Don’t forget to use the new 8-K form starting today! To help out, remember that we have posted a cover page of the new form, that includes all the changes from the SEC’s technical amendments adopted a few weeks ago.
Also note that the SEC has posted a corrected PDF version of the entire form on its website – if you printed out a PDF anytime before late last week, it was missing the two instructions for new Item 5.02.
And note that I got a little publicity from WSJ.com on Friday – now I really am somebody!
New Corporate Governance Survey
On GreatGoverance.com, we have posted a new survey by Shearman & Sterling regarding the corporate governance practices of the 100 largest companies. The survey results reveal that these companies have taken a wide variety of approaches in complying with the new requirements that took effect this year.
One notable development is the frequency and degree to which a number of the companies exceed the minimum requirements of the new rules and standards either in policy or practice. For instance, almost half adopted more stringent independence requirements than required by the applicable listing standards – but in practice, independent directors comprise 75% or more of the boards of an even larger number of the surveyed companies. Similarly, many of the surveyed companies voluntarily chose to disclose publicly the name of more than one audit committee financial expert, though only required to name one.
There are several areas in which the survey results differ from expectations. It is clear that directors have been devoting more time to fulfilling their responsibilities – and although this expectation is reflected in the significant increase in the aggregate amount of annual cash retainers paid to directors, the number of board meetings increased only slightly from the previous year and less than one-third of the surveyed companies limit the number of public company boards on which their directors may sit (and at least one director at over 40% of the surveyed companies serves on five or more public company boards).
We have posted bullet point highlights from the two sessions at the recent ABA Annual Meeting that featured Corp Fin Director Alan Beller. These ABA Meeting Notes are in Section F of the Sarbanes-Oxley Law Firm Memos.
New Nasdaq Proposal for Non-US Issuers
Currently, Nasdaq doesn’t impose initial listing requirements relating to share price or market value with respect to non-Canadian foreign issuers seeking to list on the Nasdaq SmallCap Market. By contrast, domestic issuers must have a bid price of at least $4 and a market value of publicly held shares of at least $5 million for initial listing. On August 11th, the SEC issued a proposal by Nasdaq to amend Nasdaq Rule 4320 to apply these same initial inclusion requirements to non-Canadian foreign issuers.
Musings on Google’s Acceleration Request
As a two-time Corp Fin’er, I couldn’t help but smile after reading the varying accounts in the business media yesterday that speculated about the “technical” reasons why the Google S-1 had not yet been declared effective. Brought back memories of seeking an Assistant Director (preferably one that didn’t ask a lot of questions) to sign off on those triplicate delegated authority forms before a deal could hit the street – the Staff still uses those ancient forms. Dem were da days…
Yesterday, it was reported that the SEC Enforcement Staff is planning to bring a civil lawsuit against Tyson Foods related to certain perks given to its top officers and board members, including Tyson family members. Specifically, the SEC Staff alleges that company’s proxy statements for 1997 through 2003 didn’t fully disclose $1.7 million in perks enjoyed by former Senior Chairman Don Tyson, and the company failed to maintain adequate internal controls on the personal use of company assets and the disclosure of perks and personal benefits.
Notably, Tyson said the SEC Staff also told the company it is considering recommending that the Commission bring administrative cease-and-desist actions against two Tyson employees who are not executives – these are the employees that were responsible for reporting the perks; not those that enjoyed the perks! Folks like me and you…
We are on the verge of announcing the program for the October 20th Executive Compensation conference – and a practical panel discussing how to properly report perks has been penciled in since day one. Now, that panel takes on even greater signficance. Register now to learn how to save your hide – as well as obtain access to the practice pointers already posted on CompensationStandards.com.
8-K In-House Memo for Reporting Chain Insiders
As the August 23rd effective date for the new 8-K rules approaches, many companies are rushing to adopt policies that designate who can approve certain things, identify who is either responsible for learning of (or most likely to learn of) certain events and charging those people with implementing disclosure processes as well as forming a subgroup of their disclosure committee to assess whether a trigger has occurred.
Amendments to NYSE Corporate Governance Listing Standards
The NYSE has posted a rule filing it made with the SEC on August 3 that would amend its corporate governance listing standards. In a number of cases, the amendments codify prior interpretations of the NYSE corporate governance rules provided in a series of FAQs.
Among other things, the amendments (which still must be approved by the SEC):
– clarify the definition of “executive officer”
– amend the independence tests generally to clarify the operation of the 3-year look-back
– revise the independence definitions related to employment and receipt of direct compensation to clarify that service as an interim executive officers (as well as an interim Chairman or CEO) will not disqualify a director
– clarify that exception for charitable contributions from the independence standard related to payments for services exceeding the greater of $1 million or 2% of consolidated gross revenues is only intended to apply to “contributions” and, therefore, the independence standard covers any business-based payments to such a charitable organization
– narrow the independence standard related to prior employees of the company’s auditor, but bring a director with a family member who is a current partner of the audit firm under the standard
– clarify that the non-CEO compensation arrangements that are the responsibility of the compensation committee are those of “executive officers” and that the board may delegate its authority to approve “executive officer” compensation to the compensation committee
– provide that qualifications to the annual CEO certification must be specified and disclosed
– require that listed companies submit Annual and Interim Written Affirmations to the NYSE, including foreign private issuers and preferred- and debt-listed companies (but only to the extent these types of companies must comply with the audit committee requirement in NYSE Rule 303A.6).
Ray Be from Corp Fin’s Office of Rulemaking has joined our September 23rd panel –“Reality Bites: More on the New 8-K Rules.” Ray was the primary draftsman of the 8-K rules. Don’t forget to email me your questions for the panel to address!
We have posted the transcript from “50 Nuggets in 50 Minutes III.”
Negotiated M&A Deal Point Trends
Based on the early response to my interview with Wilson Chu and Larry Glasgow on Negotiated M&A Deal Point Trends, I think that we need to cover more M&A issues on our site. Let me know if you think that is true…
This was a headline from SiliconValley.com – and if you haven’t figured it out by now, I can’t resist throwing in some Seinfeldism whenever I get a chance.
Well, Google continues to give plenty of securities law fodder to the business media – this time, a violation of the quiet period that has led to Amendment No. 7 to Form S-1 that includes an interview of the two Google founders with Playboy magazine as Appendix B, complete with three corrections to statements they made in the interview (the interview was conducted in April, just before the S-1 was originally filed).
The three corrections are made in a new risk factor on page 22 that notes that the interview may constitute a Section 5 violation – but the three corrections are not noted or cross-referenced in Appendix B itself. However, in my opinion, none of the corrections relate to matters that are investment deal-breakers since they don’t deal with financial performance (they relate to amount of storage in Gmail; number of employees at Google; and how often searches are made daily with Google’s search engine).
According to media reports, the SEC Staff required Google to include the entire interview in the prospectus – which at least one account labeled as unprecedented. The practice in the past is that the Staff would force the issuer to include only the statements that realistically could impact investment decisions. But in this case, perhaps Google was faced with the prospect of a delay in the offering and the easiest solution was to include the entire interview rather than do a prolonged negotiation with the SEC Staff as to what statements should be included.
As the Wall Street Journal notes today, if Google had gone public in a year or so, the ’33 Act reform that Corp Fin is working on these days might have made the Playboy interview a non-issue.
NYSE Regulatory Reorganization
As part of a NYSE regulatory reorg, the Listed Company Compliance division – including Corporate Compliance headed by Janice O’Neill and Financial Compliance headed by Glenn Tyranski – has been structured so that it reports to Rick Ketchum, who is Chief Regulatory Officer. As a result, now all regulatory, governance and compliance units are aligned under the leadership of Rick Ketchum and separate from the NYSE’s business divisions.
SERP Design and Value/Cost Considerations
Dozens of additional practice pointers have been added to CompensationStandards.com in the past two weeks as our task force continues to churn them out – including one by Bill Gerek of the Hay Group on SERP Design and Value/Cost Considerations. Register now for the October 20th executive compensation conference and gain access to all the pointers on CompensationStandards.com as a bonus!
I have received a phenomenal number of 8-K questions as the August 23rd effective date draws near, which is understandable given that the new 8-K requirements present tricky new challenges about when – and what – to disclose.
So we are holding a webcast on September 23rd – “Reality Bites: More on the New 8-K Rules” – that will supplement our May webcast on the topic (of course, you can review that transcript now). The agenda for the September 23rd webcast principally will be framed by questions e-mailed in advance to broc.romanek@thecorporatecounsel.net. So e-mail your questions now!
The panel for the September 23rd webcast consists of: David Martin of Covington & Burlin; Ron Mueller of Gibson Dunn; Bill Tolbert of Jenner & Block; and Brink Dickerson of Troutman Sanders.
8-K Transition Interp
At the ABA Annual Meeting earlier this week, Corp Fin Director Alan Beller confirmed that the old Form 8-K rules apply for events occurring before the effective date, August 23, but are reported after the 23rd. However, for EDGAR programming reasons, the new Form 8-K template and format must be used for any 8-Ks filed on – or after – the effective date.
We have added two additional informal Corp Fin interpretations (that I have heard secondhand from several members – not directly from the Staff) regarding the Item 703 stock repurchase table to “Staff Interps re: Item 703 Disclosures about Stock Repurchases” in our “Stock Repurchase” Practice Area. These interps relate to tax-withholding and restricted stock units.
Sentencing Guidelines Transcript Available
We have posted the transcript from our July 21st webcast, “How the New Sentencing Guidelines Impact You.”
The PTO Goes Online
Finally, the U.S. Patent and Trademark Office has made available all documents in the files of pending published U.S. patent applications online. This is a huge change as it is now generally possible to learn more about what a competitor is trying to patent – and to learn it significantly sooner. I know that this isn’t relevant for our members – but thought it was notable and shows how the SEC was far ahead of its time when it developed EDGAR back in the early ’80s.
On Thursday, the SEC posted its five-year strategic plan, as required by the Government Performance and Results Act of 1993. The 59-page plan outlines broad strategies to accomplish what could be considered the SEC’s long-standing four goals: (1) enforce compliance with federal securities laws, (2) sustain an effective and flexible regulatory environment, (3) encourage and promote informed investment decision-making, and (4) maximize the use of SEC resources.
Most of the strategies outlined in the plan have been well-publicized over the past year as Chairman Donaldson has been making his mark. For example, the new Office of Risk Assessment is leading the way to implement the “doctrine of no surprises.” Another example is the SEC’s push to eventually utilize XBRL in an effort to upgrade EDGAR.
On the Corp Fin front, the transformation of the disclosure review process – including the criteria used for selection – is mentioned repeatedly. This transformation already has begun and is bound to evolve in the near term.
I am a fool for trivia and love all the factoids spread throughout the plan, such as 600,000 documents are filed annually through EDGAR and 18 million pages are contained in the 12,000 annual reports filed annually.
The SEC University
One of the more notable aspects of the 5-year plan is that the SEC is developing an online and in-person training program called the SEC University. One of the rationales for “SEC-U” (which is the abbreviation that the plan uses on page 48) is that 14% of the SEC’s managers are eligible to retire in 2005 – hence, the need to train new leaders. Corp Fin has conducted in-person training for years – but it will be interesting to see what type of online training the Staff develops.
50 Nuggets III
Join Alan Dye and I as we wind our way through 50 practice pointers in a webcast tomorrow – 50 Nuggets in 50 Minutes III.
If you are not yet a member, take advantage of a no-risk trial to see what you are missing. Here are 10 Good Reasons to try us! And now you can take advantage of our special offer to try a “Rest of 2004” no-risk trial to either TheCorporateCounsel.net or Section16.net for only $315!
Last Wednesday, Google filed a rescission offer in a new registration statement with the SEC (which was then amended on Friday), offering to repurchase more than 23 million shares of its stock and 5.6 million options that were illegally issued to approximately 1,000 of its employees and consultants. This rescission offering is not directly related to the IPO.
According to media reports, some state regulators (e.g. California) are actively investigating violations raised by Google’s prior offerings and these reports claim that Google’s IPO has been postponed due to these investigations. However, the fact that this rescission offering is happening should not have been surprising to the mainstream media since the IPO prospectus – since April – has included a section entitled “Rescission Offer” that revealed these violations and the proposed resolution. This is not something that by itself should hold up the IPO – much less imperil it – since it was clearly planned for from the beginning. Rather, it’s a soft IPO market that likely is forcing a postponement of the IPO.
According to Google’s disclosure, the shares causing the violations are from Google’s option plans. Although there are specific federal and state exemptions for sales of shares underlying options, it is not too uncommon for private companies to technically pop out of those exemptions and be left with no exemptions to rely on and no way to register the sales. The SEC likely will not do anything about Google’s Rule 701 violations unless there was fraud involved, which doesn’t seem to be the case. Remember that under Section 12, purchasers – not the SEC – have a cause of action to seek rescission.
Although it isn’t disclosed, it’s possible that Google crossed the Section 12(g) threshold some time back and was required to register its common stock under the ’34 Act (companies that have more than 500 shareholders and $10 million in assets at calendar year end must register under Section 12(g)). Since it hadn’t conducted a public offering, Google probably never imagined – as is the case for a number of larger private companies – it could possibly be required to file a Form 10 with the SEC.
Now that a IPO appears imminent (despite the postponement), any offerees that accept the rescission offer would be out of their minds as Google’s anticipated IPO offering range is between $108 and $135 a share and the rescission offers are well below those levels; as low as a dollar and change in some cases.
The rescission offer prospectus does include a risk factor that alludes to this disparity: “The amount you would receive in the rescission offer is fixed and is not tied to the fair market value of our common stock at the time the rescission offer closes. As a result, if you accept the rescission offer, you may receive less than the fair market value of the securities you would be tendering to us.” But this risk factor doesn’t mention the anticipated range of the IPO. It will be interesting to see if any rescission offerees tender their shares.
Does a Federal Right of Rescission Survive a Rescission Offer?
One risk factor in the Google rescission prospectus raises an interesting issue: “If you affirmatively reject or fail to accept the rescission offer, it is unclear whether or not you will have a right of rescission under federal securities laws after the expiration of the rescission offer. The staff of the Securities and Exchange Commission is of the opinion that a person’s right of rescission created under the Securities Act of 1933 may survive the rescission offer. However, federal courts in the past have ruled that a person who rejects or fails to accept a rescission offer is precluded from later seeking similar relief.”
If Google’s stock price tanked in the aftermarket, could rescission offerees attempt to exercise their rescission rights then (note that the rescission prospectus states that the offer expires in September – most states require that rescission offers remain open for at least 30 days)? E-mail your thoughts (and any materials on rescission offerings) on this topic to me and I will address it later in the week as we are in the midst of building a “Rescission Offerings” Practice Area.
Is a Dutch Auction a Postive Development for Investors?
Yesterday’s Washington Post contained this editorial from Yale School of Management professor Barry Nalebuffon on this hot topic.
• the addition of a fourth checkbox to Form 8-K to allow a company to satisfy the disclosure requirements of Rule 13e-4(c), the Regulation M-A provision for issuer tender offers, by including that disclosure in a Form 8-K;
• revision of the requirement to disclose the source of funding under Item 2.01 of Form 8-K, Completion of Acquisition or Disposition of Assets, if a material relationship exists between the company and the source of funding (instead of if a material relationship exists between the company and the seller of the assets);
• Revision to Item 5.05(c) of Form 8-K, Amendments to the Registrant’s Code of Ethics, or Waiver of a Provision of the Code of Ethics, to provide that a company disclosing an amendment to, or waiver from, its code of ethics on its website must do so within four business days (rather than five);
• amendment to Item 5(a) of Form 10-K (disclosure of unregistered sales) to disallow the exclusion of sales made under Reg S; and
• re-addition of paragraph (b) of Item 5 of 10-Q/10-QSB that was inadvertently deleted.
New “Reg S” Practice Area
We have created new practice area for Regulation S. The Practice Area includes FAQs, recent No-Action Letters and a timeline of Reg S. Take a look!
