Securities Regulation and Corporate Governance


One More Time! SEC Seeks to Re-Adopt Resource Extraction Disclosure Rules

On December 11, 2015, the Securities and Exchange Commission voted to propose a new rule implementing Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act.  That provision directs the SEC to promulgate rules requiring “resource extraction issuer[s]” (i.e., issuers that extract natural resources) to disclose payments they make to the U.S. government or foreign governments for the commercial development of oil, natural gas, or minerals.  The SEC’s latest action follows a ruling by a federal district court in Massachusetts directing the SEC to expedite its promulgation of a new rule implementing Section 1504. 

This is the SEC’s second attempt to adopt a rule implementing that Section.  The SEC’s prior rule, which was adopted in August 2012, was later vacated in 2013 by the U.S. District Court for the District of Columbia on the ground that it was arbitrary and capricious in two respects.  First, the court determined that the SEC had incorrectly construed Dodd-Frank as requiring that the agency make each issuer’s reports available to the public; and, second, the SEC had failed to provide a reasonable explanation for its refusal to provide an exemption for companies operating in countries that prohibit the disclosures.  Gibson Dunn represented the plaintiffs in that case. 

Today’s proposed rule again seeks to require resource extraction issuers to publicly file an annual report that would disclose the issuer’s payments to the U.S. and foreign governments.  And, like the first rule, the new proposed rule contains no exemptions for countries that prohibit the disclosures.  The SEC made clear, however, that it would consider exemptions on a case-by-case basis under its existing authority under the Securities Exchange Act of 1934. 

Based on the SEC’s statements today, we note the following additional points:

  • The proposed rule requires project-level reporting, where the term project is defined as the operational activities governed by a single contract, license, lease, concession or similar legal agreement and that form the basis for payment liabilities.
  • Under the proposed rule, resource extraction issuers would have to file an annual report that includes information regarding, among other things, the total amounts of payments to a government for each project, the total amount of payments to each government in the aggregate; the...Read More
“FAST” Act Legislation Enacted -- Potentially Significant Impact on Capital Markets

On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act, known as the “FAST Act.”  This five-year transportation bill also includes a number of provisions related to securities laws and capital-raising measures. The key securities law provisions of the FAST Act are summarized as follows:

Reforming Access for Investments in Startup Enterprises:

  • Codifies as new Section 4(a)(7) of the Securities Act the so-called “Section 4(a)(1½) exemption.”
  • Effective immediately, Section 4(a)(7) exempts from registration any resale transaction that meets certain conditions, including, among others, no general solicitation, participation only by accredited investors, no offering by the issuer, provision of certain basic financial and other information (for issuers that are neither subject to nor exempt from Exchange Act reporting requirements) and the securities must be of a class of securities that have been outstanding for more than 90 days. 
  • Facilitates the creation of a secondary market in securities of private companies, by clarifying the rules of the road for market participants.
  • Securities sold under Section 4(a)(7) will be “covered securities” under the Securities Act and thus will be exempt from certain aspects of state “blue sky” regulation.
  • Securities acquired in transactions exempt from Registration under the new Section 4(a)(7) will be deemed “restricted securities” within the meaning of Rule 144.
  • Use of 4(a)(7) is subject to “bad actor” disqualifications, similar to those under the current Regulation D regime.

Improving Access to Capital for Emerging Growth Companies:

  • Effective immediately, emerging growth companies under the JOBS Act (“EGCs”) may publicly file confidential submissions with the SEC only 15 days before a roadshow (reduced from 21).
  • An issuer that was an EGC when it confidentially submitted a draft registration statement to the SEC or publicly filed for its IPO, but subsequently falls out of EGC status, will continue to be treated as an EGC for one year or until consummation of its IPO, whichever is earlier.  This grace period, applicable to former EGCs, is effective immediately.
  • EGC Form S-1 or Form F-1 registration statements may omit Regulation S-X financial information for historical periods otherwise required as of the time of filing or confidential submission if all required information is provided to investors at the time a preliminary prospectus is distributed and the registrant reasonably believes that the omitted historical information will not be required at...Read More
Mark Your Calendars – Pending Deadlines for Submitting Updated Company Peer Group Information to ISS and Equilar/Glass Lewis

Institutional Shareholder Services (“ISS”) has announced that companies can provide it with updated information as to the company-selected compensation benchmarking peer group, beginning at 9 am EST on Tuesday, November 24, 2015.  In addition, Equilar Inc.’s (“Equilar”) company-selected peer group update portal opened earlier this week.  Since July 2012, Glass Lewis & Co., LLC (“Glass Lewis”) has been using peer groups generated by Equilar in its pay-for-performance analysis.  

ISS and Equilar/Glass Lewis provide companies the opportunity to submit updated self-selected peer groups in advance of each proxy season.  While ISS and Equilar develop their own peer groups for purposes of benchmarking a company’s executive compensation programs, they both take into account a company’s self-selected peer group and may incorporate updated peers for companies that modified their peer groups since their last disclosure.  According to Glass Lewis’ website, Glass Lewis does not alter the peer group selection it receives from Equilar.  Thus, companies that have revised the composition of their compensation peer group from that which was disclosed in their most recent proxy statement may use this process to provide that updated information to the proxy advisory firms.    

Detailed information regarding ISS’ peer group selection methodology can be found in its FAQs on this subject, which were published on November 18, 2015 and are available here.  Information regarding Equilar’s peer group updates can be found in its FAQs, which are available here.

A summary of this information appears in the table below:



Equilar/Glass Lewis

Submission windows

9 am EST on November 24 through 8 pm EST on December 11, 2015.

Now through December 31, 2015.


Companies invited to participate

...Read More
FASB Votes to Approve New Lease Accounting Standard and Plans to Issue the New Standard in Early 2016

At a November 11, 2015 meeting, the Financial Accounting Standards Board (“FASB”) voted to proceed with final revised standards for lease accounting.  The new standards would require lessees to record certain assets and liabilities for all leases with a term in excess of 12 months.  This is a departure from existing accounting standards, which require balance sheet presentation only for leases classified as capital leases.  This change is anticipated to have a significant impact on balance sheets for a broad swath of companies, potentially resulting in recognition of material amounts of lease-related assets and liabilities for many companies.  Companies and their advisors should consider now whether the new standards will affect compliance with financial covenants in existing or future debt arrangements.

FASB’s vote is the result of an extensive review and comment process initiated after the staff of the Securities and Exchange Commission issued a report in 2005 indicating that FASB should reconsider the accounting treatment for leases.  FASB subsequently issued exposure drafts of revised lease accounting standards in 2010 and 2013.

The FASB indicated that it expects to publish the new standards in early 2016.  The standards will be applicable to public companies for fiscal years beginning after December 15, 2018 and to private companies for fiscal years beginning after December 15, 2019.  Companies may elect to adopt the final standard sooner.

Although public companies will not be required to comply with the new lease standards until fiscal 2019, companies and their advisors should consider whether existing or future debt arrangements will be affected by the new standards and, if so, what steps should be taken to condition creditors, investors and analysts about the impact of the changes.  In particular, companies with significant off-balance sheet leases under current standards may find that application of the new standard significantly increases their reported assets, liabilities, amortization expense and interest expense.  These reporting changes could affect a company’s ability to comply with financial covenants, including leverage ratios and income ratios, in their outstanding credit agreements and bond indentures.  In addition, both borrowers and lenders should carefully consider the effects of implementing the new standards when negotiating and entering into new debt arrangements.

Corp Fin Issues New Guidance on Unbundling of Proposals

On October 27, 2015, the Division of Corporation Finance of the Securities and Exchange Commission (the “SEC”) issued two new Compliance and Disclosure Interpretations (“CDIs”) regarding the “unbundling” of certain proposals under Rule 14a-4(a)(3) of the Exchange Act in the context of mergers, acquisitions, and similar transactions.  Federal proxy rules generally prohibit the grouping of separate matters into a single proposal submitted for shareholder approval.  The rules provide that companies must separately submit — or “unbundle” — proposals to allow shareholders to vote on each matter.  In connection with business combination transactions, acquiring companies have at times attempted to bundle several amendments to their organizational documents with the business combination when seeking shareholder approval of the transaction.  The new CDIs clarify the Staff’s position with respect to this circumstance, requiring separate votes for the transaction and for any material amendment to the acquiror’s organizational documents.  The new CDIs are available here.

The SEC interpretation explains that if one or more material amendments to the acquiror’s organizational documents is included as part of a transaction requiring the approval of its shareholders, the acquiror’s proxy statement must present such amendment(s) separately from any other material items proposed for a vote, including approval of the transaction itself.  Changes to organizational documents will be considered material if they substantively affect shareholder rights.  Examples of changes that may be proposed in connection with a transaction that would clearly be material include governance- and control-related provisions.  In addition, a target company that is subject to the SEC proxy rules must also present any such amendments to the acquiror’s organizational documents for a vote in its own proxy statement, if one is required.  The SEC explains that target shareholders should have the opportunity to vote on matters that will establish their substantive rights as continuing shareholders in the combined entity.  The CDIs further clarify that these interpretations apply equally to transactions where the parties form a new entity to act as an acquisition vehicle that will issue equity securities in the transaction.

The new CDIs acknowledge that parties to a transaction are free to cross-condition the vote on the transaction with any other proposals, although such conditions must be clearly disclosed.  While this provides companies engaged in a business combination with an out if certain corporate governance and/or control-related amendments are not approved by their respective shareholders, the new CDIs may prompt companies to give more careful consideration to the specific amendments to organizational documents be...Read More

SEC Adopts Final Crowdfunding Rules

On October 30, 2015, the Securities and Exchange Commission (the “SEC”) voted to adopt final rules permitting companies to offer and sell securities through crowdfunding.  The new rules, a response to evolving methods of online fundraising for a variety of firms and projects, are meant to assist smaller companies with capital formation and provide additional protections to investors. We previously discussed the proposed crowdfunding rules here; the text of the final rules has not yet been issued, but a copy of the proposed rules is available here.

The final rules, referred to as “Regulation Crowdfunding,” permit a company to raise up to an aggregate of $1 million through crowdfunding offerings in a rolling 12-month period.  The rules permit individual investors with both an annual income and net worth equal to or greater than $100,000 to invest, in a rolling 12-month period across all crowdfunding offerings, up to 10 percent of the lesser of their annual income or net worth; provided that no investor may purchase more than $100,000 worth of securities through crowdfunding offerings in a rolling 12-month period.  Under the new rules, investors with either an annual income or net worth below $100,000 are limited to investing the greater of $2,000 or 5 percent of the lesser of their annual income or net worth.

The rules exclude certain types of companies (including non-U.S. companies, Exchange Act reporting companies, certain investment companies and companies that have no specific business plan or have indicated that their business plan is to engage in a merger or acquisition with an unidentified company or companies) from engaging in crowdfunding offerings and place a general one-year restriction on resales of securities purchased in crowdfunding transactions.  They also include disclosure requirements for companies participating in such offerings, including financial statements and an annual reporting requirement.  In addition, all transactions relying on the new rules would be required to take place through an SEC-registered intermediary, either a broker-dealer or a funding portal. Crowdfunding portals will be required to register with the SEC on the new “Form Funding Portal” and become a member of a national securities association (currently, FINRA).  The rules regarding such funding platforms reflect their more limited activities than registered broker-dealers, and provide a safe harbor for complying platforms.

The final rules take effect 180 days after they are published in the Federal Register, excep...Read More
ISS Opens Comment Period for Draft 2016 Proxy Voting Policy Updates

Today Institutional Shareholder Services (“ISS”) proposed for comment three changes to its 2016 U.S. proxy voting policies.  Comments on the proposed changes can be submitted via e‑mail to by 6 p.m. ET on November 9, 2015.  ISS will take the comments into account as part of its policy review and expects to release its final 2016 U.S. policy updates on November 18, 2015.  We note that ISS’s final 2016 proxy voting policies, which will apply to shareholder meetings held on or after February 1, 2016, likely will reflect additional changes beyond these on which ISS has solicited comments. 

The proposed U.S. policy updates are available at and are discussed below.

Limits on Directors’ Public Company Boards (“Director Overboarding”)

ISS has proposed to lower the total number of boards it views as acceptable for directors to serve on.  The current ISS policy permits service on six public company boards, except that directors who are public company CEOs may not sit on the boards of more than two public companies besides their own.  ISS’s proposed policy updates would lower the limit from six to either five or four public company boards and, for directors who are public company CEOs, from two to one public company board besides the director’s own.  ISS has proposed a one-year transition period for the new policy, where it would include cautionary language in proxy reports for 2016 annual meetings but would not recommend votes “against” directors who are overboarded under the new policy until 2017.  In its request for comments, ISS has solicited feedback on whether lowering these limits is appropriate, and whether, for directors who are not public company CEOs, the limit should be five or four total public company directorships.  

The proposed policy set forth in ISS’s request for comment reflects the results of ISS’s annual policy survey, available at, which ISS uses as part of its annual proxy voting policy formulation process.  ISS received a total of 421 responses (including responses from 114 institutional investors, 257 corporate issuers and others).  Of the 114 investor respondents, 34% indicated that directors generally should be considered “overboarded” if they serve on more than four boards, wh...Read More

SEC Staff Reverses Longstanding Precedent on Exclusion of Conflicting Shareholder Proposals Rule; Affirms Business as Usual on Ordinary Business Rule

On October 22, 2015, the Securities and Exchange Commission's ("SEC" or "Commission") Division of Corporation Finance (the "Division") issued Staff Legal Bulletin No. 14H ("SLB 14H"), setting forth a dramatically different standard for when it will concur that a shareholder proposal that conflicts with a company proposal can be excluded from the company's proxy statement under Rule 14a-8(i)(9).  The Division also reaffirmed its views on the application of the "ordinary business" standard in Rule 14a-8(i)(7).  SLB 14H is available here.

NYSE Amends Rule on Release of Material News

The New York Stock Exchange (“NYSE”) has amended its rule on release of material news to the public, effective September 26, 2015.  Most importantly, the amendments extend the pre-market hours during which companies must give notice to the NYSE before announcing material news, so that companies will have to notify the NYSE in connection with any announcements made at or after 7:00 a.m. Eastern time.  The amendments also provide guidance about the release of material news after the close of trading, update the acceptable methods for releasing material news, and give the NYSE additional authority to halt trading in specific situations. 

Under the NYSE’s material news policy, found in Section 202.05 of the Listed Company Manual, NYSE companies must release quickly to the public any news or information that might reasonably be expected to materially affect trading in their securities.  The amendments affect Section 202.06, which details the procedures for public release of information under the material news policy. 

Pre-Market Notice

The NYSE requires that listed companies alert it prior to announcing material news so that the NYSE has the opportunity to halt trading of a company’s securities if it believes doing so is necessary to protect investors and the public.  Currently, under Section 202.06, a listed company must alert the NYSE at least ten minutes in advance of releasing material news if the release occurs during market hours or “shortly before” the opening of trading at 9:30 a.m. (all times are Eastern).  According to the NYSE, most companies announce material news between 7:00 a.m. and 9:30 a.m., which has the potential to impact pre-market trading in other market centers and on the NYSE itself upon opening.  Accordingly, the NYSE has amended Section 202.06 to require listed companies to notify it when they intend to release material news between the hours of 7:00 a.m. and 4:00 p.m., when trading closes.  If a company believes that a trading halt during pre-market hours is appropriate due to the nature of the news it plans to release, the company will be responsible for advising the NYSE.  The NYSE will issue pre-market trading halts only at the request of a company.  However, if it appears that the dissemination of material news will not be complete prior to opening, in order to facilitate an orderly opening process, the NYSE may independently decide to temporarily halt trading.

Post-Closing Announcements

The amendments provide guidance about the release of material news shortly after the close of trading on the NYSE.  Specifically, the guidance states that companies should delay announcing material news until the earlier of the publication of their security’s official closing price on the NYSE or fifteen minutes after the close of trading at 4:00 p.m.  This amendment is intended to avoid interferi...Read More

Massachusetts District Court Orders the SEC to Issue Final Resource Extraction Rule

On September 2, 2015, following a briefing by Oxfam America, Inc. (“Oxfam”) and the Securities and Exchange Commission (the “SEC” or the “Commission”), the U.S. District Court for the District of Massachusetts granted Oxfam’s motion for summary judgment and ordered the SEC to file with the Court within 30 days “an expedited schedule for promulgating the final [resource extraction] rule.”

Section 1504 of the Dodd-Frank Act requires a resource extraction issuer, defined as an issuer that “(i) is required to file an annual report with the [SEC] . . . and (ii) engages in the commercial development of oil, natural gas, or minerals,” to disclose, in annual reports made to the SEC, payments made to the federal government or to foreign governments “for the purpose of the commercial development of oil, natural gas or minerals . . . .”  Under Section 1504, the SEC had until April 17, 2011 (270 days after the enactment of Dodd-Frank) to issue final resource extraction rules.  The SEC originally proposed a resource extraction rule on December 15, 2010, but received numerous comments between December 17, 2010 and August 21, 2012, resulting in several meetings with commentators and delays in proposing a final disclosure rule.


More than three years ago, on May 11, 2012, Oxfam filed suit under the Administrative Procedure Act (the “APA”) alleging that the SEC’s rulemaking on the final resource extraction disclosure rule had been unreasonably delayed and unlawfully withheld by the Commission.  Shortly thereafter, on August 22, 2012, the SEC issued a final rule implementing Section 1504, prompting Oxfam to stipulate to a dismissal of the action.  Less than two months later, in litigation handled by Gibson Dunn, the American Petroleum Institute filed suit requesting that the U.S. District Court for the District of Columbia vacate the final disclosure rule.  Then on July 2, 2013, the Court vacated the rule, concluding that the SEC’s interpretation of Section 1504, which required public disclosure of annual reports even in cases where foreign governments prohibited disclosure of such payments, was arbitrary and capricious.  The matter was remanded to the SEC for a redesign of the rule, and the SEC announced a projected proposed rule date of March 2015, which was later postponed until October 2015.

Oxfam filed suit once more on September 18, 2014, again alleging that the SEC had “unlawfully withheld” promulgation of the final disclosure rule under the APA.  The SEC argued that it had already complied with the APA by promulgating the final disclosure rule on August 22, 2012, but the District Court for the District of Massachusetts agreed with Oxfam’s position that the July 2, 2013 decision vacating the rule and remanding the matter to the SEC restored matters to where they were prior to promulgation of the final disclosure r...Read More

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