On March 8, 2011, the House of Representatives approved the JOBS (Jumpstart Our Business Startups) Act by a vote of 390 to 23. The JOBS Act is a package of six bills aimed at reviving the market for initial public offerings and other financing options for smaller companies by easing the rules governing capital formation in an effort to encourage private-sector job creation.
Securities Regulation
SEC Staff Grants No-Action Letter Excluding Proxy Access Shareholder Proposal
In a significant decision, the staff of the Securities and Exchange Commission today issued a no-action letter concurring that a proxy access shareholder proposal could be excluded from a company’s proxy materials under Rule 14a‑8. The proposal, submitted to Textron Inc. by John Chevedden on behalf of Kenneth Steiner, requested adoption of a bylaw amendment permitting shareholders to include in the company’s proxy materials director candidates nominated by any shareholder(s) that had continuously held one percent of the company’s voting securities for two years or by any group of shareholders “of whom one hundred or more satisfy SEC Rule 14a‑8(b) eligibility requirements.
Final SEC Conflict Minerals Rules Delayed
Contrary to the expectations of many that the SEC would imminently release its final conflict minerals rules, on March 6, 2012, at a hearing before the House Committee on Appropriations on the SEC fiscal year 2013 budget request, SEC Chairman Schapiro indicated that the rules will not be adopted until “the middle of the year.” Schapiro stated that the SEC needs “the next couple of months” to complete the rules as the conflict minerals rulemaking is “so complex” and “so out of the ordinary for the SEC.
ISS Extends Deadline for GRId 2.0 Data Confirmation and Release
Institutional Shareholder Services (ISS) announced today that it has extended the deadline for companies to review their updated GRId 2.0 data and submit corrections before GRId 2.0 is implemented. The deadline was previously Thursday February 23, 2012, at 8pm Eastern Time. The updated deadline is now Monday, February 27, 2012, at 8pm Eastern Time. ISS has also announced that the updated GRId scores will now be released on Monday, March 5, 2012, instead of the previously announced date of February 27, 2012.
SEC Provides Guidance on Say-on-Pay Description Language
On February 13, 2012, the Securities and Exchange Commission provided guidance on how a company should describe its advisory vote to approve executive compensation that is required by Rule 14a-21 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), on its proxy card and voting instruction form. While the interpretation specifically addresses only the phrasing on the proxy card, best practice is to use the same terminology when identifying the voting item within the proxy statement. The guidance was provided under Compliance and Disclosure Interpretation (“C&DI”) Question 169.07 and stated the following:
Form 13H Filing Requirements for “Large Traders”
Under new SEC Rule 13h-1, entities and natural persons must register with the SEC ten (10) days after becoming “large traders,” as defined in the rule. The initial filing of Form 13H was due by December 1, 2011 for entities and natural persons who were large traders on or after the rule’s October 3, 2011 effective date. Rule 13h-1(b)(1) also requires all large traders to file an annual Form 13H 45 days after each full calendar year-end, unless they have filed for inactive status, and no later than the end of any calendar quarter if the information on the form becomes stale.
Amendments to Form 10-K and 10-Q
Effective Friday, January 27, 2012, Form 10-K was amended by changing the heading for Part I, Item 4 to read “Mine Safety Disclosures.” Similarly, Part II, Item 4 of Form 10-Q was amended in the same manner. Previously, these item headings had read, “Removed and Reserved,” but as the new headings indicate they will now be used to provide disclosures required under Section 1503 of the Dodd-Frank Act. Amendments were also made to Form 20-F and Form 40-F to provide for disclosures by foreign issuers. The substantive disclosure requirements for these items consists only of a statement whether, if applicable, disclosures required under Section 1503 of the Dodd-Frank Act and under newly adopted Item 104 of Regulation S-K are included as an exhibit to the filing. Those disclosures apply only to an issuer that is an operator, or that has a subsidiary that is an operator, of a coal or other mine covered by the Federal Mine Safety and Health Act of 1977, and require information regarding specified health and safety violations, orders and citations, related assessments and legal actions, and mining-related fatalities. The Commission estimated that only approximately 100 issuers filing Form 10-K will be required to provide the disclosures called for by the new provisions. All other issuers can state that the item is “not applicable,” but will want to note the change in the item headings for their filings.
SEC Provides Guidance on Disclosure Regarding European Sovereign Debt Exposures
On January 6, 2012, the SEC’s Division of Corporation Finance (the “Division”) issued “CF Disclosure Guidance: Topic No. 4” regarding companies’ disclosures about exposures to European sovereign debt holdings. The Division provided the guidance to bring about “greater clarity and comparability” in companies’ disclosures.
SEC Codifies Change in “Net Worth Test” for Accredited Investor Definition
On December 21, 2011, the Securities and Exchange Commission has codified the Dodd-Frank Act’s change to the net worth test for “accredited investors,” a definition used in SEC rules adopted under the Securities Act of 1933, as amended. The accredited investor test is set forth in Securities Act Rule 501(a) and can be met by a natural person with a net worth in excess of $1,000,000. Since its enactment on July 21, 2010, Section 413(a) of the Dodd-Frank Act has excluded primary residences from “accredited investor” net worth calculations. The new SEC amendment clarifies that mortgage debt on an investor’s primary residence generally will not be treated as a liability for the purposes of the net worth qualification, except to the extent that the debt is higher than the estimated fair market value of the residence, thus avoiding double deduction of the residence and the mortgage debt. However, any increase in the amount of mortgage debt secured by a primary residence in the 60 days prior to a sale of securities will count as a liability in an investor’s net worth calculation when the increase is not related to the purchase of that primary residence. The SEC intends this to prevent investors from borrowing against their primary residence and using the proceeds of the newly incurred debt to inflate net worth calculations in order to qualify as an “accredited investor,” while not penalizing individuals who purchase a primary residence prior to the purchase of a security. The revised rule also includes a grandfathering clause providing that the old net worth test will apply to a securityholder’s right to purchase additional securities of the issuer, if such right existed prior to July 20, 2010 and the individual qualified as an accredited investor on the basis of net worth as of the time such right was acquired.
Chamber of Commerce calls for “Transformational Reform” of the SEC
On December 20, 2011, the US Chamber of Commerce published a report entitled “U.S. Securities and Exchange Commission: A Roadmap for Transformational Reform.” The 135-page report, authored by former SEC Secretary Jonathan Katz, was commissioned and released in response to what the Chamber referred to as a need for a “comprehensive transformation of the SEC,” and addresses the SEC’s leadership, management, organization, and enforcement and rulemaking processes, among other matters. This is not the first time the Chamber has proposed reforms of the Commission. In 2009, the Chamber released its first such report, entitled “Examining the Efficiency and Effectiveness of the U.S. Securities and Exchange Commission.” The Chamber now describes that report as calling only for “incremental change”, and notes in its 2011 report that “incremental change will no longer do.” The Chamber’s 2011 report can be accessed at http://www.uschamber.com/sites/default/files/reports/16967_SECReport_FullReport_final.pdf.