NASDAQ has proposed changes to its listing standards to require disclosure of third-party compensation arrangements for directors and nominees. After withdrawing an initial proposal on this subject, NASDAQ has revised the proposal, and it has been published in the Federal Register for public comment. Comments are due on or before April 26, 2016. The proposal is available here, and a redline showing proposed changes to the rule text begins on page 21 of the document. Under amendments NASDAQ is proposing to Rule 5250(b), NASDAQ companies would have to disclose all agreements and arrangements between any director, or director nominee, and any third party that provide for compensation or other payments in connection with the individual’s candidacy or service as a director. The proposed rule would be construed broadly to apply to both compensation and other forms of payment, such as health insurance. The disclosure requirement would not apply to reimbursement of expenses incurred in connection with serving as a nominee. The proposal also addresses the following aspects of the proposed disclosure requirement:
Securities Regulation
FASB Modifies Accounting Rules for Stock-Based Compensation
On March 30, 2016, the Financial Accounting Standards Board (FASB) released Accounting Standards Update (ASU) 2016-09, which amends ASC Topic 718, Compensation-Stock Compensation, to require changes to several areas of employee share-based payment accounting.
SEC Files Fraud Charges Against Public Biotechnology Company and its Officers for Alleged Materially Misleading FDA-Related Disclosures
On March 29, 2016, the SEC announced that it had filed fraud charges in U.S. federal court against AVEO Pharmaceuticals, Inc. (“AVEO”), a Massachusetts-based biotechnology company, and three of its former executives. The complaint alleges that AVEO and its former Chief Executive Officer, Chief Financial Officer and Chief Medical Officer violated the antifraud provisions of the federal securities laws by misleading investors about the company’s communications with the FDA during the approval process for tivozanib, AVEO’s leading product candidate being developed as a treatment for kidney cancer. According to the complaint, the FDA raised concerns to AVEO in a May 2012 pre-NDA, or New Drug Application, meeting related to the survival rates of patients receiving tivozanib during AVEO’s first clinical trial of tivozanib relative to patients receiving the other compound, sorafenib, being used as a comparator in the trial. An NDA is the formal process by which a company seeks FDA approval of a new pharmaceutical for commercialization. In the pre-NDA meeting, FDA staff recommended that AVEO conduct a second clinical trial. The SEC alleged in its complaint that, for more than eleven months following the FDA’s recommendation of a second clinical trial, AVEO and the officers named in the complaint concealed from investors the extent of the FDA’s concerns about tivozanib and its recommendation that the company conduct a second clinical trial. Among other charges, the SEC alleged that:
New SEC Staff Guidance on Describing Shareholder Proposals on Proxy Cards
On March 22, 2016, the Division of Corporation Finance of the Securities and Exchange Commission (the “Staff”) issued a new Compliance and Disclosure Interpretation (C&DI) regarding how Rule 14a-8 shareholder proposals should be described on issuer proxy cards in compliance with Rule 14a-4(a)(3) of the Securities Exchange Act of 1934. This C&DI was issued in response to complaints the Staff received from shareholder proponents about the lack of specificity on some companies’ proxy cards.
One More Time! SEC Seeks to Re-Adopt Resource Extraction Disclosure Rules
On December 11, 2015, the Securities and Exchange Commission voted to propose a new rule implementing Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. That provision directs the SEC to promulgate rules requiring “resource extraction issuer[s]” (i.e., issuers that extract natural resources) to disclose payments they make to the U.S. government or foreign governments for the commercial development of oil, natural gas, or minerals. The SEC’s latest action follows a ruling by a federal district court in Massachusetts directing the SEC to expedite its promulgation of a new rule implementing Section 1504.
“FAST” Act Legislation Enacted — Potentially Significant Impact on Capital Markets
On December 4, 2015, President Obama signed into law the Fixing America’s Surface Transportation Act, known as the “FAST Act.” This five-year transportation bill also includes a number of provisions related to securities laws and capital-raising measures. The key securities law provisions of the FAST Act are summarized as follows: Reforming Access for Investments in Startup Enterprises:
FASB Votes to Approve New Lease Accounting Standard and Plans to Issue the New Standard in Early 2016
At a November 11, 2015 meeting, the Financial Accounting Standards Board (“FASB”) voted to proceed with final revised standards for lease accounting. The new standards would require lessees to record certain assets and liabilities for all leases with a term in excess of 12 months. This is a departure from existing accounting standards, which require balance sheet presentation only for leases classified as capital leases. This change is anticipated to have a significant impact on balance sheets for a broad swath of companies, potentially resulting in recognition of material amounts of lease-related assets and liabilities for many companies. Companies and their advisors should consider now whether the new standards will affect compliance with financial covenants in existing or future debt arrangements.
Corp Fin Issues New Guidance on Unbundling of Proposals
On October 27, 2015, the Division of Corporation Finance of the Securities and Exchange Commission (the “SEC”) issued two new Compliance and Disclosure Interpretations (“CDIs”) regarding the “unbundling” of certain proposals under Rule 14a-4(a)(3) of the Exchange Act in the context of mergers, acquisitions, and similar transactions. Federal proxy rules generally prohibit the grouping of separate matters into a single proposal submitted for shareholder approval. The rules provide that companies must separately submit — or “unbundle” — proposals to allow shareholders to vote on each matter. In connection with business combination transactions, acquiring companies have at times attempted to bundle several amendments to their organizational documents with the business combination when seeking shareholder approval of the transaction. The new CDIs clarify the Staff’s position with respect to this circumstance, requiring separate votes for the transaction and for any material amendment to the acquiror’s organizational documents. The new CDIs are available here.
SEC Adopts Final Crowdfunding Rules
On October 30, 2015, the Securities and Exchange Commission (the “SEC”) voted to adopt final rules permitting companies to offer and sell securities through crowdfunding. The new rules, a response to evolving methods of online fundraising for a variety of firms and projects, are meant to assist smaller companies with capital formation and provide additional protections to investors. We previously discussed the proposed crowdfunding rules here; the text of the final rules has not yet been issued, but a copy of the proposed rules is available here.
ISS Opens Comment Period for Draft 2016 Proxy Voting Policy Updates
Today Institutional Shareholder Services (“ISS”) proposed for comment three changes to its 2016 U.S. proxy voting policies. Comments on the proposed changes can be submitted via e‑mail to policy@issgovernance.com by 6 p.m. ET on November 9, 2015. ISS will take the comments into account as part of its policy review and expects to release its final 2016 U.S. policy updates on November 18, 2015. We note that ISS’s final 2016 proxy voting policies, which will apply to shareholder meetings held on or after February 1, 2016, likely will reflect additional changes beyond these on which ISS has solicited comments.