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RECON 2009
Corporate & Securities Update
December 10, 2008
Deborah Gunny
Ramsey Hanna
Allen Sussman
Agenda
 SEC Guidance on Corporate Website
Disclosures
 Changes in Rule 144/145 Rules for Resale
of Restricted Securities
 Current Corporate Governance and
Shareholder Activism Trends
 SEC Proposes Transition to IFRS
SEC Guidance on Corporate
Website Disclosures
Website Disclosure
 Interpretive Release No. 34-58288,
August 7, 2008: Guidance on the Use of
Company Websites in relation to Securities Laws
 Issues of focus:
(1) Public Information under Regulation FD
(2) Anti-Fraud Provisions
(3) Disclosure Controls and Procedures
(4) Printer-friendly format
Website Disclosure
 Issue 1: Interaction of Reg FD and Company Websites
 General rule: Tell one, Tell all
 The standard: Disclosure must be “reasonably
designed to provide broad, non-exclusionary
distribution of information to the public”
 When will information posted on a Company’s
website be deemed “public” for Reg FD purposes?
(1) Recognized channel of communication
(2) Posted in a manner that makes it generally available
(3) Reasonable waiting period to allow investors and the
market to react to the information
Website Disclosure
 Satisfying the Standard
 (1) “Recognized channel of communication” and (2)
“Available to the general securities marketplace”
depends on:
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Design/Intent of website
Degree of use
Market and investors awareness
Accessibility
Current and accurate information
Prominence of use of website vs. other methods
Nature of information
Website Disclosure
 Satisfying the Standard
 (3) Reasonable waiting period
 Size and market following the Company
 Extensiveness of website use by investors
 Company encouragement/publicity of
website
 Prior use by Company
 Nature and complexity of information
disseminated
Website Disclosure
 No bright line rule; facts and circumstances test
 A company that wishes to use its website to assist in
compliance with Reg FD should consider the following,
among other measures:
 Publicize website
 Prominently feature Investor Relations section
 Advise media and newswires of use of website
 Steer traffic into website
 Reasonable passage of time before relying on posting
 Press releases and Form 8-Ks still good stand-bys
Website Disclosure
 Issue 2: Anti-fraud Provisions
 General Rule: All information on a company’s website
is deemed a public statement by the company
 Specific Issues:
 Previously Posted Materials or Statements
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Separately identify as historical/previously released
Separate section
 Hyperlinks to Third-Party Info
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Does the context/linked info create a reasonable inference that the
company has approved or endorsed the info?
Third party links – explain the reason for link/context
Links to press releases
“Exit” screens
Specific disclaims as “Recent News Articles” to anti-fraud are
contrary to securities laws
Website Disclosure
 Specific Issues (cont.)
 Summary Information
 Alert investors to location of more detailed information
 Identify as such
 Interactive Website Features
 Statements on blogs/chat rooms subject to anti-fraud if
made by the Company or on its behalf
 No waiver as pre-condition to participation
Website Disclosure
 Issue 3: Disclosure Controls and Procedures:
 If website is utilized as alternative to Exchange
Act disclosure, the disclosure controls and
procedures are applicable and certifications will
apply equally to that extent
 Issue 4: Readable versus Printer-Friendly Format
 Not essential unless SEC rules explicitly
require (e.g., notice and access rules for
proxies)
Website Disclosure
 Conclusion
 Develop and adhere to a strategy on how
the company plans to utilize its website
 Date all posted documents
 Provide context for all linked information
and include an exit page
Changes in Rule 144/145 Rules for
Resale of Restricted Securities
Rule 144/145 Update
 Background
 General registration requirement in federal
securities laws
 Section 4 – Provides transactional exemptions
from the general registration requirement.
 Section 4(1) – Provides an exemption for sales by
a person other than an “issuer, underwriter or
dealer”
 “Underwriter” – A person who acquires securities with a
view to distribution
 Avoidance of “underwriter” status is the key
Rule 144/145
 Introduction to Rule 144 Safe Harbor
 Governs unregistered public resales of:
 “Restricted” securities
 “Control” securities
Rule 144/145 Update
 Rule 144 Changes -- Reduce restrictions on
unregistered resales into public markets
 Relax impediments to reselling both
restricted and control securities
 Codify SEC Staff interpretive positions
related to tacking, other miscellaneous
issues
Rule 144/145 Update
 Preliminary Considerations
 Seller: “Affiliate” or “Non-Affiliate”
 Issuer: “Reporting Company” or “NonReporting Company”
Rule 144/145
 Non-Affiliates
 Issuer is a Reporting Company
 First six months – no resales
 After six months – unlimited resales (if issuer is
current in reporting)
 After one year – unlimited resales (regardless
whether issuer is current in reporting)
 Issuer is a Non-Reporting Company
 First year – no resales
 After one year – unlimited resales
Rule 144/145
 Affiliates
 Issuer is a Reporting Company
 First six months – no resales
 After six months – resales in accordance with Rule 144
current public information, volume limitation and manner
of sale requirements, filing of Form 144 for sales in
excess of $50,000 or 5,000 shares
 Issuer is a Non-Reporting Company
 First year – no resales
 After one year –resales in accordance with Rule 144
requirements
Rule 144 - Summary Chart
Non- Affiliate
Reporting
Issuers
First six months- no resales under
Rule 144 permitted
First six months- no resales under
Rule 144 permitted
Between six months and one yearunlimited public resales so long as
the issuer is current in Exchange Act
reports
After six months, may resell in
accordance with all Rule 144
requirements, including:
•Current public information
•Volume limitation
•Manner of sale requirements
•Filing of Form 144
After one year- unlimited public
resales; need not comply with any
other Rule 144 requirements
NonReporting
Issuers
Affiliate
First one year- no resales under Rule
144 permitted
During 1 year holding period- no resales
under Rule 144 permitted
After one year- unlimited public
resales under Rule 144; need not
comply with any other Rule 144
requirements
After one year- may resell in accordance
with all Rule 144 requirements,
including:
•Current public information
•Volume limitation
•Manner of sale requirements
•Filing of Form 144
Rule 144/145
 Rule 145
 Old Rule:
 Imposes restrictions on “affiliates” of both the Acquiror
and target for resales of securities received in a
business combination.
 Applies even where such securities were registered
under the Securities Act.
 New Rule:
 Removes resale restrictions on affiliates of the Target (so
long as such person does not become an affiliate of
Acquiror)
 If the issuer is a shell company, different requirements
apply
Rule 144/Rule 145
 Shell Companies
 Rule 144 - Cannot rely on Rule 144 unless the issuer:
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Ceases to be a shell company;
becomes a reporting company (and is current); and
has filed current “Form 10 information,” including financial
information, with the SEC.
 No resales until one year after filing of Form 10 information
 Rule 145
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For shell companies, public resales by affiliates of both the
Acquiror and Target will continue to be governed by Rule 145
If the business combination was registered under the
Securities Act -> affiliates may resell securities subject to the
requirements of Rule 145 for shell companies
If the business combination was not registered under the
Securities Act -> affiliates and nonaffiliates must rely on Rule
144
Rule 144/145
 Miscellaneous
 The SEC codified certain staff interpretations
previously issued.
 Most significant: Tacking, under Rule 144.
Clarifies that tacking is permitted in connection
with:
 holding company reorganizations
 conversion or exchange of securities by the
same issuer
 cashless exercise of options or warrants that
have been purchased for cash or property
Trends in Corporate Governance
July 17, 2015
I. Advance Notice Bylaws Provisions
 Two recent Delaware cases require careful
review of advance notice bylaws provisions
 Jana Master Fund, Ltd. v. CNET Networks
 2008 WL 660556 (Del. Ch. Mar. 13, 2008), aff’d, 2008 WL 2031337
(Del. S. Ct. May 13, 2008)
 Levitt Corp. v. Office Depot
 2008 WL 1724244 (Del. Ch. April 14, 2008)
Two Areas to Review in Bylaws
 Do bylaws actually require advance notice of
director nominations?
 If so, do bylaws clearly differentiate between
nominations and other business to be
considered at stockholders’ meeting?
Other Requirements of Advance
Notice Bylaws
 Director nominees must disclose all outside
interests and qualifications via questionnaire
 Shareholder making proposal must disclose
any interest in new business
 Bylaws should clearly distinguish
shareholder proposals from 14a-8 proposals
Example of Advance Notice Bylaw
Annual Meetings of Stockholders. (1) Nominations of persons
for election to the Board of Directors and the proposal of other
business to be considered by the stockholders may be made at
an annual meeting of stockholders: (a) pursuant to the
Corporation’s notice of meeting, (b) by or at the direction of the
Board of Directors or (c) by any stockholder of the Corporation
who (i) was a stockholder of record at the time of giving of notice
provided for in this By-Law and at the time of the annual meeting,
(ii) is entitled to vote at the meeting and (iii) complies with the
notice procedures set forth in this By-Law as to such business or
nomination. Clause (c) shall be the exclusive means for a
stockholder to make nominations or submit other business (other
than matters properly brought under Rule 14a-8 under the
Exchange Act and included in the Corporation’s notice of
meeting) before an annual meeting of stockholders.
II. Trend towards Requiring Majority
Vote to Elect Directors
 66% of S&P 500 and 57% of Fortune 500
have adopted majority voting at beginning of
2008 proxy season (compared to 16% of
S&P 500 in February 2006).
 Within S&P 500:
 19% adopted majority vote policy
 25% adopted majority vote bylaw or charter provision (of
which 2% consists of Plurality-Plus Bylaws)
 22% adopted a majority vote policy and bylaw (or charter)
provision (of which 1% consists of policies and PluralityPlus Bylaws).
Types of Policies
 Plurality voting (the norm)
 Director resignation policy (Pfizer)
 Majority vote bylaws provision in
uncontested election (Intel example)
 Must achieve majority to be elected.
 Incumbent director must tender resignation.
 State law amendments; Model Business
Corporation Act
III. Trends in Shareholder Activism
 Emergence of “Hedge Fund Activism” –
shareholder activism through minority
position
 Acquire minority investment (5%-10%) in public company
 Very short investment horizon (i.e., less than one year)
 Acquisition of entire company is often not ultimate goal
 Sophisticated review of target’s strength and
vulnerabilities
“Financial” Activists
 Short term increase in shareholder value
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Optimize balance sheet: cash payouts
Improve business plan
Significant share buybacks or extraordinary dividend
Sale or spin-off of an underperforming or non-strategic
business
Corporate governance changes (e.g., management
changes, Board seats, eliminate rights plan)
Sale of company to activist or highest bidder
Challenging announced transactions
Attempts to sway press, research analysts, ISS and
other proxy voting organizations
“Socially Responsible” Activists
 Limits on executive pay
 Nondiscrimination policies
 Restrictions on political contributions
 Reduction of greenhouse gas emissions
 Increased disclosure of impact on global
warming
 Address social issues such as abortion (drug
companies)
Activists’ Tools and Tactics
 Letters sent to management and board
 Shareholder proposals/resolutions
 Press releases
 Withhold or “no vote” campaigns
 Equity swaps/derivatives
 Survival of this tactic is uncertain
Hostile Tactics
 Hedge funds most willing to use, but rarely
seek takeover
 Negative press releases
 Shareholder proposals stating hostile
intention
 Initiate litigation
 Proxy contest (most salient tactic)
Defenses
 Optimize balance sheet
 remit excess cash to shareholders
 Implement advance notification bylaws
 Consult investment bankers
 Obtain shareholder feedback
 Increase management presence among
shareholder base
 Improve corporate governance
Success Rates
 Hedge funds achieved successful
outcomes in 84% of 130 activist
campaigns from 2002-2006
 Success defined as garnering a board seat,
obtaining concessions, or reaching a
settlement
 Activists with a specific agenda achieved
their main stated goals in 41% of 329
activist endeavors from 2001-2005, and
achieved significant concessions in 26%
of those cases
Successful Outcomes
Successful Outcome
Percentage of sample
(130 activist campaigns
between 2002-2006)
Settlement: board seat
23%
Settlement: no board seat
7%
Major concession
24%
Minor concession
13%
Proxy contest: board seat
17%
SEC Proposes Transition to IFRS
July 17, 2015
SEC Road Map for Transition to IFRS
 SEC will decide in 2011 whether to proceed with
rulemaking to require that U.S. issuers use IFRS
beginning in 2014
 Mandatory - Several milestones that, if achieved, could
lead to the required use of IFRS by US companies in
2014
 Voluntary - Only companies whose industry uses IFRS
as the basis of financial reporting more than another
set of standards would be eligible to voluntarily elect to
use IFRS beginning in 2010
SEC Milestones for Mandatory
Adoption of IFRS
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Improvements in accounting standards
Accountability and funding of International Accounting Standards
Committee Foundation
Improvement in the ability to use interactive data for IFRS reporting
Education and training in the U.S. relating to IFRS
Limited early use of IFRS, beginning with filings in 2010, where this
would enhance comparability for U.S. investors. Eligibility would be
based on prevalence of the use of IFRS and significance of the issuer
in a given industry. The SEC estimates that a minimum of 110
companies could be eligible.
The anticipated timing of future rulemaking by the Commission
Implementation of the mandatory use of IFRS, including
considerations relating to whether any mandatory use of IFRS should
be staged or sequenced among groups of companies based on their
market capitalization.
How does IFRS differ from GAAP
 Specific differences
 General difference:
 IFRS uses “principle-based” standards (less attention
to specific application guidance)
 GAAP uses more “rule-based” standards
accompanied by specific guidance
Disclaimer: This presentation should not be construed or
relied upon as legal advice or a legal opinion on any specific
facts or circumstances. Also, it is not intended to create a
lawyer-client relationship. The contents contained herein are
intended for general informational purposes only. Readers of
this presentation and attendees at live or recorded
presentations of material covered in this presentation are
urged to consult with their own lawyers or other professional
counsel concerning any specific questions of legal
consequence.