|Corp Fin Updates Compliance and Disclosure Interpretations|
On May 16, the Staff of the Division of Corporation Finance updated C&DI’s across topic areas primarily relating to Securities Act practice. This is the first set of updates to the C&DI’s for the Securities Act and its rules and forms since February 2012. The new and revised C&DI’s do not reveal significant shifts in Staff views, but they do include new guidance regarding Rule 144 holding periods and volume limits, use of resale registration statements after private equity line financings, Form 8-K reporting of material impairments and disclosure of non-GAAP financial measures in a company’s compensation discussion and analysis.
Following is a summary of the new and revised C&DI’s.
Securities Act Forms
· In calculating whether the size of a stock and warrants offering exceeds Form S-3 General Instruction I.B.6(a)’s one-third cap, an issuer is required to follow Instruction 2, even when the warrants are not exercisable for common stock within 12 months. (Securities Act Forms Question 116.24
· An issuer may post-effectively amend an automatic shelf registration statement to add more securities of a class already registered, even when the initial registration statement registered the offer and sale of a specified number and class of securities. (Securities Act Rules Question 210.03
· Even if an issuer relies on Rule 430B(b) to omit from a prospectus until after effectiveness “the identities of selling security holders and amounts of securities to be registered on their behalf,” the issuer must disclose the aggregate number of shares registered for resale before effectiveness. (Securities Act Rules Question 228.04
) <...Read More
|July 1, 2013 Deadline Approaches for Updates to Compensation Committee Charters|
By July 1, 2013, companies listed on the New York Stock Exchange (“NYSE”) and NASDAQ Stock Market (“NASDAQ”) must comply with new listing standards relating to compensation committees and their responsibilities and authority with respect to outside advisers. In view of the upcoming deadline, listed companies should review and update their compensation committee charters to provide the committee with these responsibilities and authority. In addition, compensation committees will need to assess the independence of their advisers in the coming months so they can receive advice from them after July 1.
Action Items for NYSE Companies
By July 1, NYSE companies will need to amend the compensation committee charter to include the following additional responsibilities and authority:
- having the authority, in the committee’s sole discretion, to retain or obtain the advice of compensation consultants, outside counsel or other advisers;
- being directly responsible for the appointment, compensation and oversight of the work of any compensation consultants, outside counsel or other advisers retained by the committee;
- receiving appropriate funding from the company, as determined by the committee, for payment of compensation to any compensation consultants, outside counsel or other advisers retained by the committee; and
- assessing the independence of any compensation consultants, outside counsel or other advisers that provide advice to the committee, before selecting or receiving advice from them, based on the factors set forth in the listing standards.
Action Items for NASDAQ Companies
By July 1, NASDAQ companies, like NYSE companies, will need to provide their compensation committees with the additional responsibilities and authority set forth above. We anticipate that NASDAQ companies will address these new requirements by amending their charters. Although the NASDAQ listing standards also allow companies to satisfy these requirements on an interim basis by adopting a board resolution, we expect this approach will be useful only for those few NASDAQ companies that do not yet have a compensation committee charter.
Because the NASDAQ listing standards require the charter “to specify . . . the specific compensation committee responsibilities and authority” described above, questions have been raised about whether the charter must set forth the specific factors that the committee will have to consider in assessing the independence of advisers. According to informal guidance we received from the NASDAQ staff, the charter need not include these factors. A cross-reference would be sufficient. The NASDAQ rule...Read More
|Three Recent Surveys Provide Insights On Corporate Governance|
Since January, three new surveys have become available that provide insights on corporate governance practices at public companies. The surveys, which are released annually, are from Institutional Shareholder Services Inc. (“ISS”), The Conference Board, Inc. (in collaboration with NASDAQ OMX and NYSE Euronext), and Deloitte LLP (in collaboration with the Society of Corporate Secretaries and Governance Professionals). These surveys can be a useful tool for companies seeking to benchmark their board practices against those of their peer companies.
The surveys cover board practices on a variety of topics, including board leadership, size, independence, meetings (e.g., frequency and attendance), committees (e.g., types and independence), diversity, age and tenure. The Conference Board Report also includes information on director compensation and anti-takeover practices such as poison pills, supermajority voting requirements and the ability of shareholders to call special meetings and act by written consent.
Of note, the surveys indicate the following:
- A continuing uptick in the number of companies appointing separate and/or independent board chairs;
- An increase in the number of companies declassifying their boards. The ISS Board Practices report states that, for the first time, 50% of S&P MidCap 400 companies now have annual director elections;
- A continuation of the trend towards companies adopting a majority vote standard in uncontested director elections;
- An increase in the number of companies permitting their shareholders to call special meetings;
- Greater board engagement with shareholders; and
- A slight increase in board diversity, measured by the number of women and minorities represented on company boards.
Each of these surveys presents findings from a different universe of companies:
- The ISS Board Practices report covers data on S&P 1500 companies gathered from public filings (primarily proxy statements) related to shareholder meetings held between July 1, 2011 and June 30, 2012.
- The Conference Board Director Compensation and Board Practices survey presents findings from a survey conducted between March and June 2012 of over 350 public companies. Nearly all of the companies are listed on the NYSE or NASDAQ and most of them are Russell 3000 and/or S&P 500 companies.
- The Deloitte and Society of Corporate Secretaries and Governance Professionals Board Practices Report presents findings from a survey conducted in July and August 2012 of nearly 200 companies (both public and private) represented in the membership of the Society of Corporate Secretaries and Governance Professionals.
The ISS Board Practices report is available for purchas...Read More
|Proposed Amendments to DGCL Section 251 Increasing Attractiveness of Tender Offer Structure|
The Delaware State bar recently proposed an amendment to Section 251 of the Delaware General Corporation Law (DGCL) to add new subparagraph (h) that would greatly enhance the appeal of the tender offer over a one-step merger structure.
Currently, bidders can usually consummate an acquisition more quickly as a tender offer compared to a one-step merger. If, however, the bidder is unable to reach the 90% threshold necessary to effect a short form merger, the bidder must prepare, file and mail to stockholders an information statement on Schedule 14C (which is subject to SEC review and comment) before a back-end merger can be consummated. In that case, the tender followed by a back-end merger can take much longer than a one-step merger. As a result, parties to a business combination must carefully evaluate a number of factors before deciding how to structure their acquisition transactions.
Assuming Section 251(h) is adopted by August 1,2013, as currently expected, the new provision will present parties to a business combination with another significant factor to consider when structuring their acquisition transactions. The new provision will basically provide a means to avoid the need to circulate a Schedule 14C information statement and hold a stockholder vote should the tender offer fall short of reaching the 90% threshold specified in DGCL Section 253.
The proposed amendment to streamline the acquisition process would be available on an “opt-in” basis to target companies whose shares are either listed on a national securities exchange or held of record by more than 2,000 holders. In addition, Section 251(h) would be available only if the following requirements are satisfied:
the merger agreement is entered into on or after August 1, 2013 and expressly provides that the merger is governed by Section 251(h) and shall be effected as soon as practicable following consummation of the tender offer;
the acquiror consummates a tender or exchange offer for any and all of the outstanding stock of the target company, on the terms provided for in the merger agreement, that would have otherwise been entitled to vote on the adoption or rejection of the merger;
following the consummation of the offer, the acquiror owns at least the required amount of target company stock necessary to adopt the merger, as specified in the merger agreement;
at the time such target company’s board approves the transaction, no party to the merger agreement is an “interested stockholder” (as defined by DGCL Section 203(c)) of the target company;
the acquiror follows through and merges with or into the target company pursuant to the terms of the merger agreement; and
|Corp Fin Grants No-Action Relief in Stock and Cash Tender Offer|
The Division of Corporation Finance recently granted no-action relief to Alamos Gold, Inc., a Canadian corporation, in connection with its proposed acquisition of Aurizon Mines Ltd., another Canadian corporation. The proposed acquisition is structured as a tender offer with consideration consisting of a mix of stock and cash subject to proration that would limit each form of consideration to a specified maximum aggregate amount in both the initial and any subsequent offering period. The Division granted an exemption from Rule 14d-10(a)(2) under the Exchange Act, which provides that no bidder shall make a tender offer unless the consideration offered and paid to any security holder for its securities tendered is the highest consideration paid to any other security holder for its securities tendered. In addition, relief was granted from Rules 14d-11(b) and 14d-11(f) under the Exchange Act, which provide that a bidder may offer a mix of consideration in a subsequent offering period provided there is no ceiling on any form of consideration offered, and the same form and amount of consideration is offered in both the initial and subsequent offering periods.
The Staff’s position in Alamos Gold is consistent with the no-action relief granted in prior Canadian cross-border transactions involving a mix of stock and cash consideration subject to aggregate maximums, including Barrick Gold Corporation (avail. January 19, 2006) and Teck Cominco Limited (avail. June 21, 2006).
This relief comes at a time when there is a noticeable increase in cross-border M&A activity and shareholder activism in Canada. In particular, Coeur d’Alene Mines’ recent announcement of its CAD$350 million acquisition of Orko Silver Corp. and First Quantum Minerals’ CAD$5.1 billion acquisition of Inmet Mining Corp. Thus, when structuring acquisition transactions in Canada, and elsewhere, bidders should consider the Division’s increasingly flexible approach to allowing the offer of stock and cash alternatives in tender offers.
A copy of the Alamos Gold no-action letter can be found here.
|SEC Issues Guidance on Disseminating Corporate Information Through Social Media|
Today the Securities and Exchange Commission (the “SEC”) issued a report of investigation under the Securities Exchange Act of 1934 providing guidance to public companies on the application of Regulation FD and SEC interpretive guidance to corporate disclosures made through social media. The report  clarifies that public companies under certain circumstances may disseminate material, nonpublic information via social media in compliance with Regulation FD if investors previously have been alerted that the specific social media will be used to disseminate such information.
The SEC report follows an inquiry by the SEC’s Division of Enforcement regarding a July 2012 post by Netflix Chief Executive Officer Reed Hastings on his personal Facebook page stating that Netflix’s monthly online viewing had exceeded one billion hours for the first time. The report indicates that Netflix did not report this information to investors through a press release or Form 8-K filing. Neither Mr. Hastings nor Netflix had previously used Mr. Hastings’ Facebook page to announce company metrics. Rather, Netflix had consistently directed the public to its own Facebook page, Twitter feed, and blog and to its own web site for information about Netflix. The SEC did not initiate an enforcement action or allege wrongdoing by Mr. Hastings or Netflix.
The SEC report states that company communications made through social media should be examined for compliance with Regulation FD using the framework set forth in the SEC’s 2008 Commission Guidance on the Use of Company Websites (the “2008 Guidance”). 
“The central focus of this inquiry is whether the company has made investors, the market, and the media aware of the channels of distribution it expects to use, so these parties know where to look for disclosures of material information about the company or what they need to do to be in a position to receive this information.”
The report also explains that, while every case must be evaluated on its own particular facts, the disclosure of material, nonpublic information on the personal social media site of an individual corporate officer—without advance notice to investors that the social media site may be used for such purpose—is generally unlikely to qualify as a method “reasonably designed to provide broad, non-exclusionary distribution of the information to the public” within the meaning of Regulation FD.
Gibson Dunn will issue a client alert in the coming days with more details and analysis on today’s report of investigation.
|SEC Staff Explains Analysis For Assessing Vague Shareholder Proposals Under Rule 14a 8(i)(3)|
During the 2012 proxy season, the SEC staff concurred that a number of high profile shareholder proposals could be excluded from company proxy statements because various key terms in the proposals were not adequately defined or explained within the text of the proposal and supporting statement. See e.g., WellPoint, Inc. (SEIU Master Trust) (avail. Feb. 24, 2012, recon. denied Mar. 27, 2012) (concurring with exclusion of an independent chair proposal that referred to the New York Stock Exchange standard of independence without defining it because “neither shareholders nor the company would be able to determine with any reasonable certainty exactly what actions or measures the proposal requires”); Textron Inc. (avail. Mar. 7, 2012) (arguing that a reference to the Rule 14a-8 eligibility requirements in a proxy access shareholder proposal was vague and indefinite, although the staff ultimately concurred with the exclusion of the shareholder proposal on other grounds); Dell Inc. (avail. Mar. 30, 2012) (concurring with the exclusion of a similar proxy access shareholder proposal because the proposal’s reference to the Rule 14a-8 eligibility requirements was vague and indefinite). While these no-action letters reflected long-standing SEC staff precedent, in the current proxy season, there has continued to be a large number of no-action requests arguing that various terms in shareholder proposals are undefined or vague and therefore excludable under Rule 14a-8(i)(3).
Last week the SEC staff, in concurring with the exclusion of a number of shareholder proposals in response to no-action requests submitted by Gibson Dunn and others, provided detailed guidance to both shareholder proponents and issuers of the analysis it followed in concurring that the proposals, which contained undefined terms, were vague and indefinite under Rule 14a-8(i)(3). The staff’s guidance came in response to no-action requests to exclude shareholder proposals requesting that the chairman of the company’s board of directors be an independent director within the meaning of the definition of independence used by the New York Stock Exchange (NYSE). In each instance, the shareholder proposal failed to provide any explanation about the substance of the NYSE definition. Thus, consistent with previous no-action letters, the SEC staff concurred that the independent chair shareholder proposals submitted to several companies could be excluded under Rule 14a-8(i)(3).
These no-action letters are noteworthy because the SEC staff explained in more detail than it had with past independent chair shareholder proposals its rationale for granting no-action relief under Rule 14a-8(i)(3). Most notably, the SEC staff stated that it views the definition of independence requested by the shareholder propos...Read More
|Senate Banking Committee Holds Hearing on Nomination of Mary Jo White to Chair SEC|
The Senate Committee on Banking, Housing and Urban Affairs held a hearing today on the nomination of Mary Jo White to chair the Securities and Exchange Commission. The Senators showed high support for White’s nomination and, contrary to expectation, asked few tough questions about her ties to Wall Street banks arising from her work at the law firm Debevoise & Plimpton LLP and other potential conflicts of interest.
In her remarks to the Committee, White indicated that her priorities would be the following: (1) finishing the Dodd-Frank and JOBS Act rulemaking mandates; (2) strengthening the SEC’s enforcement function; (3) making sure the SEC understands all aspects of today’s “high-speed, high-tech and dispersed” marketplace in order to provide for optimal regulation; (4) regulating money market funds and private fund advisers; (5) regulating credit rating agencies; (6) formulating appropriate standards and regulations for the conduct of broker-dealers and investment advisers that provide investment advice to retail customers; and (7) making public issuer disclosures more meaningful to investors.
White pledged to focus on the remaining Dodd-Frank and JOBS Act rulemakings and drive those regulations as “quickly and smartly” as possible. In response to questions, she also emphasized continuing attention to robust cost-benefit analysis with respect to SEC rulemakings that includes more attention to the quantification (where possible) of the benefits of a regulation. While she declined to detail any specific timing or the order of addressing particular rules, she indicated her support for following Congress’s policy judgments and carrying out the rulemakings expeditiously.
In terms of enforcement, White stated that, if confirmed, she would make it a “high priority” to strengthen the SEC’s enforcement function. She emphasized that the SEC will continue to proceed vigorously against wrongdoers, both individual and institutional, and reassured the Committee that there is no institution that is “too big” for the SEC to charge.
White also noted the challenges of today’s marketplace, including the impacts of high-frequency trading, complex trading algorithms, dark pools, and new order types. It would be an early priority, she remarked, to invest in technology in order for the SEC to keep pace with the markets, understand how these practices affect the marketplace, and undertake an appropriate response to these practices.
|U.S. Supreme Court Issues Two Significant Decisions Involving Securities Law Matters|
On February 27, 2013, the U.S. Supreme Court issued opinions in two significant securities law cases, Gabelli v. Securities and Exchange Commission, 568 U.S. ___ (2013) and Amgen Inc., v. Connecticut Retirement Plans and Trust Funds, 568 U.S. ___ (2013). In the Gabelli decision the Court addressed the ability of the government to bring civil enforcement actions seeking civil penalties where the alleged fraudulent conduct occurred outside the five-year statute of limitations period. In the Amgen decision the Court addressed the class certification pleading requirements in security holder class action suits.
In Gabelli, the SEC had brought an enforcement action against defendants Marc Gabelli (chief operating officer) and Bruce Alpert (former portfolio manager), alleging that during the period from 1999 through 2002 the defendants permitted an investor to engage in certain market timing activities without disclosure to other investors. Noting that the complaint was brought in 2008, more than five years after the alleged violation, the District Court dismissed the action as time barred under 28 U.S.C. §2462. The Second Circuit reversed, applying the “discovery rule,” which delays the running of the statute of limitations in cases sounding in fraud until the defrauded party discovered or reasonably could have discovered the violation.
The Supreme Court unanimously reversed the Second Circuit, declining to apply the discovery rule to government civil penalty enforcement actions, thereby establishing a “fixed date” by which the government must bring its cases in order to obtain a civil penalty. The Court did not address the issue of whether the fixed date also applies to injunctive relief. Gibson Dunn filed an amicus brief in support of Gabelli on behalf of the Securities Industry and Financial Markets Associations and the Chamber of Commerce of the United States of America.
In Amgen the Supreme Court affirmed a 9th Circuit decision allowing plaintiffs to proceed in a security holder class action without having to prove that alleged misrepresentations or omissions were “material” at the class certification stage. The securities fraud action here involved allegations of fraudulent statements relating to two of Amgen’s flagship drugs. Amgen had argued that the information regarding the two drugs was already in the marketplace, thereby rendering the alleged misleading statements immaterial.
The issue before the Court was whether plaintiffs must prove that the alleged statements were material in order to obtain class certification, on the theory that the materiality of the statements is necessary to invoke the fraud-on-the-market theory and thereby avoid the need for individualized proof of reliance. In Basic v. Levinson, 485 U.S. 224 (1988), the Court previously ruled that a p...Read More
|SEC Petitioned for Rulemaking to Accelerate 13F Filing Deadline|
Last week, the NYSE Euronext, the Society of Corporate Secretaries and Governance Professionals, and the National Investor Relations Institute submitted a joint petition (available here) to the SEC, requesting that the Commission amend the beneficial ownership reporting rules under Section 13(f) of the Securities and Exchange Act of 1934, as amended. Fund managers subject to the 13(f) reporting requirements currently have until 45 days after the last day of each calendar quarter to file their Form 13F; the petition suggests that the time period be shortened to two business days.
The authors of the petition argue that the advantages of a shorter reporting deadline include, among other things, the ability of public companies to accurately contact their shareholders on corporate governance matters — which can be somewhat difficult in the current investment environment with increased levels of institutional ownership of equity securities combined with rapid portfolio turnover — as well as the increased transparency that would benefit the general public. Some fund managers have argued that disclosing their holdings more quickly would effectively tip their hand to the market, resulting in some volatility in the price of the securities under management, and potentially compromise the manager’s investment strategy. The petition addresses such concerns by noting that such complaints illustrate how the status quo benefits large fund managers at the expense of other investors in the market.
A rulemaking petition such as this creates no obligation for the SEC to act or respond. Nevertheless, given the proponents of the proposal, it may well get serious consideration in the months ahead.
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