The RR Donnelley Securities Newsletter contains the latest developments and practical guidance for corporate & securities law practitioners. The content is provided by TheCorporateCounsel.net.
The features in this issue include:
Please note the newsletter includes a few password protected links, requiring a trial subscription to TheCorporateCounsel.net.
Corp Fin Issues Updated Interpretations for Going Private Transactions and '33 Act Rules
Close enough to getting them out by the end of the year as promised, Corp Fin issued two sets of new Compliance & Disclosure Interpretations in late January - a '33 Act set and a "going private" transaction set.
The '33 Act set includes new interps as well as revised interps that were published just a few months ago. The going private set is the first update in that area since '01. The bracketed date following each interp in both sets is the latest date of publication or revision.
New SEC Relief for Companies That May Lose WKSI Status
Given the down market, we've blogged about companies potentially losing their WKSI status recently. Richard Sandler of Davis Polk reports that the SEC Staff has taken a position that may provide relief for some companies in this situation:
Due to continuing equity market turmoil, many companies are at risk of losing the ability to issue securities off of an automatic shelf registration statement. When a company files its annual report on Form 10-K or Form 20-F, a new determination date for well-known seasoned issuer (WKSI) status is triggered. To remain eligible to use an existing automatic shelf, the company's worldwide equity float must equal or exceed $700 million, excluding shares held by affiliates, at a point during the preceding 60 days.
After discussions with the SEC Staff, the staff provided us with guidance on the following steps that such a company can take in order to preserve its ability to access the U.S. public capital markets (provided it remains eligible to use a non-automatic shelf registration statement):
- Prior to filing its annual report, the company must file a post-effective amendment to its automatic shelf (which will become automatically effective), which conforms the automatic shelf in all respects to the requirements of a non-automatic shelf registration statement filed by a seasoned issuer that is not a WKSI.
- Promptly after filing its annual report, the company must file either: a new non-automatic shelf registration statement on Form S-3 or Form F-3, or a second post-effective amendment to its existing shelf. Either filing would be subject to SEC review before being declared effective, and would presumably be largely the same as the post-effective amendment referred to in step 1.
According to the SEC Staff, a company that complies with these steps may continue to sell securities under its automatic shelf registration statement, until the new shelf registration statement (or second post-effective amendment) is declared effective. We expect the SEC Staff to confirm this guidance in writing.
The SEC Issues "21st Century Disclosure Initiative" Blueprint
Meeting the timeframe promised, the SEC unveiled its "Report of the 21st Century Disclosure Initiative" in mid-January. As set forth in earlier draft plans, the Report is a high-level blueprint for a new disclosure framework that would result in companies no longer filing lengthy disclosure documents. Instead, companies would maintain an online 'company file' with interchangeable parts.
In calmer times, this might be an exciting development (as Broc has blogged about before). These days, it seems like a misdirected focus. The SEC is under heavy attack - and in some cases, for good reason. Time to hone in on substance, not form. Please save our markets.
Facing Market Realities: NYSE Temporarily Lowers Market Cap Requirement
In its first accommodation for the current market environment, the NYSE filed a rule change (see the press release) with the SEC in late January that would temporarily reduce the average market capitalization required under Section 802.01B of the NYSE's Listed Company Manual from $25 million to $15 million.
Although the rule change has not been published by the SEC, the rule change will be effective upon filing - if the SEC waives a 30-day operative delay, which it is expected to do. This temporary reduction would apply through April 22nd (although the NYSE could extend the period if market conditions remain the same). We will be posting memos in our "Delisting" Practice Area.
There are quite a few NYSE companies for which this will be an important accommodation. Note that this approach by the NYSE is different than Nasdaq's approach. As I understand it, the NYSE is not willing to totally waive or suspend listing standards as has been Nasdaq's practice. Rather, the NYSE is looking to take this step of temporarily lowering the market cap standard.
Nasdaq Companies: Even Accommodations Don't Help
If you do a recent search of Form 8-Ks for Nasdaq companies that use the term "delisting," you will see that there are quite a lot of Nasdaq companies that are voluntarily delisting due to non-compliance (eg. Neopharm). These companies don't appear to be taking the step of appealing a delisting notification, probably because there is no end in sight for the current market decline so there is nothing they can do to address stockholder's equity or market capitalization requirements. These companies are not going into bankruptcy, but instead are now being traded on the OTC Bulletin Board.
SEC Delivers Mark-to-Market Accounting Study
In early January, the SEC delivered the mark-to-market accounting study mandated by Section 133 of the Emergency Economic Stabilization Act of 2008.
As previewed last month at the AICPA conference, the study recommends against suspending fair value accounting standards, and, as noted in this press release, instead recommends improvements to existing practice, "including reconsidering the accounting for impairments and the development of additional guidance for determining fair value of investments in inactive markets, including situations where market prices are not readily available."
"Say-on-Pay" in Action: 38% Vote "No" at Jackson-Hewitt's Annual Meeting
To get a window on what may happen if say-on-pay legislation is enacted in the US, look no further to the results from the recent annual shareholder meeting for Jackson-Hewitt Tax Services. As noted in the company's Form 10-Q filed last month, 37.5% of the votes cast were voted against the company's pay package (see Proposal III) - the highest level of opposition so far for an advisory vote in the U.S. market. This is only the fifth company in the US to allow say-on-pay on the ballot - once more companies allow it, I imagine the levels of opposition will grow given the environment out there today.
Nasdaq Increases Compliance Period for "Market Capitalization Requirement"
Nasdaq recently filed an immediately effective rule change with the SEC, which extends the compliance period which a listed company gets when it fails to comply with the market value of listed securities requirement - what they used to call the "market capitalization requirement" - from 30 to 90 days, making it consistent with the compliance period allowed for companies that fail the "market value of publicly-held shares" requirement. While this likely was done partially in response to market conditions, the old 30-day compliance period was too short in any market environment.
How Quickly Are Things Changing? eBay Sends 70 Tweets During Its Earnings Call
With the coming regulatory reform likely to be a whopper (the House passed the "TARP Reform and Accountability Act" on Wednesday; it's not expected to go anywhere in the Senate though), we predict a huge host of changes this year beyond those required by law. For example, Corporate America will start catching up with the young folks online (my 14-year old lives for Facebook).
Case in point: In late January, eBay's Richard Brewer-Hay (the guy behind eBay's "Ink Blog") sent a total of approximately 70 tweets during an eBay earnings call (it's hard to pinpoint the exact number; it depends if you count "retweets"). It's pretty amazing to witness a play-by-play of what is happening during the earnings call. Talk about real-time disclosure!
We'll leave aside the legal analysis of this activity for another day as we're still agape over how this could alter the disclosure playing field. Yes, earnings calls are now available via audio streaming (ie. webcast) - but for those that like the written word and don't want to wait for a transcript, this is a pretty remarkable development. Third-party services have done similar things with earnings calls, but not anyone in-house that we've seen.
However, as Dominic Jones shares with his LinkedIn group:
In my view, live tweeting is *not* a worthwhile practice or good use of Twitter. As you will be able to see for yourself, it creates a lot of noise and is difficult to follow. Here's a predefined search on Twitter that shows you only the twitter messages relevant to eBay's earnings announcement (not how the average twitter user would see them). However, much more effective is how eBay is now treating its quarterly earnings announcements on its corporate news blog. They've set up a new page that posts a summary of the earnings release, links to the webcast replay, access to past earnings releases AND links to news articles about the company's results. This is an interesting development.
Essentially, eBay is targeting different audiences with the blog version of its earnings announcements than it does with its traditional IR website. I'm not sure this is a good idea, and eventually I expect that the IR website will begin to reflect the blog. As it stands, the blog people at eBay are doing a better job communicating the company's results than the IR people. That's something the IR profession needs to think about.
Responding to Rumors: GE's New Blog
Recently, General Electric launched a new blog - GEReports.com - that is creating quite a stir. As part of this effort, a companion YouTube channel was launched.
Launched by GE's Communications team, GE intends for the blog to be a way of providing investors with additional information, not to replace other modes of disclosure. We really applaud GE's efforts - and in talking to my in-house colleagues, it seems to have done the trick in opening other company's eyes to the potential of blogging. Between this new blog and Dell's IR blog - which is now over a year old - IROs and communications officers can get a good idea about the types of topics that are fodder for blogging.
The only thing we get worried about is that GE seems like it's using its blog to respond to rumors. For example, GE has used the blog to say it's not seeking equity investments from sovereign wealth funds and that it will not cut the dividend through the end of '09.
Most companies have a policy against responding to rumors to avoid any duty to update - and because if you do respond to rumors and then say "no comment" to one, folks will assume the rumor is true because otherwise you would have denied it! However, with rumors being used by short-sellers to drive down stock prices these days, it may be time for companies to rethink those "don't respond to rumor" policies.
The Obama Administration's Promising Push to Modernize
Just after Barack Obama was sworn-in as President, the White House website underwent a make-over as noted in this NY Times piece. Although there has been a lot of fanfare over the White House's new blog and YouTube channel, the real power that the Obama Administration will bring to government is the leveraging of social media and other technologies to get better ideas from a larger collective and to communicate regulatory changes and interpretations more effectively.
Ever since Obama won the election, his transition team has hit the ground running here in DC - and we have heard that they promptly requested that all federal agencies provide them with information regarding their technological capabilities. It could be that the Obama Administration will force all the agencies to weave social media and other technologies into their daily activities in the near future.
Some pretty exciting stuff - and it may well make some of the ideas expressed in the SEC's "21st Century Disclosure Initiative" seem quaint before you know it. On the other hand, the reality is that this is the government we are talking about. As this Washington Post article suggests, it's not going to be easy for the new Administration to do what they are used to with technology.
The Textron Work Product Decision: Real Implications for Lawyers
In late January, the U.S. Circuit Court of Appeals for the First Circuit issued its highly-anticipated decision regarding work papers and privilege in US v. Textron. We have posted the decision and related memos in our "Attorney-Client Privilege" Practice Area.
Here are some thoughts from Stan Keller of Edwards Angell Palmer & Dodge:
The decision involves whether Textron's tax accrual workpapers were protected from discovery from the IRS as work product. From a lawyer's perspective, the importance of the decision is whether work product protection was waived as a result of disclosure of the workpapers to the auditors.
The First Circuit decision may amount to an illusory victory for Textron with mischievous consequences. The Court holds that the tax accrual workpapers are entitled to work product protection, giving a broad reading to the requirement that they be prepared in connection with litigation, and that sharing them with the auditor does not automatically constitute a waive. So far so good.
However, the court then reasons that the auditor could be a conduit for the workpapers or their substance being turned over to an adversary, there being no auditor's privilege and thus the auditor's workpapers are subject to discovery, with the result that the work product protection could be waived. The case was remanded to the District Court to consider this further.
Couple this limitation with the audit documentation requirements of AS #3 and you have illusory work product protection.
People: Who's Doing What and Where
At the SEC, Chair Chris Cox quietly resigned on January 20th. A few days later, on January 23rd, the US Senate confirmed Mary Schapiro as the new Chair. In mid-January, the Senate held a 90-minute confirmation hearing for Mary Schapiro. Here are articles from Washington Post, NY Times and WSJ (and here is the WSJ Blog's play-by-play of the hearing). Among other things, Mary said she may:
- Increase power of large shareholders to nominate directors and shape governance practices
- Pursue legislation to increase auditor oversight
- Consider changing IFRS transition timetable
- Act more aggressively against fraud
- Study short-selling impact
- Continue plan to register hedge funds
- Revamp how securities are rated
Andrew Vollmer, currently the SEC's Deputy General Counsel, was named Acting General Counsel. And Jim Kroeker, currently a Deputy Chief Accountant, was named Acting Chief Accountant in the SEC's Office of Chief Accountant. Cox's long-serving Chief of Staff Peter Uhlmann has left.
In Corp Fin, Shelley Parratt as named as Acting Director. Mike Reedich, Greg Belliston and Ray Be were named Managers of the '09 Shareholder Proposal Task Force.
TheCorporateCounsel.net Conference Calendar
What's New on TheCorporateCounsel.net Websites
Among other new additions, during the last month we have:
Please let us know what you like - and don't like - so we can tailor TheCorporateCounsel.net to be more of a hands-on resource for you and your colleagues.
Because we view TheCorporateCounsel.net as a "community" site, let us know if you would like to contribute content to our site. E-mail comments, suggestions and other input to broc.romanek@thecorporatecounsel.net.
(c) 2008 Executive Press.
This email newsletter is provided for informational purposes only and does not constitute legal advice. Executive Press is not engaged in rendering legal or other professional services. Publication of this newsletter is not intended to create, and the information contained herein does not constitute, an attorney-client relationship. Do not act or rely upon the information and advice given in this publication without seeking the services of competent professional counsel. You may decline to receive further email solicitations from us by sending an email to info@thecorporatecounsel.net or contacting us at Executive Press, PO Box 21639, Concord, CA 94521-0639
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Now Available on TheCorporateCounsel.net: Model CD&A
Dave Lynn just completed a Special Supplement to the Jan-Feb '09 issue of The Corporate Executive.
Since we expect many will be borrowing extensively from Dave's excellent, up-to-the-moment model disclosures - inserting them into current drafts of proxy statements - we have posted the issue so that '09 renewers can access the issue now (the full issue, including the Supplement, will be mailed to current '09 subscribers later this week).
Renew Now: Those that renewed for '09 received a link to the Supplement yesterday with instructions on how to access it; if you haven't renewed yet, renew now to receive it immediately.
Try a No-Risk Trial Now: To have this Special Supplement rushed to you via email so you receive it today, try a no-risk trial for '09 now - as the Supplement includes pieces on:
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- Our Hold-Through-Retirement Policy
- Revisiting Perquisites
- Reassessment of Our Perquisites
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- Revisiting our Compensation Recovery Policy
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New "Proxy Season Blog"
We are excited to announce our new "Proxy Season Blog," where we will post practical guidance on a daily basis regarding latest developments regarding the proxy season as well as guidance on issues that commonly arise season after season. This members-only blog will include contributions from our own crack-team as well as those experts in our community (if you wish to contribute, please contact Broc Romanek.)
Also note that we continue to post oodles of checklists and memos in our "Proxy Season" Practice Area - including this newly updated 33-page "Time & Responsibility Schedule."
Model Compensation Risk Disclosures
Dave Lynn and Mark Borges just wrapped up - and we have just posted the Winter 2009 issue of our quarterly "Proxy Disclosure Updates" Newsletter, which is free for all those that try a no-risk trial to Lynn, Romanek and Borges' "The Executive Compensation Disclosure Treatise & Reporting Guide."
This critical issue provides analysis, practice pointers - and model disclosures - regarding executive pay risks, a new type of disclosure that all companies will need to address in the wake of EESA and other regulatory responses to the crisis. The issue also provides new analysis regarding disclosures of pledged and hedged shares.
Try No-Risk Trial Now: Order now so we can rush a non-blurred copy of this first issue to you today - as well as a copy of the 1000-page Treatise; note there is a reduced rate if you are '09 member of CompensationStandards.com. If at any time you are not completely satisfied with the Treatise, simply return it and we will refund the entire cost.
When you order the Treatise, not only do you get a hard copy mailed to you, you also get access to an e-version on CompensationDisclosure.com. And you also get access to the quarterly Updates newsletters that make up the "Lynn, Romanek & Borges' Executive Compensation Annual Service."
Ed Durkin on CD&A Reviews
Recently, Broc caught up with Ed Durkin, Director of Corporate Affairs at the United Brotherhood of Carpenters Pension, to conduct this podcast on CompensationStandards.com. In the podcast, Ed explains how the Carpenters Union reviews CD&As (here is a sample evaluation form that will help you understand the Union's analysis process), including:
- How many CD&As does the Carpenters Union look at?
- What does the Union look for in a CD&A?
- How does the Carpenters engage with companies on their CD&A?
Broadridge's New Beneficial Notice and More
Gearing up for Year Two of voluntary e-proxy, Broadridge has designed a new notice for beneficial owners as well as a "Go Green" envelope that should help educate investors. We have posted samples in our "E-Proxy" Practice Area.
More Proxy Season Practice Pointers
We just posted the "Winter '09 Issue" of InvestorRelationships.com (we are maintaining this publication as complimentary thru '09 as a "Thank You" to our loyal members in a down economy). The "Winter '09" issue includes articles on:
- Online Annual Reports and Proxy Statements: What's Wrong and How to Fix It
- The Birth of "Video Annual Reports:" A Substitute for the Written Word?
- Disclosure of Committee Membership When Members Have Changed
- A Practical Approach to Updating Committee Charters
If you're not yet a member of InvestorRelationships.com, simply provide your contact information in this sign-up form and gain free and immediate access to the issue. If you signed up last year, your ID/password will continue to work - if you forgot what those are, go here to get a reminder.
January-February Issue of The Corporate Counsel
We recently mailed the January-February issue of The Corporate Counsel. This issue includes pieces on:
- Annual Proxy Season Practice Tips
- The FAS 5 Treaty-Impact of Recent and Coming Changes in Accounting Standards
- S-K 403 Disclosure of Negative Pledge
- Reverse Split Uptick?
- A Few Thoughts on Form 12b-25
- Staff Reverses/Clarifies That 8-K Item 5.02(b) Not Triggered by Director's Required Tender of Resignation
- Schedule 13D/G-CSX and Other Uncertainties-Time for Staff Input
- New CDI Now Says Plan Should Be Filed As S-8 Exhibit
- Two Recent Restricted Stock Staff Letters
- Get Ready for More Short Sale Regulation
Act Now: Get this issue on a complimentary basis when you try a 2009 no-risk trial today. As all subscriptions are on a calendar-year basis, renew now to continue receiving upcoming issues during a time of great change.
Updated: Year-End Section 16 Checklist
On Section16.net, Alan Dye has updated his "Year-End Compliance Reminders" as well as his "Section 16 Year-End Compliance Checklist."
Catch Alan in his popular annual webcast "Alan Dye on the Latest Section 16 Developments" to hear all the latest developments you need to know. As all Section16.net memberships are on a calendar-year basis, renew for '09 now.
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