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:
Your Upcoming Proxy Disclosures – The EESA Effect
We have just posted the first 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." We are pleased to announce that Mark Borges and Dave Lynn have agreed to keep us all updated on the newest best practices and guidance through our new Disclosure Updates newsletter.
Subscribers to the Treatise will receive this quarterly Updates newsletter (as part of the Annual Service that accompanies the Treatise at no charge), in which Mark and Dave will keep you abreast of all the latest guidance that you need to know.
This first issue focuses on key new disclosures all companies will need to address in the wake of EESA and other regulatory responses to the crisis. Subscribers will receive the second issue of Updates in early January, with plenty of last-minute critical pointers for your proxy disclosures.To receive a non-blurred copy today, try a No-Risk Trial to the Annual Service today.
A Coming Wave of New-Age Repricings?
We just sent the Nov-Dec '08 issue of The Corporate Executive to the printers. This issue contains the definitive guidance on repricings (and related compensation restructuring issues) and how to implement hold-through-retirement provisions will help comply with Treasury's "excessive risk" limitations.
Act Now: To receive a non-blurred version of this issue right away (and on a complimentary basis), enter a No-Risk Trial for '09.
John White: Short-Timer
In mid-November, Corp Fin Director John White announced he will be leaving the SEC at the end of the year, after working at the SEC for nearly three years. We understand that John will return to the law firm for which he spent over 30 years, Cravath Swaine & Moore. Like his predecessor, John has overseen an enormous amount of regulatory change on his watch - and we thank John for all he has done for the corporate community, including speaking out about responsible executive compensation disclosures.
Issues to Consider: Special Meetings to Authorize TARP Preferred Stock
As predicted by 59% of members taking our recent poll, it appears that over 100 companies have applied to participate in Treasury's Capital Purchase Program. While participation in the CPP doesn't require shareholder approval, most of these companies don't have the authority to issue preferred shares under their charter and they are now scrambling to file preliminary proxy materials for a special meeting to obtain shareholder approval.
Here are a few issues to consider:
- Corp Fin Review- In late November, the Corp Fin Staff posted this guidance - complete with typical comments and pro forma analysis - for companies filing special meeting proxy statements (at this weekend's ABA Fall meeting, John White mentioned that several of these bulletins on a variety of topics would be forthcoming soon - more on the ABA meeting next week).
I believe the Corp Fin Staff is selecting most (if not all) of these preliminary proxy statements for review. And I have heard that although expedited treatment isn't being promised by the Staff, the Staff is aware of the time pressures caused by the Treasury's timeline - and that comments are often issued faster than the typical 30-day period.
- ISS Review - Many of the CPP companies likely will request "blank check" preferred stock, which gives a company's board the power to issue preferred stock at its discretion, with voting, conversion, distribution and other rights to be determined by the board at the time of issue. However, issuances of "blank check" shares typically raise a concern for ISS that they could be used as a takeover defense if they are placed with parties friendly to management. To address this concern, companies can create "declawed" preferred stock, which can't be used as a takeover device. Here is more information as to how RiskMetrics Group will assess such requests.
- Samples - At least 58 companies already have filed preliminary proxy statements with the SEC. In our "Credit Crunch" Practice Area, we have posted a few of these proxy statements (although we can't vouch for whether they have cleared Corp Fin's review process) - as well as sample Form 8-Ks and risk factor disclosures regarding the credit crunch.
Corp Fin Issues Last-Minute Guidance on Expiring Shelf Registration Statements
In late November, the Corp Fin Staff put out some much needed guidance on dealing with the upcoming expiration of registration statements under the 3-year shelf sunset provision in Securities Act Rule 415(a)(5). The guidance confirms that for all of those "grandfathered" shelf registration statements out there – i.e., those registration statements that were effective prior to the December 1, 2005 effective date of the Securities Offering Reform amendments – the deadline for filing a new registration statement to replace an expiring shelf is Friday, November 28th. This deadline is critical for any companies (particularly non-WKSIs) that want to maintain the flexibility to stay in the market with their expiring shelf for up to six months while the replacement registration statement is pending.
The guidance provides some important tips on dealing with the process for carrying over unsold securities from the expiring shelf to the replacement shelf, including that only the same class of securities can be carried over from the expiring shelf to the replacement shelf. If any amounts are sold off of the expiring shelf while the replacement shelf is pending, the company must file a pre-effective amendment to the replacement shelf reflecting the reduced amount of securities carried forward.
As noted in the guidance, filing fees can be tricky when filing a replacement shelf, because the EDGAR system won't accept a Securities Act registration statement (other than an automatic shelf registration statement relying on "pay-as-you go") unless some amount is included in the "Proposed Maximum Aggregate Offering Price" header tag. The Staff says that an issuer relying on Rule 415(a)(6) to carry over unused securities should specify "$1.00" in the "Proposed Maximum Aggregate Offering Price" header tag and "$0" as the fee paid. This problem goes away if the company is registering new securities transactions on the replacement shelf, in which case only the amount of the new securities need be included in the "Proposed Maximum Aggregate Offering Price" header tag and the fee due on those additional securities must be paid.
The Staff's guidance points out the perils of seeking to rely on Rule 457(p) instead of Rule 415(a)(6) when carrying over fees. The Staff notes that if Rule 457(p) is used instead of Rule 415(a)(6) to pull forward fees from an expiring registration statement, the securities from the expiring registration statement will be deemed deregistered upon the filing of the replacement shelf, and thus can't be sold while the replacement shelf is pending.
As we noted in the September-October issue of The Corporate Counsel, some issuers are finding themselves coming up to the 3-year shelf sunset deadline without their WKSI status. The Staff notes that a company can continue to use an expiring ASR and available WKSI exemptions even if the company is forced to file a non-automatic replacement shelf because it no longer qualifies as a WKSI, at least until the company's Section 10(a)(3) update comes around.
Corp Fin's New Bag of Tricks: E-mail Your Questions
Corp Fin recently posted this overview of its policy offices, including some organization chart information. The big news is that these policy offices - including all your favorites like Chief Counsel's, OMA, International and Chief Accountant's - will now accept interpretive queries in writing via this online form.
It will be interesting to see if the volume of queries changes at all. On the plus side from the Staff's perspective, the queries will likely be couched more clearly when reduced to writing.
Corp Fin Issues More Shareholder Proposal Guidance - and Posts Incoming Requests
In mid-November, Corp Fin issued Staff Legal Bulletin 14D, the latest installment in pre-proxy season guidance on shareholder proposals from the Staff. This is the first SLB on proposals since '05.
The Staff Legal Bulletin tackles these topics:
- Inability of proponents to seek companies to amend board charters if state law empowers board to initiate amendments
- Sending defect notices if registered owner proponent hasn't met holding period
- Requirement that proponents send copy of their correspondence to the SEC Staff
- New e-mail address for the Staff to which no-action requests and correspondence can be sent
In addition, Corp Fin has created a new page that contains incoming no-action requests that the Staff has not yet processed. This will be helpful for those in-house folk who like to track the other companies that have received a similar proposal during the proxy season.
SEC Issues Proposed IFRS Roadmap
In mid-November, the SEC released its proposed IFRS roadmap. The 165-page proposal includes this timeline:
- Mandatory - Several milestones that, if achieved, could lead to the required use of IFRS by US companies in 2014
- Voluntary - Only companies whose industry uses IFRS as the basis of financial reporting more than another set of standards would be eligible to voluntarily elect to use IFRS beginning in 2010
The G-20 and Executive Compensation
The fact that executive compensation has emerged as a key concern coming out of the financial crisis was confirmed at the recent meeting of the G-20 nations in Washington DC. As noted in this White House Fact Sheet, the G-20 leaders came together to "discuss efforts to strengthen economic growth, deal with the financial crisis, and to lay the foundation for reform to help to ensure that a similar crisis does not happen again." The leaders pledged to take a more coordinated effort in dealing with reforms for the financial system, while also seeking to promote global economic growth.
Coming out of the talks was a "Declaration of the Summit on Financial Markets and the World Economy," which lays out the collective findings of the group on the causes of the financial crisis and the actions that are pledged to be taken. Among the immediate actions that the countries pledged to address by March 31, 2009 was that "[f]inancial institutions should have clear internal incentives to promote stability, and action needs to be taken, through voluntary effort or regulatory action, to avoid compensation schemes which reward excessive short-term returns or risk taking."
This concept of addressing compensation arrangements that encourage excessive risk taking closely parallels the recently enacted provisions of the Emergency Economic Stabilization Act of 2008 (EESA) and the implementing regulations, which specify that any institution participating in the EESA programs must structure its executive compensation program to exclude incentives for its senior executive officers to take unnecessary and excessive risks that threaten the value of the institution.
Since the EESA and the Treasury's regulations only apply to financial institutions taking bailout money, this new G-20 pledge may compel the US government to take further action to impose similar requirements on all financial institutions over the coming months. The pledge does seem to leave some room for approaches short of new regulation, since it refers to "voluntary" efforts in addition to regulatory action. One issue that will inevitably come up if Congress takes action on this matter is whether the policy bias against compensatory arrangements that encourage excessive risk taking will be broadened outside of the realm of financial institutions, particularly in light of the dire straights faced by other industries seeking government assistance.
DOL Requires Investments for Financial Security, Not Social Agendas
Recently, the Department of Labor issued guidance on fund managers' ERISA fiduciary duties when considering investments for social or political purposes. The guidance is applicable to labor funds and single employer pension plans - and is in response to the Chamber of Commerce, which previously asserted that pension plan managers have put political agendas ahead of the funds' best interests.
The DOL's guidance states that pension plan fiduciaries may not consider "factors outside the economic interests of the plan" in making investment choices unless they can provide an economic analysis that shows that the "investment alternatives were of equal value." For example, a plan manager who adopts a policy to favor investments in "green" companies may not consider only "green" firms, but "must consider all investments that meet the plan's prudent financial criteria."
The guidance appears to be a "win" for the Chamber of Commerce, although some labor fund officials claim that it has not really changed the fiduciary obligations. For more on funds' fiduciary best practices, see the "ERISA Securities Litigation" Practice Area.
US District Court Rules Against Bebchuk's "Shareholder Access" Proposal
In mid-November, Judge Hellerstein of US District Court (SDNY) dismissed Bebchuk v. Electronic Arts, Inc., which involves Professor Lucian Bebchuk's attempt to use Rule 14a-8 to establish new "shareholder access" procedures. We have been following the developments of this important case in recent issues of The Corporate Counsel. If the case is appealed to the 2nd Circuit as expected, it is likely that a number of companies will receive similar proposals during this proxy season. The order and transcript from the trial is posted in our "Shareholder Proposals" Practice Area.
"Breaking the Buck" for Listed Companies
Recently, Nasdaq made a rule filing with the SEC seeking to temporarily suspend the exchange's bid price and market value of publicly held securities continued listing requirements until January 16, 2009. The SEC waived the 30 day wait for effectiveness of those rule changes, thereby giving some Nasdaq issuers immediate relief from delisting.
Some members have asked whether the NYSE has taken similar steps or is contemplating similar action with respect to its analogous listing standards. To date, no action has been taken by the NYSE to suspend the application of its minimum price and market value listing standards. The NYSE's standards require that the average closing price of any listed security not fall below $1.00 per share for any consecutive 30 trading-day period and that a listed issuer maintain a minimum level of average global market capitalization of $25 million over a consecutive 30 trading-day period.
During our recent webcast - "The NYSE Speaks '08: Latest Developments and Interpretations" - the NYSE Staff indicated that they had given the issue some consideration but had decided not to take any action. The NYSE Staff noted that while there had been an uptick in the number of listed companies falling below the $1 threshold, that number still a represented a very small proportion of the overall number of NYSE-listed companies. We suspect that the NYSE Staff will continue to monitor events to see if any action on this front is warranted.
FASB: Proposes Tweaks to FAS 141R, Business Combinations
In mid-November, the FASB agreed at a board meeting to provide guidance on the soon-to-be-effective FAS 141R, Business Combinations by issuing a proposed FASB Staff Position regarding assets and liabilities arising from contingencies in a business combination. The FSB will likely become final around mid-January. We have posted memos regarding this development in our "Accounting" Practice Area.
No Exit – No Venture Capital?
The IPO market for startup companies has been in the doldrums for some time - it's been over 4 months since the last IPO in the US. According to this report from the National Venture Capital Association, there were only 6 venture-backed IPOs through the first three quarters of 2008. In contrast, in 2002, after the "dot-com bust", there were 22 venture-backed IPOs.
The recent extreme volatility in the stock market hasn't made the market for new issuances any easier. It's now reported that there were no IPOs in the month of September, the first time that has happened since this data has been tracked, starting in 1980.
IPOs have long been the favored exit strategy for venture capital investors – they provide liquidity and allows VCs to invest their money again. And the splashy returns of an offering - read Google IPO - don't hurt their ability to raise new money either. But even the traditional alternative strategy to an IPO – selling your startup to a big public company – hasn't been easy this year either. The NVCA reports that M&A activity is also down – even companies with strong balance sheets are getting more cautious about spending their cash.
If market turmoil continues into 2009, and the IPO market remains virtually closed, will VC investors scale back their investments in start-up companies? A potential slowdown in VC investing is just one of the many unanticipated results of the current volatility in the market.
November-December Issue: Deal Lawyers Print Newsletter
This November-December issue of the Deal Lawyers print newsletter includes articles on:
- Responding to Liquidity/Capital Constraints: The Joint Venture Decision Tree
- Breaking Up is Hard to Do - and Must Be Done Carefully
- Lessons from the Meltdown: Reverse Termination Fees
- Getting Engaged: When Hiring an M&A Financial Advisor, It's All About the Contract
- Leveraging a Dealroom: A "How To" Guide
- Expanded Liability for Representations and Warranties: Limiting Survival Provisions
- Liquidity Facilities: The SEC Moves Towards Less Tender Offer Regulation
As all subscriptions are on a calendar-year basis, please renew now to receive the next issue. If you're not yet a subscriber, try a 2009 no-risk trial to get a non-blurred version of this issue (and the rest of '08) for free.
People: Who's Doing What and Where
At the SEC, Chair Christopher Cox has said he intends to leave the Commission after the end of the Bush Administration, probably in February.
SEC General Counsel Brian Cartwright will also be leaving the Commission to return to private practice. During his tenure, he helped shape the Commission's major policy and regulatory initiatives and counseled the Commission on virtually every matter that came before it, including enforcement actions, rulemakings, appellate briefs and adjudications
SEC Chief Accountant Conrad Hewitt announced that he will leave the SEC in January.
Alexander Cohen, the Chairman's Deputy Chief of Staff announced he is returning to the private sector.
Former SEC Commissioner Roel Campos has been selected one of the 17 members on President-elect Barack Obama's Transition Economic Advisory Board.
In Corp Fin, Director John White announced he will be leaving the SEC at the end of the year, after working at the Commission for nearly three years. John will return to the law firm for which he spent over 30 years, Cravath Swaine & Moore. Like his predecessor, John has overseen an enormous amount of regulatory change on his watch - and we thank John for all he has done for the corporate community, including speaking out about responsible executive compensation disclosures.
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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