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Archived News and Updates06/22/07: E-proxy rulesEarlier this week, the SEC approved rules to mandate its "notice and access" procedures for proxy materials, rather than making them voluntary. Starting January 1, 2008 for large accelerated filers and January 1, 2009 for all other filers, public companies will need to make their proxy materials available online and send a notice of their availability (for more information see our client advisory on the approval of the voluntary compliance with these rules. However, a company can still opt to deliver hard copies of the materials as under the old rules, but must nonetheless now post the materials on its website and send certain additional notice materials. Full details are not yet available, but a brief summary can be found at: http://www.sec.gov/news/speech/2007/spch062007rab.htm 06/19/07: Nasdaq rule change - notifications of material newsNasdaq has also changed its rule for the submission of material news to Nasdaq to require that (except in emergencies) all notifications now must be submitted through Nasdaq's electronic disclosure system and no longer through fax or phone call. For more information, see: http://www.sec.gov/rules/sro/nasdaq/2007/34-55856.pdf. 06/05/07: Nasdaq rule changeNasdaq has modified its listing requirement regarding related party transactions to now only require review and oversight by the audit committee or independent directors rather than requiring approval of such committee or directors. See: http://www.sec.gov/rules/sro/nasdaq/2007/34-55822.pdf. This is not to suggest that it still isn't a good corporate governance practice to have a committee or independent directors approve or ratify such transactions, but it would no longer be a listing standard violation if it was not done. Fyi, other Nasdaq changes in the works include requiring annual reports to be posted on websites and announced by press release rather than necessarily having to be mailed to shareholders, revising shareholder approval rules for private placements to clarify how warrant valuations are to be considered in the approval thresholds and revising the listing of additional shares process to give issuers up to 5 days after an offering to notify Nasdaq of the listing of shares. Nasdaq is also in the process of creating a more user-friendly Nasdaq Marketplace Rulebook and revising its procedures for announcement of material developments to require that Nasdaq be notified in advance electronically (rather than by fax or other methods previously permitted). Stay tuned... 05/24/07: New Section 16 interpretationsThe SEC’s Division of Corporation Finance has posted a new set of interpretations regarding Section 16 of the 1934 Act. These interpretations supersede those found in the Telephone Interpretations Manual and FAQs that related to Section 16. Now everything is in one place. Unfortunately, each interpretation is dated 3/23/07, whether or not there was a change, which will make it difficult to tell what's new. Going forward, only new interpretations will get a new date. 05/17/07: Private offering reformThe SEC has scheduled a meeting for next week to (1) adopt revised guidance on SOX 404 management evaluations and to combine the current requirement for 2 audit opinions on internal controls into 1 and (2) to propose a series of private offering and small company reforms, including making short-form registration statements on Form S-3 more widely available, providing a new exemption from 34 Act registration for private company option grants, revising Reg D by updating the definition of accredited investor and making Form Ds electronic and shortening the Rule 144 holding period and making other changes to Rules 144 and 145. The full agenda for the meeting is below. Anyone who is interested can listen to a live webcast at www.sec.gov. OPEN MEETING - WEDNESDAY, MAY 23, 2007 - 9:00 A.M.The subject matter of the open meeting scheduled for Wednesday, May 23, will be: 1. The Commission will consider whether to adopt interpretive guidance for management regarding its evaluation and assessment of internal control over financial reporting. The Commission will also consider whether to adopt amendments to Exchange Act Rules 13a-15(c) and 15d- 15(c) that would make it clear that an evaluation that complies with the Commission's interpretive guidance would satisfy the annual management evaluation required by those rules. In addition, the Commission will consider whether to adopt amendments to Rules 1- 02(a)(2) and 2-02(f) of Regulation S-X to require the expression of a single opinion directly on the effectiveness of internal control over financial reporting by the auditor in its attestation report. Finally, the Commission will consider whether to adopt amendments to Exchange Act Rule 12b-2 and Rule 1-02 of Regulation S-X to define certain terms. 2. The Commission will consider a number of rule proposals addressing the registration and disclosure requirements for smaller companies, as well as private offerings of securities, including whether:
3. The Commission will consider whether to adopt rules to implement provisions of the Credit Rating Agency Reform Act of 2006. 05/09/07: Executive compensation speechJohn White, Director of the SEC's Division of Corporation Finance gave his analysis of the disclosures he has seen so far in response to the new executive compensation rules. Of particular interest are his observations below on disclosure of (or lack thereof) performance targets and his criticism of the alternative disclosure if such targets are kept confidential. Performance targets. Our rules are quite clear on this one, and at least at first blush, it seems like they are also quite unpopular among some. Companies do not seem eager to disclose their performance targets as we have set up in our rules. Early reports suggest that less than half of reporting companies are disclosing specific performance targets used in awarding annual bonuses or long-term incentive pay. Of course, some companies may not use performance targets; others may rightly be relying on the confidential treatment exclusion provided under our rules. Others, though, may be failing to make the required disclosures. The staff has heard an almost unanimous chorus from investors-confirmed privately by many in-house and law firm counsel-that companies are not providing required disclosure about performance targets in some cases. That too many companies are invalidly claiming the confidential information exclusion. In other words, some companies may be incorrectly asserting that they would suffer competitive harm if they provided the required material disclosure about performance targets used for executive compensation purposes. This is obviously something that the staff in Corporation Finance will be taking a very hard look at. Investors have made it very clear that they want this information and that it is quite material to them. I am not interested in suggesting any loosening of the confidential treatment standards. We have great respect for those standards in the Division of Corporation Finance. At the same time, though, public companies need to employ the same respect for the rules as we do, and not try to claim cover from them if the company's facts do not in fact fit within the rules. And as part of our review process in Corporation Finance, the staff will be prepared, as appropriate, to ask companies to justify their use of the exclusion. Companies that are using the exclusion and therefore not disclosing their specific performance targets should be prepared to provide the staff with an open and full explanation of those decisions and those targets. Alternative disclosure when performance targets may be excluded. I am also hearing what sound like valid concerns about the disclosures that are being provided by companies that are claiming the exclusion for confidential information. If the targets are in fact protected by this exclusion and thus do not need to be disclosed, then the company still must provide investors with a sense of how hard the targets are to achieve or how likely it is they will be met. This is again key information for investors. They want to know whether or not the targets are real targets or are more akin to shadows and are going to result in essentially guaranteed awards. I am not impressed by disclosure that targets "are difficult but possible to achieve" without more. Another complaint I have heard relates to identification of targets simply as "intended to encourage superior performance". Is there any target for which that is not true? Without more, identifying a target simply as "challenging but achievable" or as "designed to promote excellence and motivate management" seems an empty disclosure that I would not think is useful to investors. And again, this is a specific area at which the Corporation Finance staff will take a close look in reviewing this year's proxy disclosures. And I think it's possible we could consider whether it would be appropriate to recommend rulemaking on this one to recalibrate the rules. 04/25/07: ADP ChangeADP has spun out its brokerage services group into a new public company called Broadridge Financial Solutions. Broadridge will now be the entity handling all proxy mailings and related shareholder communications that were formerly done by ADP. 01/30/07: Executive compensation FAQsThe SEC has published some FAQs regarding the new executive compensation rules. The format is a supplement to the Telephone Interpretations Manual that replaces the previous section of that Manual covering Regulation S-K, Item 402. 12/27/06: More executive compensation rule changesJust when you thought the new SEC rules on executive compensation were starting to become clear, the SEC has snuck in a few more changes that ripple through several of the compensation tables. (read more...) 12/21/06: SEC accounting resourceThe SEC staff has released an update to its guide to Current Accounting and Disclosure Issues in the Division of Corporation Finance. This is a good resource to consult when questions on recent rules arise: http://www.sec.gov/divisions/corpfin/cfacctdisclosureissues.pdf. 12/18/2006: More SOX 404 reliefOn Friday, the SEC approved the two extensions, giving smaller companies an additional year before having to file an audit report on their internal controls, and giving new public companies of any size a transition period before having to comply with both the internal control management report and audit requirements. The SEC has provided a useful chart showing the various compliance dates for public companies at the end of this press release: http://www.sec.gov/news/press/2006/2006-210.htm. 12/13/2006: December 13 SEC meetingThe SEC, after a 7 hour meeting, approved all of its agenda items. In addition to the items announced last week, the SEC added at the last minute a proposal to revise Regulation S-X to eliminate the required auditors attestation of management's assessment of internal control over financial reporting. Under current rules, management annually reports on internal control effectiveness and the auditors attest to management's assessment, as well as perform a separate audit of internal control. The proposal would only require the auditors to separately audit internal control, thereby reducing some time, costs and confusion. Next week the PCAOB will propose revisions to auditing standard no. 2, the standard that governs audits of internal control over financial reporting. In addition, in connection with the new rules that were finalized to allow companies to deliver proxy statements and annual reports electronically instead of in paper form (to be effective in July 2007), the SEC proposed mandating this "notice and access" model rather than making it optional. Also, in response to comments, various safeguards were built in to the final rules to ensure that there is adequate time for investors to access the electronic materials. S&W will be putting out a client advisory about these rules over the next few weeks. For the five SEC press releases describing all of today's actions, see: http://www.sec.gov/news/press.shtml#fourthq 12/07/2006: December 13 SEC meetingThe SEC put out its "Sunshine notice" regarding its meeting next week. In addition to the foreign private issuer deregistration reproposal announced earlier in the day, the SEC will also consider (1) proposing additional guidance to assist management in its SOX 404 evaluation (and likely creating some kind of compliance safe harbor if the guidance is followed), (2) finalizing rules allowing for, and possibly mandating, electronic delivery of proxy statements and annual reports in lieu of paper mailing, (3) changes to exempt banks form the definitions of broker and dealer, (4) changing the definition of accredited investor in the hedge fund context and (5) re-opening the comment period for investment company independent director proposals. Noticeably absent from the announcement were (1) proposals to revise 14a-8 to give shareholders greater access to proxy statements, (2) the so-called "Katie Couric" rule that would require additional compensation disclosure for up to 3 individuals that are not executive officers and (3) approval of an extension of the SOX 404 audit report requirement for smaller companies and for IPOs. It's unclear what the status of these is...stay tuned. 12/06/2006: Foreign private issuer deregistrationThe SEC was scheduled to approve rules next week designed to make it easier for foreign private issuers to deregister their securities in the U.S. Today, the SEC announced instead that they will repropose the rule with some changes, with a goal to finalize the changes in the first quarter of 2007. According to the SEC's press release, the staff intends to recommend deregistration thresholds based solely on trading volume. The original proposal had used thresholds based primarily on the percentage of U.S. holders, as well as trading volume. The SEC believes that the new proposal will provide a clear, consistent, easy-to-apply, and fair standard pursuant to which foreign registrants may withdraw from the U.S. capital markets. Reproposal is necessary because basing the threshold solely on trading volume was not addressed fully in the SEC's original December 2005 proposal and request for comment. 11/28/06: NYSE and NASD to combine regulatory oversight of broker/dealersThe NASD and NYSE issued a joint press release today announcing the signing of a letter of intent to consolidate their member regulation operations into a new SRO that will be the private sector regulator for all securities brokers and dealers doing business with the public in the United States. 10/31/06: Changes to real time disclosure of executive compensation - one week warning!As a reminder, new 8-K rules relating to reporting of executive compensation take effect one week from today on Tuesday, November 7. As under current rules, it is important that disclosure controls and procedures be designed to pick up any change to executive or director compensation in order to determine if either an 8-K is required or an exhibit filing needs to be made with the next 10-Q or 10-K. 10/27/06: Broker non-votesThe New York Stock Exchange officially proposed rules earlier this week that would eliminate discretionary voting by brokers on the election of directors. Director elections would become a non-routine matters, making it harder to elect nominees where there are majority vote requirements. As you may be aware, there is an increasing trend by companies to move from plurality voting to majority voting for director elections - companies considering such a change should keep in mind the potential difficulties posed by the NYSE proposal. If approved by the SEC, the NYSE rule would take effect in the beginning of 2008 - in other words, it will not have any direct impact, other than perhaps for planning purposes, on the 2007 proxy season. 10/19/06: New tender offer rulesYesterday, the SEC adopted final rules relating to tender offers that had first been proposed last December. The rules change the SEC's "best price" rule that requires that all shareholders are paid the same price in a tender offer. The changes, which were made necessary by conflicting court interpretations, make clear that compensation for services that might be paid to a shareholder doesn't count as part of the price paid for his shares. As amended, the tender offer best-price rules clarify that the consideration paid to any security holder for securities tendered in a tender offer is the highest consideration paid to any other security holder for securities tendered in the offer. To insure that investors are protected and the fundamental purpose of the rule is upheld, it also exempts compensatory arrangements from the rule so long as specific substantive standards are satisfied, and includes a safe harbor that hinges upon approval of independent members of the board of directors. The full text of the final rules is expected to be posted on the SEC's website within the next few days. 09/26/06: Edgar upgradesOver the coming months, the SEC will be overhauling and updating the EDGAR system. For more information, see the SEC's press release. 09/05/06: NYSE annual reporting changesThe SEC has approved a revision to New York Stock Exchange rules that changes NYSE's annual financial statement distribution requirement to simply require a company's 10-K or 20-F to be made available on or by a link through its website rather than by mailing. (read more...) 08/18/06: Stock performance graphAlthough you'll hear much more about the new executive compensation rules in the months to come, one somewhat buried change that won't get much attention but that will impact the logistics of annual reporting is the SEC's decision to not only retain the stock performance graph, but to move it from the proxy statement to the annual report to shareholders (the glossy one, NOT the 10-K). 08/09/06: More SOX reliefThe SEC today issued two releases to grant smaller public companies and many foreign private issuers further relief from compliance with Section 404 of the Sarbanes-Oxley Act of 2002. (read more...) 07/12/06: SOX and COSO working on 404 guidanceFor more information, click here. 05/17/06: SOX 404 relief?The SEC announced today a series of actions designed to improve the "implementation" of the internal control requirements under Section 404 of Sarbanes-Oxley. (read more...) 04/28/06: PCAOB proposals re: tax servicesIt was pointed out to me that this could tangentially impact audit committee pre-approval policies. For example, although these rules do not impose any new duties on audit committees, they do add some prohibitions and requirements on auditors - if there is a list of prohibited services in the audit committee's pre-approval policies, they may want to add the new services or acknowledge the auditors new duties connected to pre-approval of tax services. 04/25/06: SEC to issue effectiveness order electronicallyAt long last, the SEC has announced that it will issue effectiveness orders on registration statements electronically, rather than mailing the orders as is currently the SEC's practice, often several months after the fact. On May 22, 2006, the staffs of the Divisions of Corporation Finance and Investment Management will begin to use the EDGAR system to issue notifications of effectiveness for Securities Act registration statements and post-effective amendments, other than those that become effective automatically by law (e.g., WKSI s-3S, all S-8s et al). These notifications will be posted to the EDGAR system the morning after a filing is determined to be effective. The Divisions will no longer prepare and mail paper effectiveness orders associated with these filings. Registrants will continue to be notified promptly by telephone that their registration statements or post-effective amendments are effective. After May 22, 2006, the SEC's website will also present a list of filings declared effective on the previous business day. The effectiveness notices will be distributed as an EDGAR form type called "EFFECT." The public will now be able to search for a company's filings and be able to see when the staff declared a particular Securities Act registration statement effective. 04/21/06: PCAOB proposals re: tax servicesThe SEC has approved the Public Company Accounting Oversight rules referenced in the emails below, which are summarized in the approving order found here. The rules include general rules with respect to auditors' ethics and independence, and more specific rules that include restrictions on tax services that a registered public accounting firm may provide to its audit clients relating to certain confidential tax transactions or aggressive tax positions and a prohibition on registered public accounting firms providing tax services to any person who fills a "financial reporting oversight role" (using an SEC definition) at an audit client (or an immediate family member of such an individual). Work in process on confidential transactions and aggressive positions that would violate these rules must be completed within 60 days. Services to individuals currently in process that would be prohibited could continue to be performed as long as they are completed on or before October 31, 2006 (there is also a transition period for newly hired or promoted individuals to come into compliance). In addition, under the new rules, auditors must provide written documentation containing certain proscribed information to audit committees regarding any proposed tax services (with transition periods for existing pre-approved services). 04/21/06: PCAOB proposals re: tax servicesPlease note that the definition of "financial reporting oversight role" is fairly broad. Financial reporting oversight role means a role in which a person is in a position to or does exercise influence over the contents of the financial statements or anyone who prepares them, such as when the person is a member of the board of directors or similar management or governing body, chief executive officer, president, chief financial officer, chief operating officer, general counsel, chief accounting officer, controller, director of internal audit, director of financial reporting, treasurer, or any equivalent position. 04/20/06: Option expensing delayed againJust a reminder: FAS 123R (relating to, inter alia, option expensing) is now effective for calendar year end companies. 10-Qs for the first quarter, due in May, will need to reflect the impact of FAS 123R not only in the financial statements, but also in MD&A (see our website for a summary of some of the MD&A changes). 01/17/06: SEC proposes new rules on executive compensationThe SEC today proposed rules that would amend disclosure requirements for executive and director compensation, related party transactions, director independence and other corporate governance matters, and security ownership of officers and directors. The proposed rules would affect disclosure in proxy statements, annual reports and registration statements. The proposals would require most of this disclosure to be provided in plain English. The proposals also would modify the current reporting requirements of Form 8-K regarding compensation arrangements. 1. Executive and Director CompensationThe proposals would refine the currently required tabular disclosure and combine it with improved narrative disclosure to elicit clearer and more complete disclosure of compensation of the principal executive officer, principal financial officer, the three other highest paid executive officers and the directors.
2. Related Person Transactions, Director Independence and Other Corporate Governance MattersThe proposals would update, clarify, and slightly expand the disclosure provisions regarding related person transactions. Principal changes would include a disclosure requirement regarding policies and procedures for approving related party transactions, a slight expansion of the categories of related persons and a change in the threshold for disclosure from $60,000 to $120,000. The requirement to disclose these transactions would also be made more principles-based, and would require disclosure if the company is a participant in a transaction in which a related person has a direct or indirect material interest.
Proposed Item 407 also would consolidate corporate governance related disclosure requirements currently set forth in a number of places in the proxy rules and Regulations S-K or S-B. This would include disclosure regarding board meetings and committees, and specific disclosure about nominating and audit committees. Proposed Item 407 would also require similar disclosure regarding compensation committees and a narrative description of their procedures for determining executive and director compensation. 3. Security Ownership of Officers and DirectorsThe proposals would require disclosure of the number of shares pledged by management. 4. Form 8-KThe proposals would modify the disclosure requirements in Form 8-K to capture some employment arrangements and material amendments thereto only for named executive officers. The proposals would also consolidate all Form 8-K disclosure regarding employment arrangements under a single item. 01/05/06: SEC policy on financial penaltiesFor those of you who work on, or have clients involved with, SEC enforcement matters, the new SEC policy statement regarding its use of financial penalties, published yesterday, may be of interest: http://www.sec.gov/news/press/2006-4.htm 12/22/05: Upcoming SEC proposalsAs part of the SEC rule release regarding new 10-K and 10-Q deadlines (http://www.sec.gov/rules/final/33-8644.pdf), please note that an additional new check-the-box item was added to the covers of Forms 10-K and 10-Q (non-calendar year fiscal year end companies should particularly note the 10-Q change) to indicate whether or not the filer is an accelerated filer, "large accelerated filer" (a new category) or non-accelerated filer. 12/14/05: SEC deadlines extendedThe SEC voted today to revise 10-K and 10-Q deadlines. For all filers with greater than $75 million public float, the deadlines this year will remain at 75 days after year end for 10-Ks and 40 days after quarter end for 10-Qs. For "large accelerated filers" - those with greater than $700 million public float - the 10-K deadline will drop to 60 days NEXT year, not this year as originally contemplated. The 10-Q deadline will not further accelerate next year for any issuers. 12/05/05: Upcoming SEC proposalsNext week, the SEC will propose rules (1) making it easier for foreign private issuers to deregister from US reporting; (2) finalizing the phase-ins for accelerated 10-K and 10-Q reporting deadlines and (3) clarifying that the "best price rule" in tender offers does not apply to consideration offered and paid in connection with target employment and severance compensation. Here is the full announcement. 12/01/05: 33 Act Reform FAQsAs a reminder, the 33 Act reform rules are now effective. Just in time for the December 1 effective date, the SEC released additional FAQs. 11/29/05: SEC proposes electronic delivery of proxiesThe SEC today voted to propose for public comment rules that would allow companies and other persons to use the Internet to satisfy proxy material delivery requirements. Current interpretations require affirmative shareholder consent for electronic delivery and currently this process is used only on a limited basis. 11/22/05: Executive Compensation BillFYI, attached is Barney Frank's proposed "Protection Against Executive Compensation Abuse Act", which would require increased proxy disclosures about executive officers' total compensation and policies for recapturing pay that is not within short- and long-term performance targets. The bill would also require clear disclosure on company websites regarding compensation and shareholder approval of certain executive compensation plans and severance arrangements. 11/21/05: SEC fees to decreaseSEC registration fees are scheduled to go down soon. Congress has passed the appropriations bill and the President is expected to sign, so make sure you check before calculating and/or wiring any fees: http://www.sec.gov/news/press/2005-161.htm 10/26/05: Small businesses and SOX 404The SEC has announced the publication for comment by COSO (a standard setting organization) of a new framework under SOX 404 designed for smaller public companies (and presumably their budgets). See the announcement at: www.sec.gov/news/press/2005-153.htm. The COSO proposal (200+ pages) can be found at www.coso.org. 10/07/05: NYSE SurveyNYSE conducted an interesting survey of over 100 listed-company CEOs. Their views on a variety of topics, including compliance and governance, can be found here. 09/21/05: SEC Deadlines to be ExtendedThe SEC voted today to do the following: 09/16/05: Section 16 Rule ProposalsThe rule proposals listed below were adopted yesterday, substantially as proposed. 09/15/05: 33 Act Reform FAQsThe SEC has issued 14 FAQs regarding its Securities Act reforms that take effect on December 1. These relate to some transition questions relating to new undertakings, automatic shelf registration, other shelf issues and effective dates. 09/02/05: SEC FD Suit DismissedFor those of you who deal with Reg FD issues, this case (the SEC lost in the first court challenge to the regulation) may be of interest. 07/29/05: PCAOB proposals re: tax servicesThe Public Company Accounting Oversight Board adopted proposed ethics and independence rules for registered audit firms concerning independence, tax services and contingent fees. Among other things, the rules would further restrict which tax services a company's auditors could perform for the company or its executives and still be considered independent. For more information about the proposal, see the PCAOB's website. 07/11/05: Nasdaq Proposal RE: FPIsFYI, Nasdaq has proposed to require foreign private issuers to publish 6-month financials in a press release and furnish them on a 6-K (in addition to the existing annual reporting rules). For most issuers, this is not a change to existing practice. Here's the full proposal. 06/29/05: SEC to approve significant overhaul to public offering processAs anticipated, the Securities Act reforms were just approved, with some minor modifications from the proposals. The final rules will be published in a few days, followed by a transition period before they become effective. Although these changes will impact all public companies, there will likely be some particularly significant benefits and changes for public companies with market caps over $700 million that utilize shelf registration. 06/22/05: Section 16 Rule ProposalsThe SEC today proposed amendments to Rules 16b-3 and 16b-7 under the Securities Exchange Act of 1934. These rules exempt from the short-swing profit recovery provisions of Section 16(b), respectively, "Transactions between an issuer and its officers or directors," and "Mergers, reclassifications, and consolidations." The proposed amendments are intended to clarify the exemptive scope of these rules in light of a recent decision from the 3rd Circuit (which did not agree with the SEC's amicus brief). Essentially, the SEC takes a broader view of these exemptions than the Court did. 06/16/05: Off-balance sheet arrangement study releasedYesterday, the SEC Staff submitted to the President and Congress a report on off-balance sheet arrangements, special purpose entities and related issues. The report was prepared pursuant to Section 401(c) of the Sarbanes-Oxley Act of 2002. The staff report includes an analysis of the filings of issuers as well as an analysis of pertinent U.S. GAAP and SEC disclosure rules. The report describes the staff's study, details its findings, and provides recommendations.
The report also provides recommendations for certain changes in accounting and reporting requirements, including
The full text of the report and recommendations can be found on the SEC's website. 05/10/05: FD ReminderThe SEC telephone interpretation below has been the subject of discussion lately as companies reevaluate their FD practices in light of recent enforcement actions. Nothing new here - we pass it along as a reminder of the SEC's position on the points covered: Timing: Public notice should be provided a reasonable period of time ahead of the conference call. For example, for a quarterly earnings announcement that the issuer makes on a regular basis, notice of several days would be reasonable. We recognize, however, that the period of notice may be shorter when unexpected events occur and the information is critical or time sensitive. 05/09/05: SEC Staff to Publicly Release Comment Letters and ResponsesUpdate: The SEC announced today that on May 12, 2005, it will begin the process of publicly releasing comment letters and response letters relating to disclosure filings made after Aug. 1, 2004, and reviewed by the Division of Corporation Finance and the Division of Investment Management. Comment letters and response letters relating to reviewed disclosure filings will begin to be released individually on a filing-by-filing basis through the EDGAR system at www.sec.gov. The process will commence with some of the oldest eligible filings, but as it continues, letters will be released no earlier than 45 days after the review of the disclosure filing is complete. 03/30/05: Potential liability for reps and warrantiesFor those of you working on M&A transactions for public companies, the SEC has raised the stakes with respect to the accuracy of reps and warranties. In a recent settlement with Titan Corporation relating to violations of the Foreign Corrupt Practices Act, the SEC not only discussed the violations themselves, but cited a plain vanilla representation in the relevant merger agreement as possible grounds for a 10b-5 claim for publication of false or misleading material disclosures regarding a material contractual provision. 03/29/05: Option expensing guidanceThe SEC today released Staff Accounting Bulletin No. 107 (SAB 107), which provides SEC interpretations regarding the interaction between Statement of Financial Accounting Standards No. 123 (revised 2004), "Share Based Payment" (SFAS 123R), which relates to option expensing, and SEC rules and regulations. In particular, SAB 107 provides guidance related to: 1) share-based payment transactions with nonemployees; 2) the transition from nonpublic to public entity status; 3) valuation methods (including assumptions such as expected volatility and expected term); 4) the accounting for certain redeemable financial instruments issued under share-based payment arrangements; 5) the classification of compensation expense; 6) non-GAAP financial measures; 7) first-time adoption of SFAS 123R in an interim period; 8) capitalization of compensation cost related to share-based payment arrangements; 9) the accounting for income tax effects of share-based payment arrangements upon adoption of SFAS 123R; 10) the modification of employee share options prior to adoption of SFAS 123R; and 11) disclosures in Management's Discussion and Analysis subsequent to adoption of Statement 123R. 03/25/05: Significant Reg FD caseThe SEC has settled its first case under Regulation FD in which the alleged violation involved reaffirming existing guidance. Prior Reg FD cases have involved previously undisclosed material information. This case reminds issuers that even reaffirming existing public information to a selective audience can be material. Note also the SEC cited a lack of cooperation by the issuer. 03/03/05: SOX 404 delay for small and foreign companiesThe SEC has further extended the compliance deadline for non-accelerated filers and foreign private issuers for the rules relating to internal control over financial reporting (so-called "Sarbanes-Oxley 404"). The new deadline takes effect for the first fiscal year of such a company ending on or after July 15, 2006. In other words, for a calendar fiscal year company, the 10-K or 20-F to be filed in 2007 that relates to 2006 will need to contain the internal control report and related audit report for 2006. 12/20/04: SEC publishes FAQs on auditor independenceThe Office of the Chief Accountant of the SEC has issued new Frequently Asked Questions (and answers!) regarding the application of the SEC's rule on auditor independence. Sub-topics include audit partner rotation, prohibited and non-audit services, audit committee pre-approval, audit committee communications, fee disclosures, cooling off periods and broker-dealer and investment advisers. (Note that a fair amount of these were previously issued - the dates for each question are indicated.) 12/14/04: PCAOB proposals re: tax servicesThe Public Company Accounting Oversight Board today proposed ethics and independence rules for registered audit firms concerning independence, tax services and contingent fees. Among other things, the proposed rules would further restrict which tax services a company's auditors could perform for the company or its executives and still be considered independent. For more information about the proposal, see the PCAOB's press release. 11/30/04: Internal Control Reporting SEC ReliefThe SEC has just issued an exemptive order allowing accelerated filers to file a 10-K without management's report on internal control over financial reporting or the auditor's report on the same as long as they meet certain conditions. If the conditions are met, the company will be deemed to be in compliance with applicable 34 Act rules. The rest of the 10-K must be filed on time. 11/23/04: 8-K FAQsThe SEC has issued 30 frequently asked questions (and answers!) relating to the expanded disclosure now required in various items of Current Reports on Form 8-K. 11/17/04: 10-K acceleration delayed - is that an oxymoron?The SEC today approved amendments to postpone, for one year, the final phase-in period for acceleration of periodic report deadlines that apply to "accelerated filers." The primary purpose of the postponement is to allow additional time and opportunity for accelerated filers and their auditors to focus their efforts on complying with new requirements regarding internal control over financial reporting that were mandated by Section 404 of the Sarbanes-Oxley Act of 2002. 11/14/04: NYSE governance rules updated; Annual reporting pointersThe SEC today approved some tweaks to the New York Stock Exchange corporate governance rules applicable to listed companies, mainly to the independence tests for directors (particularly with respect to relationships between directors or family members and the listed company's auditors) and to clarify some other matters on which the NYSE had received repeated questions. These changes will require corresponding changes to this year's D&O questionnaires. 10/28/04: RE: PCAOB approves standard for audits of internal controlFor those of you working on annual reporting for accelerated filers, please see especially questions 21 and 22 in the SEC's FAQ linked to below. Question 21 notes that accountants' consents to incorporation of their reports into 33 Act filings will need to also cover the new internal control audit report. 10/27/04: SEC approves hedge fund adviser registration and proposes significant overhaul to public offering processHedge Fund AdvisersAs expected, by a 3-2 vote, the SEC yesterday approved rules that will require hedge fund advisers meeting certain criteria to register with the SEC under the Investment Advisers Act of 1940. Securities Offering ReformIn addition, the SEC unanimously proposed a series of modifications relating to registered securities offerings, including:
For more details on each of these items, see the SEC's press release. 10/15/04: Option expensing delay; New IPO rules proposedOption Expensing DelayedAs you may have heard, the FASB has delayed the implementation of its controversial rule regarding expensing employee stock options until June 15, 2005. Here's a short article summarizing the FASB's decision. IPO Amendments ProposedIn other news, this week the SEC proposed amendments to Regulation M that would prohibit certain market activities that undermine the integrity and fairness of the offering process, particularly with respect to the allocation of IPOs. The amendments would also enhance the transparency of underwriters? aftermarket activities. (Reg. M governs the activities of underwriters, issuers, selling security holders, and others in connection with offerings of securities. Reg. M is designed to prohibit activities that could artificially influence the market for the offered security, including for example, supporting the IPO price by creating the perception of scarcity of IPO stock or creating the perception of aftermarket demand.)
The full text of the detailed release concerning this proposal will be posted to the SEC web site within the next few days. 10/12/04: PCAOB approves standard for audits of internal controlThe SEC and PCAOB FAQs on internal control over financial reporting have both been updated: 09/28/04The SEC today proposed rules (see www.sec.gov/rules/proposed/33-8496.htm) to establish a voluntary program for reporting financial information on EDGAR using eXtensible Business Reporting Language (XBRL). The SEC also issued a related concept release, all as part of its initiative to assess the benefits of tagged data and its potential for improving the timeliness, accuracy and analysis of financial disclosure in SEC filings. Tagging provides greater context to data through standard definitions that turn text-based information, such as EDGAR filings, into documents that can be retrieved, searched and analyzed through automated means. Data tags describe information such as items included in financial statements. This enables investors and other marketplace participants to analyze data from different sources and allows for the automatic exchange of financial information across various software platforms, including web services. 09/23/04The SEC's Division of Corporation Finance has issued another staff legal bulletin (SLB 14B) providing additional guidance to proponents of shareholder proposals under Rule 14a-8 and the companies that receive them. Of note, the SEC staff complains about how overbearing the shareholder proposal no-action letter process has become and states that they will essentially be allowing more supporting statements that they used to often allow companies to exclude if companies objected. The bulletin can be found at: www.sec.gov/interps/legal/cfslb14b.htm. 09/20/04It looks like on October 18 the SEC will be able to begin posting comment letters and responses. The SEC's EDGAR contractor has sent a notice to all EDGAR document disseminators that technical changes for EDGAR Release 8.9 are scheduled to go into production Monday, October 18, 2004. Release 8.9 will permit the SEC to disseminate EDGAR Cover Letters and Correspondence documents submitted as non-public attachments to registrant filings. The new Release will also permit the agency to publicly disseminate its Correspondence sent to registrants. 09/08/04Nasdaq recently updated its on-line Staff Interpretative Letters: www.nasdaq.com/about/StaffInterpretativeLetters2004.pdf 09/07/04When the new 8-K amendments became effective, certain conforming changes to the 10-Q (and 10-K) rules also became effective. Portions of the disclosures called for in these items are no longer required in quarterly and annual reports because they will be more promptly reported on Form 8-K. Here are the 10-Q changes:
For those who want to get a jump start on annual reporting, here are the 10-K changes:
08/25/04The SEC has proposed to postpone for one year the final phase-in period for acceleration of the due dates of quarterly and annual reports required to be filed under the Securities Exchange Act of 1934. This phase-in period applies to certain reporting companies known as "accelerated filers". These companies must have a public float of at least $75 million, that have been subject to the Exchange Act's reporting requirements for at least 12 calendar months, that previously have filed at least one annual report, and that are not eligible to file their quarterly and annual reports on Forms 10-QSB and 10-KSB. 08/17/04The New York Stock Exchange has proposed various clarifying amendments to its November 2003 corporate governance rules. (Note: NYSE also published FAQs in January and February). Most of the changes are in response to additional questions NYSE has received. The linked document below contains a brief explanation of the proposed changes, as well as a helpful black-line of the existing rules showing what the changes would be. 07/26/04When preparing a shelf registration statement that will have a combined prospectus that "carries forward" the unused amount from a prior registration statement (or using a combined prospectus for any other reason) under Rule 429, the old registration statement does not go away. Rather the combined prospectus relates to both the old and new ones (it is unclear when exactly the old one gets "used up", if at all). Therefore, when filing the base prospectus or any prospectus supplement after effectiveness, you should make sure the EDGAR version references 2 registration statement numbers in the upper right hand corner of the applicable prospectus or supplement. 07/19/04There was an open question under SEC rules as to whether filings made between filing and the effective date of a Form S-3 would be incorporated by reference or whether a pre-effective amendment was required to add the incorporated material specifically. In a telephone interpretation, the SEC confirmed that as long as certain language providing for the incorporation of filings made prior to the effectiveness of the registration statement is included, no pre-effective amendments are necessary. However, note that this language must be deleted when the base prospectus is first used. If a final base if filed right after effectiveness, it is easy enough to delete the phrase at that time and not have to worry about it, but often there are no other changes and so a final base is never filed. It is therefore critical that when doing a takedown you check the base prospectus to make sure the interim language no longer appears. 06/24/04The staff of the SEC today announced that it will being making publicly available comment letters and filer responses relating to disclosure filings reviewed by the Division of Corporation Finance and the Division of Investment Management. 06/24/04: SEC Staff to Publicly Release Comment Letters and ResponsesThe staff of the SEC today announced that it will be making publicly available comment letters and filer responses relating to disclosure filings reviewed by the Division of Corporation Finance and the Division of Investment Management.
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