Securities & Financial News to Note

Transcription

1 Securities & Financial News to Note A Bi-Weekly Bulletin SEC/Corporate Delaware Adopts Key Changes to Delaware General Corporation Law On April 10, 2009, the Delaware governor signed into law amendments to the Delaware General Corporation Law dealing with proxies and stockholder meetings, among other items. This law becomes effective on August 1, The amendments provide for changes in the following key areas: Access to Proxy Solicitation Materials (new Sec. 112) bylaws to provide that, if the corporation solicits proxies for an election of directors, the slate of director nominees presented in the corporation s proxy solicitation materials must include stockholder-nominated director nominees, in addition to board-nominated director nominees, subject to the nominating stockholders compliance with any conditions or procedures set forth in the corporation s bylaws. Reimbursement of Proxy Expenses (new Sec. 113) bylaws to provide that the corporation will reimburse a nominating stockholder for any reasonable expenses they incur in soliciting proxies for the election of directors, subject to the nominating stockholders compliance with any conditions or procedures set forth in the corporation s bylaws. Greater Indemnification and Expense Advancement Rights (amended Sec. 145(f)) prohibits a Delaware corporation from amending its certificate of incorporation or bylaws to eliminate or impair rights to indemnification or advancement of expenses after an act or omission occurs, which act or omission leads to directors and/or officers seeking indemnification or advancement in connection with a related legal action, unless the certificate of incorporation or bylaws in effect at the time of such act or omission provides for retroactive elimination or impairment of these rights. Separate Record Dates (amended Sec. 213(a)) board to fix one record date for stockholders entitled to notice of a meeting (no more than 60, nor less than 10 days before the meeting date) and a separate record date for determining the stockholders entitled to vote at the meeting, in an effort to reduce the issues that arise when a stockholder continues to have voting rights in a company after such stockholder no longer owns stock in the company. Judicial Removal of Convicted Directors (amended Sec. 225(c)) permits a Delaware corporation (or its stockholders through a derivative action) to petition the Court of Chancery to remove directors who have been convicted of a felony either (1) in connection with their duties as a director of the corporation or (2) if a court previously found the director to have breached his or her duty of loyalty to the corporation. $file/ doc?open 2bede841c6272c a04/f97681d196d e64f1?OpenDocument Chairman Schapiro Outlines SEC s Regulatory Agenda On April 6, 2009, SEC Chairman Mary Schapiro presented the Council of Institutional Investors with her vision of the SEC s role as the investors advocate. Acknowledging the importance of this role, especially given the current financial crisis, she laid out the key features of the SEC s immediate regulatory agenda. Among others, these include: enhanced disclosure regarding the qualifications, skills and experience of director nominees

2 new disclosure regarding the board s reasons for selecting their specific leadership structure greater disclosure regarding how a company and its board manage risk, in terms of setting compensation and in general a proposal designed to give stockholders a meaningful opportunity to nominate directors legislation to formalize certain professional standards expected of brokers, advisors and credit rating agencies (e.g., registering hedge fund advisors and possibly hedge funds) She also highlighted her belief that the SEC s success in achieving its goal of restoring investors confidence in the capital markets will depend, in part, on its collaboration with a wide range of investors of varying perspectives. htm SEC Issues Proposal on Short Sale Restrictions On April 10, 2009, the SEC issued proposed amendments to Regulation SHO, a set of rules governing short sales, under the Securities Act of The SEC cited extreme market conditions and the resulting deterioration of investor confidence as reasons to re-examine and seek comment on whether to restore restrictions with respect to short selling. The SEC proposed two approaches to restrictions on short selling: (1) a short sale price test on a market wide and permanent basis, and (2) a circuit breaker rule. The short sale price test has two proposed alternatives: a proposed uptick rule that requires a short sale be made at the price at which the security last traded or, in some cases, higher than the price at which the security last traded a proposed modified uptick rule that requires a short sale be made at the national best bid price for a security or, in some cases, higher than the national best bid price for a security The circuit breaker rule would apply to a security during a severe market decline in the value of that security. The SEC proposes alternative circuit breaker rules: a circuit breaker halt rule that would stop short selling in a security upon a substantial price decline in that security for the remainder of the trading day, subject to certain exceptions 2 circuit breaker price test rules that, upon a substantial price decline in a security, would limit short selling in that security by applying either the uptick rule or the modified uptick rule (both discussed above), for the remainder of the trading day Either approach could be implemented through a policies and procedures or straight prohibition approach or some combination of the two and would generally apply to all securities, except options, listed on a national securities exchange. The implementation period would begin three months from the effective date. Chevron May Not Exclude Proposal for Report on Global Environmental Issues On March 24, 2009, the Division of Corporation Finance issued a no-action letter prohibiting Chevron Corp. CVX from omitting from its 2009 proxy statement a shareholder proposal that the board of directors prepare a report dealing with host country environmental and health issues. The proposal requested that the board prepare a report by November [2009], prepared at reasonable cost and omitting proprietary information, on the policies and procedures that guide Chevron s assessment of host country laws and regulations with respect to their adequacy to protect human health, the environment and our company s reputation. The SEC staff rejected Chevron s arguments that the proposal could be omitted from proxy materials for its 2009 annual meeting under Rule 14a-8(i)(3) as misleading; under Rule 14a-8(i)(6) as beyond the company s power to implement; and under Rule 14a-8(i)(11) as substantially similar to another proposal that Chevron intends to include in the proxy materials. nycemployees a8.pdf New Director of Division of Corporation Finance Named On April 13, 2009, SEC Chairman Mary Schapiro announced that former SEC staffer Meredith B. Cross will return to the SEC as its new Director of the Division of Corporation Finance. Cross previously served at the SEC for several years in the 1990s, ascending to the position of Deputy Director in the Division of Corporation Finance while playing a key role in disclosure-related rulemakings and plain English initiatives for investors.

3 Exchanges NYSE Proposes Rule Permitting Dissemination by Regulation FD-Compliant Methods On April 8, 2009, the NYSE filed a rule proposal with the SEC that would permit listed companies to release material information by disseminating the information by any Regulation FD-compliant method, or combination of methods. The current rules require listed companies to issue a press release when disclosing material information. Public disclosure under Regulation FD may be accomplished by furnishing or filing a Form 8-K as well as conference calls, press conferences and webcasts, so long as the public is provided adequate notice and granted access. Although foreign private issuers are not subject to Regulation FD, they will be able to comply with the NYSE release policy by any Regulation FD-compliant method available to a domestic issuer. The NYSE revised its policy to harmonize its requirements with Regulation FD and Nasdaq rules, thereby eliminating the confusion inherent in having different regimes applied by the two largest listing exchanges and the SEC. Currently, the NYSE recommends that listed companies notify the NYSE 10 minutes before the announcement of a material event or a statement dealing with a rumor if the release is to be made shortly before opening or during market hours. The NYSE proposes to amend the rules to make it clear that the notification to the NYSE of such announcements is a requirement of the rule and not just a recommendation. Further, when contacting the NYSE under the proposed rules, a listed company will be required to disclose to the NYSE the substance of the announcement, identify the Regulation FD-compliant method it intends to use and advise where the information will be located. 6DED0EC2FFB9E EB/$FILE/NYSE PDF Accounting/Tax SEC Publishes SAB No. 111 on Impairment of Equity Securities On April 14, 2009, the SEC s Office of Chief Accountant and Division of Corporation Finance issued Staff Accounting Bulletin (SAB) No. 111 regarding impairment of equity securities. On April 9, 2009, the Financial Accounting Standards Board (FASB) issued FASB Staff Position No. FAS and FAS 124-2, Recognition and Presentation of Other-Than-Temporary Impairments, which provides guidance on whether an impairment of a debt security is other than temporary. SAB No.111 amends and replaces Topic 5.M., Other Than Temporary Impairment of Certain Investments in Debt and Equity Securities. SAB No. 111 states that for equity securities classified as available-for-sale, the SEC staff believes that when the FASB chose to use the words other than temporary impairment, it did not intend for that term to mean permanent impairment. The SAB provides examples of factors to consider in evaluating whether a decline in value of an equity security classified as available-for-sale is other than temporary and that a write-down of the carrying value is required. SAB No. 111 also amends Topic 5 to exclude debt securities from its scope. Litigation Delaware Chancery Court Permits Stockholders to Vote on Bylaw Proposal Kistefos AS is a 21.1% stockholder of Trico Marine Services, Inc. Kistefos sought to put several proposals before Trico s stockholders for a vote at the 2009 annual meeting. One of these proposals was to amend the bylaws to give teeth to Trico Marine s majority voting requirements by providing that an incumbent director who does not receive a majority of the votes would not be able to serve on the board and his/her term would immediately expire, thereby creating a vacancy on the board. Trico Marine rejected this proposal stating that it would be inconsistent with Delaware law and Trico Marine s certificate of incorporation. Trico Marine said it would disregard the proposal if Kistefos tried to present it for stockholder action at the meeting. Kistefos sought declaratory relief that Trico Marine improperly rejected the proposed bylaw. In a letter dated April 14, 2009, the Court held that the legality of the proposal was not ripe for judicial consideration because such proposal has not been and may never be adopted. However, the court concluded that the proposal should be presented for a stockholder vote at the 2009 annual meeting. The Court preserved Trico Marine s objections, and if the proposal is approved by the stockholders at the 2009 annual meeting, Trico Marine can reassert its claims. Kistefos AS v. Trico Marine Services, Inc. C.A. No CC (Del. Ch. April 14, 2009) SEC Settlements on the Rise in 2009 A recent NERA Economic Consulting report shows that settlements with the SEC are on the rise with 182 cases settled in the first quarter of 2009, up from 123 cases in the previous quarter. The amounts of settlements have also 3

4 increased. Monetary payments were a component in 66% of settlements with companies and the mean settlement amount in the first quarter was $12.6 million, as compared to $8.4 million a year ago. The mean settlement amount for companies in 2009 was $1.7 million (compared to $1.3 million in 2008) while the mean settlement for individuals was $0.7 million (down from $1.1 million in 2008). The increases are attributed to the new leadership of the SEC, who has made changes to existing procedures. For example, SEC Chairman Mary Schapiro has terminated the pilot program initiated in 2007 that required SEC personnel to obtain pre-approved settlement ranges from the SEC before negotiating a settlement. This pilot program resulted in significant delays in the process and reductions in the size of penalties. SEC leaders are also putting new procedures in place to allow for rapid approval of subpoena power for SEC staff and are seeking authority to compensate whistleblowers with well-documented evidence of fraudulent activity. In addition to these measures, legislation has been introduced into the Senate to add 100 SEC enforcement division employees, which would provide additional resources to the SEC for investigations. Source: SEC Settlements Trends: 1Q09 Update Settlement Activity Increases As Change Comes to the SEC About This Bulletin Securities & Financial News to Note Co-Editors: Kara L. MacCullough Fort Lauderdale kara.maccullough@hklaw.com Esther L. Moreno Miami esther.moreno@hklaw.com Holland & Knight LLP Information contained in this newsletter is for the general education and knowledge of our readers. It is not designed to be, and should not be used as, the sole source of information when analyzing and resolving a legal problem. Moreover, the laws of each jurisdiction are different, and are constantly changing. If you have specific questions regarding a particular fact situation, we urge you to consult competent legal counsel. To ensure compliance with Treasury Regulations (31 CFR Part 10, 10.35), we inform you that any tax advice contained in this correspondence was not intended or written by us to be used, and cannot be used by you or anyone else, for the purpose of avoiding penalties imposed by the Internal Revenue Code. Holland & Knight lawyers are available to make presentations on a wide variety of securities and financial law issues. 4

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