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

The CFPB announced a plan it will implement over the next year that focuses on the mortgage industry’s compliance with new consumer protections that go into effect in January 2014.  In an effort to support rule implementation and ensure industry is ready for the new borrower protections, the CFPB will:

  • Coordinate with other agencies: The CFPB says it is coordinating with other federal government regulators that also conduct examinations of mortgage companies to ensure all regulators have a shared understanding of the CFPB’s new rules. •Publish plain-language guides: The CFPB will publish easy-to-understand summaries of the regulations in both written and video form. The guides, available in the spring, will be particularly helpful to smaller businesses with limited staff for compliance.
  • Publish updates to the official interpretations: Over the next year, the CFPB plans to issue updates of the “official interpretations,” which provide guidance on how to comply with the rules. These updates will allow the CFPB to address important questions raised by industry, consumer groups, or other agencies. Priority for these updates will be given to issues that are important to a large number of providers or consumers, and that critically affect mortgage companies’ implementation decisions. The Bureau expects to issue the first one in the spring and issue additional updates, as needed.
  • Publish readiness guides: These guides, available this summer, will help mortgage originators and servicers prepare to comply with the new rules by giving them helpful check-lists, such as suggesting that implementation plans include items like revising policies and procedures and finalizing training plans for staff. More in-depth examination procedures are expected to be published later this year by the Federal Financial Institutions Examination Council. Industry members will be able to use these examination procedures to conduct self-assessments and internal reviews of their readiness and compliance.
  • Educate consumers: As the January 2014 date approaches, the CFPB will give consumers information about their new protections under these rules through a broad-reaching consumer education campaign.

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

A number of companies have filed IRANNOTICEs on EDGAR with the SEC (thanks to Broc Romanek for pointing this out).  The notices reference disclosures made in annual reports pursuant to Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 and Section 13(r) of the Securities Exchange Act of 1934.  What sorts of disclosures are being made?

Delphi Automotive PLC

The Iran Threat Reduction and Syria Human Rights Act of 2012 (“ITRSHRA”), which was signed into law on August 10, 2012, includes a provision requiring issuers to disclose information relating to certain transactions with Iran or with persons or entities designated under certain executive orders. Prior to the enactment of ITRSHRA, we had a longstanding policy of reviewing and determining that any matter relating to possible transactions involving Iran did not violate applicable U.S. export controls and sanctions laws, and we do not believe that we have conducted any transactions that violated applicable laws. During 2012, certain of our non-U.S. affiliates engaged in transactions involving Iran in accordance with applicable law. Our non-U.S. affiliates have ceased transactions involving Iran as of October 9, 2012, as required by ITRSHRA.

Prior to October 9, 2012, some of our non-U.S. affiliates sold items out of general inventory to non-U.S. distributors outside of Iran, who sold those items to retail or automotive assembly, service, or repair establishments in Iran. The sales made to these non-U.S. distributors of items that were subsequently resold into Iran totaled approximately $3.7 million and generated operating income of approximately $0.7 million. In 2012, our non-U.S. affiliates received payments of approximately $2.7 million related to these sales. The items were all non-U.S. origin automotive components which, if exported from the United States, would not have required a U.S. export license (except for direct export to Iran and certain other very limited destinations or entities).

Our non-U.S. affiliates received payments from the distributors through banks outside of Iran. However, some of those transactions may have involved transfers of funds to the distributors through Iranian Government-owned banks, and we are not certain of the exact path of such transfers, and whether those transactions are therefore required to be disclosed under Section 13(r)(1)(D)(iii) or otherwise of the Securities Exchange Act of 1934. The transactions disclosed herein were not prohibited under any U.S. export controls and sanctions laws at the time the transactions were undertaken because they were not conducted by U.S. persons or entities, did not involve ten percent (10%) or more U.S.-origin content, and were not otherwise prohibited.

AllianceBernstein L.P.

AllianceBernstein, Holding and their global subsidiaries had no transactions or activities requiring disclosure under the Iran Threat Reduction and Syria Human Rights Act (“Iran Act”), nor were they involved in the AXA Group insurance policies described immediately below.

The non-U.S. based subsidiaries of AXA, our parent company, operate in compliance with applicable laws and regulations of the various jurisdictions where they operate, including applicable international (United Nations and European Union) laws and regulations.  While AXA Group companies based and operating outside the United States generally are not subject to U.S. law, as an international group, AXA has in place policies and standards (including the AXA Group International Sanctions Policy) that apply to all AXA Group companies worldwide and often impose requirements that go well beyond local law. For additional information regarding AXA, see “History and Structure” in this Item 1.

AXA has reported to us that 16 insurance policies underwritten by two of AXA’s European insurance subsidiaries, AXA France IARD and AXA Winterthur, that were in-force during 2012 potentially come within the scope of the disclosure requirements of the Iran Act. Of these insurance policies, 15 policies were written by AXA France IARD and relate to property and casualty insurance (homeowners, auto, accident, liability and/or fraud policies) covering property located in France where the insured is a company or other entity that may have, direct or indirect, ties to the Government of Iran (the “French Policies”), including Iranian entities designated under Executive Orders 13224 and 13382.  AXA France IARD is a French company, based in Paris, which is licensed to operate in France.  The other policy, described below, was written by AXA Winterthur and provides global coverage to a Swiss-based non-governmental organization based in Geneva that was initially established by the United Nations to facilitate international transport (the “Swiss Policy”).  AXA Winterthur is a Swiss company, based in Winterthur, Switzerland, which is licensed to operate in Switzerland.

 With respect to these policies, as of the date of this report: (1) AXA France IARD has taken actions necessary to terminate coverage under all 15 of the French Policies; and (2) AXA Winterthur has restructured coverage under the Swiss Policy to specifically exclude Iran.  The aggregate premium for these 16 policies was less than $1 million (approximately $105,000 for the 15 French Policies and approximately $884,000 for the relevant premium amount under the Swiss Policy), representing less than 0.001% of AXA’s consolidated revenues, which are in excess of $100 billion.  The net profit attributable to these 16 insurance policies is difficult to calculate with precision, but AXA estimates its net profit attributable to all 16 of these policies, in the aggregate, was less than $300,000, representing less than 0.006% of AXA’s aggregate net profit . . .

United Technologies Corporation

 Section 219 of the Iran Threat Reduction and Syria Human Rights Act of 2012 (ITRA) added a new subsection (r) to section 13 of the Exchange Act, requiring a public reporting issuer to disclose in its annual or quarterly reports whether it or any of its affiliates have knowingly engaged in specified activities or transactions relating to Iran, including activities not prohibited by U.S. law and conducted outside the U.S. by non-U.S. affiliates in compliance with local law. Issuers must also file a notice with the SEC if any disclosable activities under ITRA have been included in the annual or quarterly report. Upon receiving such a notice, the SEC is required under ITRA to transmit the notice to the President, the House Committees on Foreign Affairs and Financial Services and the Senate Committees on Foreign Relations and Banking, Housing and Urban Affairs and is required to make these separate notices publicly available on its website.

The following activities are disclosed as required by Section 13(r)(1)(D)(iii) of the Exchange Act as transactions or dealings with the government of Iran that have not been specifically authorized by a U.S. federal department or agency:

 UTC Climate, Controls & Security. In 2009, UTC adopted a corporate policy prohibiting new business in or with Iran. In 2012, two of our non-U.S. affiliates engaged in activities related to the orderly winding down of legacy business involving the sale of fire safety equipment through procurement agents to entities owned by the government of Iran. This business was pursuant to contracts entered into by Simtronics AS (Simtronics), a Norwegian company and its subsidiary Water Mist Engineering AS (WME) prior to UTC Climate, Controls & Security’s acquisition of these two entities in April 2011. Both companies were acquired following the adoption by UTC in 2009 of the corporate policy prohibiting all new business in or with Iran, and both companies became subject to that policy upon acquisition.

During 2012 and pursuant to five legacy contracts, Simtronics and WME received payments and provided certain fire detection and fire suppression equipment for end-use by the Pars Oil & Gas Company, which has been designated by the U.S. Treasury Department’s Office of Foreign Assets Control (OFAC) as an entity owned or controlled by the government of Iran. These legacy contracts were not prohibited by applicable law when they were executed, nor was the wind down of these contractual arrangements prohibited by UTC’s policy at the time of acquisition. Simtronics and WME have halted all fulfillment activities related to these legacy contracts, but may seek clearance from OFAC in order to resolve a dispute over termination of a third-party agency agreement associated with these contracts and to complete certain remaining wind-down activities. Simtronics and WME do not otherwise intend to continue or enter into any Iran-related activity. The fire suppression products WME supplied incorporated a small amount of U.S.-origin springs, which are non-critical components, and an appropriate disclosure has been filed with OFAC.

The gross revenue and net profits attributable to these activities in 2012 for Simtronics were $960,000 and $70,000, respectively, and for WME were $2,550,000 and $560,000, respectively.

Otis. In 2012, non-U.S. affiliates of Otis conducted service, maintenance and/or modernization activities on elevators previously installed at Iranian diplomatic premises in France, Kuwait and Hungary under pre-existing contracts. The Hungarian contract was undertaken with a local construction company (not the Iranian Government). All of the contracts in question have been terminated by these Otis affiliates.

The following activities are disclosed as required by Section 13(r)(1)(D)(i) and (ii) of the Securities Exchange Act of 1934, as amended by ITRA, as transactions or dealings with certain designated parties:

One of the payments received in 2012 by the French affiliate of Otis for work at the Iranian embassy in Paris was drawn on a local office of Bank Melli of Iran, which was previously designated as subject to sanctions under Executive Order 13382. In 2012, an Otis affiliate in Germany performed elevator maintenance and repair services to support the Frankfurt premises of Bank Saderat of Iran, which was designated as subject to sanctions in October 2007 under Executive Order 13224.

All of these elevator service and modernization contracts were permissible under applicable law when they were executed. These Otis affiliates have ceased performance under these contracts and do not intend to continue or enter into any new Iran-related activity. An Otis employee who is a U.S. person (for OFAC purposes) stationed outside the U.S. provided unauthorized advice to the Otis affiliate in Kuwait with respect to ending its contract for services at Iranian diplomatic premises in Kuwait, and an appropriate disclosure has been filed with OFAC.

The gross revenues and net profits attributable to the activities of these Otis affiliates in 2012 with respect to the Iranian diplomatic premises in France, Kuwait and Hungary were approximately $70,000 (including the single payment of approximately $1,500 drawn on Bank Melli) and $4,000, respectively, and were $4,500 and $1,500, respectively, with respect to Bank Saderat.

 Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

The CFPB has issued a bulletin advising mortgage companies about their legal obligations that protect consumers during loan transfers between mortgage servicers. The CFPB is concerned that when handing over the processing of loans, mortgage servicers should not lose paperwork, lose track of a homeowner’s loss mitigation plans, or hinder a consumer’s chances of saving their home from unnecessary foreclosure. The CFPB has a heightened concern about these practices given the large number and size of recent servicing transfers.

 Today’s guidance also informs the industry that the CFPB will be taking a close look at:

  • How a servicer has prepared for the transfer of servicing rights or responsibilities.
  • How the new servicer handles the files it receives through a transfer.
  • What policies the servicers have to prevent borrower harm for loans with loss mitigations in process.

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

On February 5, 2013, the SEC released FAQs regarding Section 201 of the JOBS Act, which offers a new limited exemption from broker-dealer registration.

In addition to directing the SEC to adopt rules lifting the ban on general solicitation in Rule 506 offerings to only accredited investors (provided that the issuers take reasonable steps to verify accredited investor status), Section 201(c) of the JOBS Act also made a statutory change to Section 4 of the Securities Act.  New Section 4(b) provides that a person need not register as a broker-dealer solely by reason of actions to facilitate Rule 506 offerings.  The intent is to allow third parties to operate funding portals or another platform or mechanism in order to facilitate the sale of securities in Rule 506 offerings that utlize general solicitation without becoming subject to broker-dealer registration.   While the lift of the ban on general solicitation in certain Rule 506 offerings depends upon SEC rulemaking (the SEC proposed rules in August of 2012, and there has been no action since), this new exemption from broker-dealer registration was effective immediately as a statutory change.

There are a couple of requirements that must be met in order for a person to take advantage of the exemption from broker-dealer registration provided by Section 4(b).  First, Section 4(b) is only an exemption from registration based solely on certain specified activities, which (broadly speaking) consist of operating a “platform or mechanism” to facilitate the sale of securities, co-investing with an issuer, or providing “ancillary services” such as due diligence services without investment advice or standard documentation without negotiation. 

Second, the person seeking to rely on the exemption cannot be subject to statutory bad-boy disqualifications, cannot take possession of customer funds or securities, and, most importantly, cannot receive compensation in connection with the purchase or sale of securities.

With that background information in mind, here are some of the highlights from the newly released FAQs:

  • Although the broker-dealer registration exemption is technically operative right now, it has limited utility until the SEC rulemaking progresses.  For example, a person can operate a platform or mechanism such as a funding portal without having to register as a broker-dealer right now, but it cannot allow issuers to conduct Rule 506 offerings using general solicitation on that platform until the SEC adopts the necessary rules.
  • The exemption would not be available to a platform or mechanism that facilitated the offer and sale of securities other than those offered pursuant to Rule 506.
  • Although the SEC takes a very broad view of what constitutes compensation for purposes of determining whether a person has received compensation in connection with the sale of securities (which would disqualify the person from this exemption), the SEC also notes that Congress specifically included co-investing in the issuer’s securities as a permitted activity in Section 4(b).  Therefore, profits realized as a result of a person’s investment in the issuer’s securities would not be considered compensation to the person for purposes of Section 4(b) of the Securities Act.
  • The person operating the platform or mechanism in question can be an associated person of the issuer, as long as the person otherwise qualifies for the exemption.
  • The exemption from broker-dealer registration provided by Section 4(b) is not an exemption from classification as a broker-dealer.  To the contrary, a person could qualify for the Section 4(b) exemption from broker-dealer registration but still be subject to other provisions of the securities laws that are applicable to broker-dealers, independent of registration requirements. “Whether someone is a broker or dealer requires a separate analysis based on the particular facts and circumstances presented.”
  • The Section 4(b) exemption does not provide any relief from state registration requirements.

Check Dodd-Frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

FINRA has released a set of FAQs relating to its review of public offerings filed with FINRA’s Public Offering System, which replaced COBRADesk as FINRA’s online filing system in June of 2012.

The FAQs address a variety of topics, including underwriter compensation, exemptions from filing rules, filing fees and the filing process, and direct participation programs (DPPs) and real estate investment trusts (REITs).  You can find the entire set of FAQs here; this post focuses on underwriter compensation and related issues.

  • FINRA Rule 5110 provides that all items of value received by underwriters during the 180 day period preceding a public offering are deemed to be underwriting compensation, unless one of five exceptions set forth in Rule 5110(d) applies.  In the case of unregistered securities acquired by underwriters during the 180 day review period, the securities remain subject to the lock-up provisions in Rule 5110(g), which prohibit the transfer of the securities for a period of 180 days following commencement of the public offering.  However, in certain cases, FINRA has provided exemptive relief from the lock-up period under the 9600 series rules that allow FINRA members to petition FINRA for relief.  The FAQs set forth some of the facts and circumstances that FINRA considered in determining whether to grant exemptive relief from the lock-up period, namely, whether: 1) the acquisition of the securities was required in order to restructure the issuer’s capitalization for certain specified purposes; 2) the securities were registered and included in the underwritten public offering; and 3) the securities were acquired pursuant to an arrangement that was designed to benefit the issuer and was not proposed by the FINRA member.
  • A Right of First Refusal (ROFR) granted to an underwriter within the 180 day period prior to the commencement of a public offering is an item of value required to be included in the underwriter compensation calculations even if the ROFR is granted by means of an amendment to an advisory agreement that predated the 180 day review period.  Pursuant to Rule 5110(c)(3)(ix), the value of the ROFR is either the amount the issuer must pay the underwriter in order to waive or terminate the ROFR or, if no dollar amount has been agreed upon, 1% of the offering proceeds.
  • If an underwriter’s counsel fees and expenses are reimbursed by an issuer in connection with a public offering, they must be included in the calculation of compensation to the underwriter, although they need not be separately itemized – i.e., all fees and expenses of the underwriter that are reimbursed by the issuer can be aggregated for disclosure in the prospectus.  The offering proceeds table on the prospectus cover must include a cross reference to the Underwriting or Plan of Distribution sections if the underwriter’s compensation includes counsel fees and expenses paid or reimbursed by the issuer.
  • When a portion of underwriter compensation consists of an option, warrant, or convertible security, the specific terms of the instrument need not be disclosed in the prospectus.  FINRA will review the instrument to determine whether it meets the requirements of Rule 5110(f)(2)(H), which provides restrictions on the allowable terms, but the terms need not be disclosed in the prospectus.
  • FINRA has clarified that it has previously granted an exemption from the filing requirements of Rule 5110 and Rule 5121 (regarding offerings involving a conflict of interest) for offerings whether the issuer is a governmental sponsored entity and a conflict of interest exists because an affiliate of the underwriter owns more than 10% of the issuer.  FINRA notes that it granted the exemption in a situation in which the GSE is regulated, examined and supervised by the Farm Credit Administration and periodically audited by the U.S. Government Accountability Office.
  • In offerings involving a FINRA member’s own securities, a Qualified Independent Underwriter (meaning an underwriter that meets the requirements contained in Rule 5121(f)(12)) must be used.  Previously, FINRA had a program in which underwriters could qualify as a QIU by making an annual filing, but that program has been discontinued.  Currently, the issuer is required to represent in the Public Offering System that the QIU meets the requirements of Rule 5121(f)(12).

Check Dodd-Frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

Both the NYSE and Nasdaq stock exchanges are requiring most issuers to have independent compensation committees by the earlier of their first annual meeting after January 14, 2014, or October 14, 2014.  You can find our NYSE compliance checklist here and our Nasdaq compliance checklist here.

While compliance is not required until the 2014 proxy season, issuers may wish to add relevant questions to their D&O questionnaires for the current proxy season.  The Nasdaq rules prohibit compensation committee members from accepting, directly or indirectly any consulting, advisory or other compensatory fee from the issuer or any subsidiary thereof.  The NYSE rules require an issuer to consider any such compensatory payments to determine independence.  Most issuers will not find it necessary to add a new question to their questionnaires because it will likely already be covered by questions addressed to Exchange Act Rule 16b-3 (which requires non-employee directors to qualify for exemptions from Section 16 rules) and Internal Revenue Code Section 162(m) (which requires certain performance based compensation to be awarded by outside directors to permit tax deductibility).

In making the independence determination, both the NYSE and Nasdaq rules require an issuer’s board to consider whether the director is affiliated with the Company, a subsidiary of the Company or an affiliate of a subsidiary of the Company to determine whether such affiliation would impair the director’s judgment as a member of the compensation committee.  Most issuers will want to ask compensation committee members to identify any such relationships in their questionnaires.  Section 952 of the Dodd-Frank Act did not specify any particular definition of “affiliate” for this purpose.

In addition, By July 1, 2013, most listed issuers must  have a compensation committee charter which provides that a compensation committee may select, or receive advice from, a compensation consultant, legal counsel or other adviser to the compensation committee, other than in-house legal counsel, only after taking into consideration any business or personal relationship of the compensation consultant, legal counsel or other adviser with a member of the compensation committee or an executive officer of the issuer.  Although not required, issuers may wish to ask compensation committee members to identify any such relations by use of a question like this:  “[Law firm name and compensation consultant name] are expected to provide advice to the Compensation Committee.  Please advise of any business or personal relationship you have with members and employees of those firms in the space provided below.”  If the size of the firms specified will generate many spurious answers, the question can be narrowed to members and employees of the firm that are expected to provide services to the compensation committee.

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

Examples of Disclosures Regarding Conflict Free Compensation Advisors

New S-K Item 407(e)(3)(iv) provides that if any compensation consultant has played a role in determining or recommending the amount or form of executive and director compensation, and the consultant’s work has raised any conflict of interest, then disclosure of the nature of the conflict and how the conflict is being addressed is required.  This rule is effective for any proxy or information statement for an annual meeting of shareholders at which directors will be elected occurring after January 1, 2013.

S-K Item 407(e)(3)(iv) does not require any disclosure if the compensation consultant’s work did not raise any conflict of interest.  Nonetheless, in a review of 20 proxy statements filed between January 23 and January 29, 12 companies (60%) made disclosures that their compensation consultant had no conflict of interest.  Some of the disclosures we reviewed are set forth below.  The disclosures also contain interesting discussions of procedures and practices companies are using in this area.

Raymond James Financial, Inc.

The CGN&C Committee engaged Pay Governance, LLC in 2011 in connection with the redesign of the Company’s senior executive compensation architecture, including development of initial compensation targets. That engagement concluded in January 2012.

Although Pay Governance had been initially engaged by management in 2010 to perform the preliminary analysis, for which it was paid $130,000, the CGN&C Committee did not view engaging Pay Governance to be the Committee’s consultant going forward to be a conflict of interest given the relatively small portion of Pay Governance’s revenues that the preliminary management engagement represented and the fact that Pay Governance had not previously performed any work for the Company. The initial work for management did not entail compiling recommendations of pay structure or levels, but merely was a comparison of pay methodologies and levels across a wide spectrum of competitor companies based upon public information and industry studies and did not entail a recommendation of a new or different compensation structure for the company.

Cabot Corporation

The Compensation Committee has assessed the independence of PM&P pursuant to SEC rules and concluded that no conflict of interest exists that would prevent PM&P from independently representing the Compensation Committee.

Sanmina Corporation

As a result of new SEC rules, Sanmina is required to disclose whether the work of its compensation consultant raises any conflict of interest issues and, if so, the nature of the conflict and how the conflict was addressed. The Committee does not believe that the retention of Compensia to advise it concerning executive compensation matters creates a conflict of interest. The Committee’s belief in this regard is informed by the following:

(i)  According to Compensia, revenue from Sanmina represented less than 1% of Compensia’s total revenue for fiscal 2012;

(ii)  Compensia has adopted and disclosed to the Committee its conflicts of interest policy concerning client engagements and the Committee believes such policy provides reasonable assurance that conflicts of interest with Compensia will not arise;

(iii)  There are no business or personal relationships between Compensia and any member of the Committee; and

(iv)  Compensia has represented to the Committee that, per its conflicts of interest policy, no Compensia employee is a stockholder of Sanmina.

In addition, Compensia reported solely to the Committee, Sanmina’s management was not involved in the negotiation of fees charged by Compensia or in the determination of the scope of work performed by Compensia and the Committee has the sole authority to hire and terminate compensation consultants. As a result of the foregoing, the Committee believes that Compensia is independent of Sanmina.

Starbucks Corporation

In connection with its engagement of F.W. Cook, the Committee considered various factors bearing upon F.W. Cook’s independence including, but not limited to, the amount of fees received by F.W. Cook from Starbucks as a percentage of F.W. Cook’s total revenue, F.W. Cook’s policies and procedures designed to prevent conflicts of interest, and the existence of any business or personal relationship that could impact F.W. Cook’s independence. After reviewing these and other factors, the Committee determined that F.W. Cook was independent and that its engagement did not present any conflicts of interest. F.W. Cook also determined that it was independent from management and confirmed this in a written statement delivered to the Chair of the Committee.

Concur Technologies, Inc.

Compensia is directly accountable to the Compensation Committee. To maintain the independence of the firm’s advice, Compensia does not provide any services for Concur other than those described above. In addition, the Compensation Committee conducted a conflict of interest assessment by using the factors applicable to compensation consultants under SEC rules, and no conflict of interest was identified.

WGL Holdings, Inc.

The HR Committee concluded that its compensation adviser had no conflicts of interest during fiscal year 2012. In reaching this conclusion, the HR Committee considered all relevant factors, including the six independence factors relating to committee advisers that are specified in SEC Rule 10C-1. These factors are:

(i) The provision of other services to the company by an adviser’s employer;

(ii) The amount of fees received from the company by an adviser’s employer as a percentage of the total revenue of the adviser’s employer;

(iii) The policies and procedures of an adviser’s employer that are designed to prevent conflicts of interest;

(iv) Any business or personal relationship of an adviser with a member of the committee;

(v) Any stock of the company owned by an adviser; and

(vi) Any business or personal relationship of an adviser or the adviser’s employer with an executive officer of the company.

In addition, the HR Committee retains the individual adviser as well as the adviser’s firm, and the adviser reports directly to the HR Committee.

The Pantry, Inc.

Cook & Co. reports directly to the CO Committee and all work conducted by Cook & Co. for us is on behalf of the CO Committee. Cook & Co. provides no services to the Company other than executive and non-employee director compensation consulting services and has no other direct or indirect business relationships with the Company or any of its affiliates. All executive compensation services provided by Cook & Co. are conducted under the direction and authority of the CO Committee. In addition, in its consulting agreement with the CO Committee, Cook & Co. agrees to advise the Chair of the CO Committee if any potential conflicts of interest arise that could cause Cook & Co.’s independence to be questioned, and to undertake no projects for management except at the request of the CO Committee Chair and as an agent for the CO Committee.

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

 

 

The NYSE and Nasdaq have recently adopted rules which will require compensation committees to consider certain enumerated factors before selecting, or receiving advice from, a compensation consultant, legal counsel or other adviser to the compensation committee, other than in-house legal counsel.  We expect many compensation committees will require information in writing to satisfy their consideration of the required factors.  For legal counsel the letter could take a form like this:

[Name

Chair of Compensation Committee

ABC Corporation

Address]

Dear  [          ]:

You have asked us to provide you with certain information to satisfy the requirements of your Compensation Committee Charter and related rules of the [stock exchange].  Where the applicable Compensation Committee Charter provision or stock exchange rule requires an assessment with respect to “legal counsel,” the disclosures made herein relate to [list attorneys names] (the “Relevant Attorneys”), which we anticipate will be the attorneys providing services to the Compensation Committee.  [Note:  SEC Adopting Release 33-9330 (page 40) states the stock ownership disclosure applies only to “individuals providing services to the compensation committee and their immediate family members.” It therefore appears logical to apply this guidance to other provisions of the rule which use the same term.   Apparently, changes in team members can trigger a new assessment by compensation committees which could be challenging, especially in fast-moving situations.]

            1.         Other services we have provided to ABC Corporation [for the 12 months ended December 31, 201X.]:  [List services.] [Note:  The rules do not specify an appropriate look-back period.  The SEC stated in Release No. 34-68640 that it expects the assessment to be made annually. That, coupled with disclosure 2 below on fees, suggests a 12 month look-back would be appropriate.]

            2.         The fees received from ABC Corporation for the 12 months ended December 31, 201X represented [   ]% of our total revenues during that period.

            3.         As attorneys licensed in the State of Minnesota, the Relevant Attorneys are required to comply with Rules 1.7, 1.8, 1.9 and 1.13 of the Minnesota Rules of Professional Conduct which govern conflicts of interest and other matters.  The Relevant Attorneys receive periodic training in the ethical requirements required by the Minnesota Rules of Professional Conduct.

            4.         The Relevant Attorneys have the following business or personal relationships with a member of the Compensation Committee:  [List relationships.]  [Note the exchanges declined to further define “business and personal relationships” in response to comment letters.]

            5.         The Relevant Attorneys and their immediate family members own stock in ABC Corporation: [List stock ownership.]

            6.         The Relevant Attorneys have the following business or personal relationships with executive officers of ABC Corporation:  [List relationships.] 

            Should you have any questions regarding the foregoing, please contact the undersigned.

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.

ISS is in the process of rolling out a new governance rating called QuickScore, that will replace the GRID rating system.  According to ISS,  QuickScore will help institutional investors identify and monitor potential governance risk in their portfolios and help companies identify possible investor concerns based on signals of governance risk. 

ISS is offering issuers the opportunity to verify certain data used by ISS.  Companies within the ISS Governance QuickScore coverage universe have access to ISS’ free data verification site beginning Monday, January 28. At that time, companies can begin to review the data ISS has collected on the ISS Governance QuickScore factors. Companies that submit data requests prior to February 8 will receive feedback from ISS no later than February 15. Any submissions made after February 8 will still be assessed by ISS and taken into consideration for the company’s QuickScore available at launch. However, feedback from ISS regarding the request will not be received by the company until after ISS Governance QuickScore is launched in late February/early March. The data verification site will close on February 15 and will remain closed until product launch. After product launch, companies will again be able to log-in and verify their data.

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters

GAO recently issued a report on the status of Dodd-Frank rulemaking. Overall, GAO identified 236 provisions of the act that require regulators to issue rulemakings across nine key areas. As of December 2012, regulators had issued final rules for about 48 percent of these provisions; however, in some cases the dates by which affected entities had to comply with the rules had yet to be reached. Of the remaining provisions, regulators had proposed rules for about 29 percent, and rulemakings had not occurred for about 23 percent.

According to GAO, a variety of challenges affected regulators’ progress in implementing the act’s reforms. Regulators noted that completing rules has taken time because of the number and complexity of the issues, and because many rules are interconnected.  Further, regulators said that implementing the act’s reforms requires a great deal of coordination at the domestic and international levels. Although regulators have established mechanisms to facilitate coordination and believe coordination efforts have improved the quality of the rulemakings, several regulators indicated that coordination increased the amount of time needed to finalize rulemakings. Finally, regulators noted that they have prioritized developing responsive, appropriate rules over meeting tight statutory deadlines. As a result, some important rules may take the longest to develop.

Check dodd-frank.com frequently for updated information on the JOBS Act, the Dodd-Frank Act and other important securities law matters.