ALI-ABA Postgraduate Course in Federal Securities Law July 24-25, 2008 San Francisco, California

Transcription

1 1 ALI-ABA Postgraduate Course in Federal Securities Law July 24-25, 2008 San Francisco, California Selected Recent Developments in U.S. Securities Laws and Corporate Finance By John F. Olson Jonathan C. Dickey Stephen I. Glover Brian J. Lane Bradford P. Weirick Ronald O. Mueller Scott J. Calfas Amy L. Goodman James J. Moloney Paul J. Collins Gillian McPhee Peter W. Wardie Ari B. Lanin Gibson, Dunn & Crutcher LLP Washington, D.C. 2000, 2001, 2002, 2003, 2004, 2005, 2006, 2007, 2008 by John F. Olson. Portions of this outline may be used for other programs. The authors gratefully acknowledge the assistance of Sally Avitsian, Michele Barinsky, Melissa Barshop, Dina Bernstein, Kristin Blazewicz, Aaron Briggs, Paul Cho, Candice Choh, Amelia Collins, Shawn Domzalski, Patrick Dykstra, David Egdal, Nicholas Greenwood, Andrew Hirsch, Elizabeth Ising, Phil Kenny, David Lee, Farshad More, Hari Raman, Erika Randall, Michael Scanlon, Eric Scarazzo, Meredith Shaughnessy, Ciara Stephens, Mindy Stein and Daniela Stolman in the preparation of this outline.

2 2 TABLE OF CONTENTS I. Introduction...1 II. Executive Compensation...1 A. Amendments to Executive Compensation, Related Party and Independence Rules...1 B. IRS Guidance Excluding Principal Financial Officer from Coverage Under Section 162(M)...27 C. SEC Section 16 Interpretations...28 D. IRS Interpretations of Section 409A of the Internal Revenue Code...28 E. Interpretations and Other Comments on Executive Compensation Disclosure Rules...29 F. Clarifications to Rules 16b-3 and 16b-7 Under Section III. Internal Controls and Accounting Issues...38 A. PCAOB Auditor Independence and Ethics Rules...38 B. Staff Accounting Bulletins...42 C. SEC Approves PCAOB Auditing Standard No. 5, a New Auditing Standard for Internal Control Over Financial Reporting...45 D. International Financial Reporting Standards...49 E. SEC Adopts Amendments to Definition of Significant Deficiency...49 F. Accounting for Stock Based Compensation...50 G. FASB Codifies U.S. Generally Accepted Accounting Standards...50 IV. Proxy Rules...51 A. RiskMetrics Group ISS Governance Services Policy Updates for 2008 Proxy Season...52 B. Director Election and Shareholder Access Rules...56 C. Facilitating Electronic Shareholder Forums...62 i

3 3 D. Amendment to Proxy Rules Regarding Internet Availability of Proxy Materials...62 E. Recent Developments Affecting Advance Notice Bylaws...68 V. Corporate Governance and Self-Regulatory Organizations...73 A. SEC Approval of NYSE Rule Regarding Distribution of Annual Reports...73 B. Nasdaq Becomes National Securities Exchange...74 C. Proposed Amendments to NYSE Corporate Governance Listing Standards...75 VI. Other SEC Rule Changes or Items of Note...75 A. SEC Adopts Revisions to the Eligibility Requirements for Primary Securities Offerings on Forms S-3 And F B. Revisions to Form D and Regulation D...76 C. Foreign Issuer Financial Statement Requirements...78 D. SEC Amendments to Rule 144 and Rule E. Exemption from Registration Requirements for Compensatory Stock Options...82 F. Amendments to Regulation M Governing Short Selling in Connection with a Public Offering...83 G. De-registration for Foreign Issuers...83 H. Amendments to the Tender Offer Best-Price Rule...86 I. XBRL SEC Reports...88 J. Electronic Notifications of Effectiveness Orders...91 K. Stock Option Backdating and Other Problematic Option Grant Practices...92 L. Changes to the Registered Offering Process under the Securities Act of M. NASD Proposed Rules on Fairness Opinions in Corporate Control Transactions N. SEC Guidance Regarding Conduct in Connection with IPO Allocations O. Form 8-K Disclosure Requirements ii

4 4 VII. Litigation and Enforcement Actions A. Insider Trading Prosecutions B. Enforcement Actions Concerning Accounting Issues PCAOB Enforcement Actions C. FCPA Enforcement D. Selected Enforcement Actions Concerning Regulation FD E. Go-Shop Provisions and Disclosure Claims: Lear & Topps Decisions F. Other SEC Enforcement Actions G. Other Court Rulings iii

5 5 SELECTED RECENT DEVELOPMENTS IN U.S. SECURITIES LAWS AND CORPORATE FINANCE I. Introduction This outline reviews recent cases, no-action letters, releases and other information promulgated by the Securities and Exchange Commission (the SEC or the Commission ), including under the Sarbanes-Oxley Act of 2002 (the Sarbanes-Oxley Act ), and actions taken by the major securities exchanges and the Public Company Accounting Oversight Board (the PCAOB ), and addresses many recent and proposed changes to the federal securities laws and rules and regulations thereunder, the Commission s practices and various rules that may be material to public companies. II. Executive Compensation A. Amendments to Executive Compensation, Related Party and Independence Rules 1. Overview and Compliance Periods On August 29, 2006, the Commission issued new rules comprehensively revising the disclosure requirements for executive and director compensation, related party transactions, director independence and other corporate governance matters. 1 The final rules also modified the requirements for disclosing executive compensation actions and arrangements on Form 8-K. The new rules became effective for fiscal years ending on or after December 15, 2006, and therefore apply to disclosures of 2006 compensation in calendar-year companies 2007 proxy statements. The new rules applicable to disclosure of executive compensation arrangements on Form 8-K became effective on November 7, 2006, 60 days after the new rules publication in the Federal Register, applying to executive compensation events that occur on or after that date. Early adoption was not permitted with regard to any of the new rules, including the amended Form 8-K rules, prior to the date of November 7, After November 7, 2006, early adoption was permitted, subject to certain requirements. Among the significant aspects of the rule changes that require companies attention in light of the new rules are the following: The SEC adopted the new requirement for a Compensation Disclosure and Analysis ( CD&A ). The CD&A is intended to differ significantly from the former Board Compensation Committee Report on Executive Compensation by comprehensively addressing the design and bases for a company s compensation of 1 Final Rules, Release Nos A; A; File No. S (Aug. 29, 2006), available at 1

6 6 each of its named executive officers. The CD&A must describe the operation and material features of each element of named executive officer compensation and the interaction of each of those elements (or lack of interaction) with one another. The CD&A is company disclosure that is covered by the CEO s and CFO s certifications; yet, the board s compensation committee must remain closely involved in the preparation and review of this disclosure. Most companies cannot use the Board Compensation Committee Report as a model for drafting the CD&A, which will necessitate extensive and careful coordination between the human resources and legal departments with the input of the board s compensation committee. Companies need to determine who are their named executive officers and prepare drafts of the tabular and narrative compensation disclosures required under the rules in order to draft the CD&A. The characterization, presentation and calculation of some forms of compensation differ significantly from the present rules and are not always intuitive. For example, some annual bonuses no longer are reported in the Bonus column of the Summary Compensation Table but instead are reported as Stock Awards or as Non-Equity Incentive Plan Compensation. Careful review is necessary to determine how and where to report various forms of compensation. Companies may find it necessary to retain outside actuaries and consultants to perform some of the calculations required under the new rules. Careful descriptions and calculations of benefits payable under severance and change of control arrangements is necessary. Companies should identify each form of benefit and triggering event encompassed by this disclosure requirement and to determine whether any of these arrangements should be revised. Revised related party and director independence disclosure rules reinforce the need to have procedures in place to monitor on a current basis transactions between a company and its directors, executives and immediate family members of directors and executives. Companies that do not have written procedures for identifying and approving or ratifying related party transactions should consider adopting them. Companies also need to revise their director and officer questionnaires in light of the rules. Amendments to Form 8-K generally reduced the number of executive compensation related events that trigger Form 8-K filings and eliminated the need for Form 8-K reports on most director compensation related matters, but there were also some new Form 8-K triggering events that went into effect. Companies should review and, if necessary, revise their disclosure controls to ensure that reportable events are timely identified. 2