Developments in Securities Regulation, Corporate Governance, Capital Markets, M&A and Other Topics of Interest. MORE

We have previously written about Section 951 of the Dodd-Frank Act, which adds new Section 14A to the Securities Exchange Act to require companies to conduct shareholder advisory votes to approve the compensation of executives, as disclosed pursuant to Item 403 of Regulation S-K, or any successor thereto.  We have also been tracking the implementation of the “say-on-pay” requirements pursuant to new Rule 14A-21 and the early results of the shareholder votes on say-on-pay.

            The SEC recently issued several new Compliance and Disclosure Interpretations (CD&Is) that address matters relating to the implementation of the say-on-pay and say-on-golden-parachute rules for issuers. Some of these new CD&Is are written for registrants that may qualify for optional smaller reporting company treatment pursuant to Rule 405 under the Securities Act, which entitles the registrant to scaled back disclosure for several items, including Item 402 of Regulation S-K regarding executive compensation (see Item 10 of Regulation S-K).

            Registrants must comply with Rule 14A-21 for the first annual or other meeting of shareholders on or after January 21, 2011.  However, the compliance date for smaller reporting companies is extended to January 21, 2013.  Status as a smaller reporting company is measured as of the last business day of the second fiscal quarter of 2010.

The new CD&Is provide that:

  •  Even if a registrant has never before checked the box indicating it was a smaller reporting company on a periodic report, if the registrant qualifies as a smaller reporting company as of the last day of the second fiscal quarter of 2010, and it plans to file as a smaller reporting company going forward, it is still eligible for the delayed January 21, 2013 phase-in date for Rule 14A-21. (CD&I 169.01)


  • A registrant that has historically qualified as a smaller reporting company, but that fails to qualify as a smaller reporting company for 2011, will not be permitted to check the “Smaller Reporting Company” box on the cover of its Form 10-Q for the first fiscal quarter of 2011.  However, the registrant will be able to check the box as a smaller reporting company for its 10-K for fiscal year 2010, even though the 10-K will be filed after January 21, 2011.  (CD&I 169.02)


  • A registrant whose 2011 fiscal year will not begin until April 1, 2011, and that fails to qualify as a smaller reporting company for fiscal 2011 based on the measurement of its public float on the last day of its second fiscal quarter in 2010 (in this case, September 30, 2010) is still eligible for the delayed phase-in date of January 21, 2013.  This is because the registrant was still a smaller reporting company in its 2010 fiscal year when the January 21, 2011 phase-in date for larger companies occurred.  (CD&I 169.03)


  • The say-on-frequency vote that is required by Rule 14a-21(b) need not be in the form of a resolution, like the say-on-pay vote. (CD&I 169.04)


  • The say-on-pay vote can use plain English to explain the regulatory sources of the required vote, rather than recite the words “pursuant to Item 402 of Regulation S-K.” (CD&I 169.05)


  • The say-on-frequency vote can use the words “every year, every other year, or every three years, or abstain” instead of Regulation S-K’s “every 1, 2, or 3 years, or abstain.” (CD&I 169.06)


  • A registrant must include certain information relating to golden parachute arrangements in its proxy or consent solicitations relating to a merger, acquisition, consolidation, proposed sale, or other disposition of all or substantially all of the registrant’s assets, pursuant to new Item 402(t) of Regulation S-K.  Although instruction 1 to Item 402(t)(2) of Regulation S-K states that this information must be supplied for those executive officers who were included in the most recently filed Summary Compensation Table, this instruction will not permit the registrant to omit this information with respect to a newly hired executive whose information was not included within the most recently filed Summary Compensation Table. (CD&I 128B.01)

Check back at frequently as we continue to monitor and comment on the implementation of this landmark legislation.

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