what prior Staff interpretations allowed, which required an offer to remain open until midnight for that day to count as a full business day.
Of course, some offers are explicitly precluded from taking advantage of the relief. Most notably offers involving a consent solicitation may not be conducted on a five business day time-frame. Similarly, the relief would not extend to, among other things: partial tender offers, third-party tender offers, waterfall debt tender offers, offers made when there is a default or event of default under the indenture or other material credit agreement, when the issuer is the subject of a bankruptcy or insolvency proceeding, or offers made in anticipation of or in response to a change of control or other extraordinary transaction such as a merger or other tender offer.
Webcast: “Alan Dye on the Latest Section 16 Developments”
Tune in tomorrow for the webcast – “Alan Dye on the Latest Section 16 Developments” – to hear Alan Dye of Section16.net and Hogan Lovells discuss the most recent updates on Section 16, including new SEC Staff interpretations and Section 16(b) litigation.
Spanking brand new. By popular demand, this comprehensive “Proxy Advisors Handbook” covers all you need to know about dealing with ISS and Glass Lewis (it’s now posted on our “Proxy Advisors” Practice Area). This one is a real gem – 32 pages of practical guidance.
Virtual Annual Meetings: Flat Growth Rate From Last Year
Last year, I blogged about the huge leap in the number of companies holding virtual-only annual meetings – 99 during 2013. Here’s an excerpt from the Broadridge Independent Steering Committee newsletter about how these meetings fared in 2014:
Broadridge reported that approximately 93 companies held Virtual Shareholder Meetings (VSMs) in 2014. Of these, 46% were “hybrid”, or a combination of a physical and an on-line meeting, while 54% were on-line only. Of these meetings, 83% of the meetings used an audio broadcast only, while 17% used a video and audio broadcast, The Committee was reminded that for a company to host a VSM, the shareholders must be able to vote during the meeting, see or hear the proceedings contemporaneously, and be able to ask questions or make remarks which can be heard by other shareholders. Broadridge then described a VSM that they conducted during 2014 that experienced organized cyber-attacks and the use of disruptive technology in an attempt to “trash” the meeting. By using extensive countermeasures, Broadridge was able to repel the attacks and the client’s VSM was successfully conducted.
The Steering Committee received a report on the 2014 End-to-End Vote Confirmation Pilot Program in which 26 US corporations participated. Approximately 490,000 shareholder accounts received vote confirmation during this program. The vote confirmation process revealed that a nominal amount of shares (0.11%) were not reconciled and therefore not voted. Some members of the working group questioned the return on investment of further enhancements to the reconciling process for such a small number of un-voted shares. However, the institutional investor members of the Steering Committee expressed the importance of achieving full and precise end-to-end vote confirmation for all US corporations, regarding exactness in voting as an essential element in establishing the certainty and integrity of the shareholder voting system.
