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

The SEC issued proposed rules on short-term borrowing disclosures.  Separately, the SEC issued an interpretive release on the presentation of liquidity and capital resource disclosures in MD&A disclosures.  The interpretive release will be effective upon publication in the Federal Register.  This rule making was not required by the Dodd-Frank Act but is a response to the financial crisis.

Proposed Rules on Short-Term Borrowings

–MD&A

In the proposed release, the SEC noted existing MD&A requirements call for discussion and analysis of a registrant’s liquidity and capital resources.  With respect to liquidity, registrants must identify any known trends or any known demands, commitments, events or uncertainties that will result in or that are reasonably likely to result in the registrant’s liquidity increasing or decreasing in any material way.   Registrants are also required to identify and separately describe internal and external sources of liquidity.  With respect to capital resources, a registrant is required to describe any known material trends, favorable or unfavorable, in its capital resources, indicating any expected material changes in the mix and relative cost of such resources.  In its discussion of capital resources, a registrant is also required to consider changes between equity, debt and any off-balance sheet financing arrangements.   However, other than in connection with this discussion of liquidity and capital resources under Item 303(a)(1) and (2) of Regulation S-K, companies that do not provide Guide 3 disclosure are not subject to any line item requirements for the reporting of specific data regarding short-term borrowing amounts or information about intra-period borrowing levels.

Currently, registrants that are bank holding companies provide statistical disclosures in accordance with the industry guidance set forth in Guide 3.   Guide 3 is primarily intended to provide supplemental data to facilitate analysis and to allow for comparisons of sources of income and evaluations of exposures to risk

The SEC is proposing to amend its MD&A requirements to include a new section that would provide tabular information about a company’s short-term borrowings, as well as a discussion and analysis of those short-term borrowings.  The SEC noted that the current Guide 3 disclosure of short-term borrowings does not call for a qualitative discussion of the reasons for use by a registrant of the particular types of financing techniques, or of the drivers of differences between average amounts and period-end amounts outstanding for the period.  The SEC believes that including a requirement for a narrative explanation together with tabular data would provide important information so that investors can better understand the role of short-term financing and its related risks to the registrant as viewed through the eyes of management.

The proposed amendments would codify in Regulation S-K the Guide 3 provisions for disclosure of short-term borrowings applicable to bank holding companies and would apply to all companies that provide MD&A disclosure, not only to bank holding companies and other financial institutions.  If the proposals are adopted, it is expected that the corresponding provisions of Guide 3 would be eliminated in their entirety to avoid redundant disclosure requirements for bank holding companies.    As proposed, registrants would be required to provide disclosure in MD&A of:

  • the amount in each specified category of short-term borrowings at the end of the reporting period and the weighted average interest rate on those borrowings;
  • the average amount in each specified category of short-term borrowings for the reporting period and the weighted average interest rate on those borrowings;
  • for registrants meeting the proposed definition of “financial company,” the maximum daily amount of each specified category of short-term borrowings during the reporting period; and
  • for all other registrants, the maximum month-end amount of each specified category short-term borrowings during the reporting period.

 Specifically, as proposed, “short-term borrowings” would mean amounts payable for short-term obligations that are:

  •  federal funds purchased and securities sold under agreements to repurchase;
  • commercial paper;
  • borrowings from banks;
  • borrowings from factors or other financial institutions; and
  • any other short-term borrowings reflected on the registrant’s balance sheet.

 In order to provide context for the short-term borrowings data, the SEC is also proposing to require a narrative discussion of short-term borrowings arrangements.   This narrative discussion is not currently included in Guide 3.   The topics proposed to be included would be:

  •  a general description of the short-term borrowings arrangements included in each category (including any key metrics or other factors that could reduce or impair the registrant’s ability to borrow under the arrangements and whether there are any collateral posting arrangements) and the business purpose of those arrangements;
  • the importance to the registrant of its short-term borrowings arrangements to its liquidity, capital resources, market-risk support, credit-risk support or other benefits;
  • the reasons for the maximum amount for the reporting period, including any non-recurring transactions or events, use of proceeds or other information that provides context for the maximum amount; and
  • the reasons for any material differences between average short-term borrowings for the reporting period and period-end short-term borrowings.

 As proposed, the requirements would be applicable to annual and quarterly reports and registration statements.  For annual reports, information would be presented for the three most recent fiscal years and for the fourth quarter. In addition, registrants preparing registration statements with audited full-year financial statements would be required to include short-term borrowings disclosure for the three most recent full fiscal year periods and interim information for any subsequent interim periods, consistent in each case with general MD&A requirements and instructions applicable to the relevant registration statement form requirements.  For quarterly reports, information would be presented for the relevant quarter, without a requirement for comparative data. For registrants that are not subject to Guide 3, the SEC is proposing a yearly phase-in of the requirements for comparative annual data until all three years are included in the annual presentation.

 –Possible Leverage Ratio Disclosures

 Under U.S. GAAP, bank holding companies are currently required to disclose certain capital and leverage ratios (calculated in accordance with the requirements of their primary banking regulator) in the financial statements that are included in filings with the Commission.   The SEC’s staff has observed that some bank holding companies also include disclosure of these ratios in their MD&A presented in annual and quarterly reports.

 The SEC is considering whether to extend a leverage ratio disclosure requirement to companies that are not bank holding companies.   The SEC is requesting comment as to the scope of a potential disclosure requirement, and importantly, how such a requirement would take into account the differences among metrics and industries while still providing comparability.

 –Changes to Form -8-K

 The SEC is proposing revisions to the definition of “direct financial obligation” used in Items 2.03 and 2.04 of Form 8-K to conform to the definition of short-term borrowings used in proposed Item 303(a)(6). Specifically, the proposed amendment would revise paragraph (4) of the definition of “direct financial obligation” contained in Item 2.03(c) of Form 8-K.   In doing so, however, the SEC proposes to retain the existing carve-out in the definition of direct financial obligation for obligations that arise in the ordinary course of business, in order to maintain the focus of Items 2.03 and 2.04 on real-time disclosure of individual transactions that are not routine or “ordinary course” financing transactions.

 Interpretive Release

–Liquidity Disclosure

 The interpretive release points out a number of ways in which registrants can improve disclosure about financing activities in the liquidity and financial resources section of the MD&A.   MD&A requires companies to provide investors with disclosure that facilitates an appreciation of the known trends and uncertainties that have impacted historical results or are reasonably likely to shape future periods.   Some additional important trends and uncertainties relating to liquidity might include, for example, difficulties accessing the debt markets, reliance on commercial paper or other short-term financing arrangements, maturity mismatches between borrowing sources and the assets funded by those sources, changes in terms requested by counterparties, changes in the valuation of collateral, and counterparty risk.

 In addition, the SEC noted in the context of liquidity and capital resources, if the registrant’s financial statements do not adequately convey the registrant’s financing arrangements during the period, or the impact of those arrangements on liquidity, because of a known trend, demand, commitment, event or uncertainty, additional narrative disclosure should be considered and may be required to enable an understanding of the amounts depicted in the financial statements.  For example, depending on the registrant’s circumstances, if borrowings during the reporting period are materially different than the period-end amounts recorded in the financial statements, disclosure about the intra-period variations is required under current rules to facilitate investor understanding of the registrant’s liquidity position.

 To provide context for the exposures identified in MD&A, companies should also consider describing cash management and risk management policies that are relevant to an assessment of their financial condition.  Banks, in particular, should consider discussing their policies and practices in meeting applicable banking agency guidance on funding and liquidity risk management, or any policies and practices that differ from applicable agency guidance.  In addition, a company that maintains or has access to a portfolio of cash and other investments that is a material source of liquidity should consider providing information about the nature and composition of that portfolio, including a description of the assets held and any related market risk, settlement risk or other risk exposure.

 –Contractual Obligations Table Disclosure

 As an aid to understanding other liquidity and capital resources disclosures in MD&A, the contractual obligations tabular disclosure should be prepared with the goal of presenting a meaningful snapshot of cash requirements arising from contractual payment obligations.  The SEC’s staff has observed that divergent practices have developed in connection with the contractual obligations table disclosure, with registrants drawing different conclusions about the information to be included and the manner of presentation.   The requirement itself permits flexibility so that the presentation can reflect company-specific information in a way that is suitable to a registrant’s business.   Accordingly, registrants are encouraged to develop a presentation method that is clear, understandable and appropriately reflects the categories of obligations that are meaningful in light of its capital structure and business. Registrants should highlight any changes in presentation that are made, so that investors are able to use the information to make comparisons from period to period.

 Since the adoption of Item 303(a)(5), registrants and industry groups have raised questions about how to treat a number of items under the contractual obligations requirement, including: interest payments, repurchase agreements, tax liabilities, synthetic leases, and obligations that arise under off-balance sheet arrangements.  In addition, a variety of questions has been raised in the context of purchase obligations. Because the questions that arise tend to be fact-specific and closely related to a registrant’s particular business and circumstances, the SEC has not issued general guidance as to how to treat these resources needs and to provide context for investors to assess the relative role of off-balance sheet arrangements; registrants should prepare the disclosure consistent with that objective. Uncertainties about what to include or how to allocate amounts over the periods required in the table should be resolved consistent with the purpose of the disclosure.    To that end, footnotes should be used to provide information necessary for an understanding of the timing and amount of the specified contractual obligations, as indicated in the instructions contained in Item 303(a)(5)(i), or, where necessary to promote understanding of the tabular data, additional narrative discussion outside of the table should be considered.

 Check dodd-frank.com frequently for updates on the Dodd-Frank Act.

The SEC adopted amendments to its rules and forms to conform them to new Section 404(c) of the Sarbanes-Oxley Act, as added by Section 989G of the Dodd-Frank Act.   Section 404(c) provides that Section 404(b) of the Sarbanes-Oxley Act shall not apply with respect to any audit report prepared for an issuer that is neither an accelerated filer nor a large accelerated filer as defined in Rule 12b-29 under the Exchange Act.  Prior to enactment of the Dodd-Frank Act, a non-accelerated filer would have been required, under existing SEC rules, to include an attestation report of its registered public accounting firm on internal control over financial reporting in the filer’s annual report filed with the SEC for fiscal years ending on or after June 15, 2010.

 To conform the SEC’s rules to Section 404(c) of the Sarbanes-Oxley Act, these amendments remove the requirement for a non-accelerated filer to include in its annual report an attestation report of the filer’s registered public accounting firm.   The SEC also adopted a conforming change to its rules concerning management’s disclosure in the annual report regarding inclusion of an attestation report to provide that the disclosure only applies if an attestation report is included.  Lastly, the SEC made a conforming change to Rule 2-02(f) of Regulation S-X to clarify that an auditor of a non-accelerated filer need not include in its audit report an assessment of the issuer’s internal control over financial reporting.

 All issuers, including non-accelerated filers, continue to be subject to the requirements of Section 404(a) of the Sarbanes-Oxley Act. Section 404(a) and its implementing rules require that an issuer’s annual report include a report of management on the issuer’s internal control over financial reporting.

 We believe public companies exempted by the Dodd-Frank Act should consider whether obtaining an auditor’s attestation is desirable, particularly those who may soon meet the definition of an “accelerated filer” or those who may seek to be acquired or raise money in the capital markets.

 Check dodd-frank.com frequently for updates on the Dodd-Frank Act.

Another important new exemption is the Act’s amendment of the definition of “investment adviser” in the Advisers Act to exclude “family offices.”  The Act also directs the SEC to develop, through rules, regulations, or orders, a definition of “family office” that is consistent with the SEC’s previous exemptive orders and other SEC guidance for family offices.

The Dodd-Frank Act requires that any action taken by the SEC to provide an exemption for a “family office”:

  • Be consistent with the SEC’s previous exemptive policy with respect to family offices;
  • Recognize the range of organization, management and employment structures and arrangements employed by family offices; and
  • Contain a grandfather provision that includes in the definition of “family office” any person or entity that was not registered or required to be registered as an investment adviser under the Investment Advisers Act on January 1, 2010 solely because the person provided investment advice, and was engaged before January 1, 2010 in providing investment advice, to certain natural persons and entities associated with a family office, including certain registered investment advisers that identified investment opportunities for the family office and invested in those opportunities on substantially the same terms as the family office.

A person or entity that is a “family office” solely as a result of the grandfather provision will be deemed to be an investment adviser for purposes of the anti-fraud provisions of the Investment Advisers Act.  A family office that currently relies on the private adviser exemption from registration in current Section 203(b)(3) of the Investment Advisers Act should assess whether it fits within the parameters of the SEC’s prior exemptive policy and thus will be able to rely on the new exemption for a family office.  Previously because many family offices serve families with more than 15 members, the SEC typically issued exemptive orders, which extended the 15-person exemption so long as the family office serviced descendants and spouses of one person, or the person’s companies, charities and trusts.  If the SEC continues to maintain the “direct descendant” definition in its rule making process, there could be concerns about the case of stepchildren and adoptions or close friends and family office employees.

There are a few alternatives available to family offices seeking to avoid the disclosure requirements of Dodd-Frank:

  • If investment management is outsourced, the family office will not be required to register with the SEC. 
  • Families may consider entering into multifamily office arrangements so that disclosures that will be required with the SEC do not reveal specifics about any one family’s wealth.

Families may consider becoming a private trust company under state banking regulation, although under this option a family office will be subject to state law requirements for private trust companies that should be carefully considered.

Late today, the CFTC made its first public announcements regarding how it would handle petitions for the grandfather relief made available by section 723(c) of the Dodd-Frank Act. Section 723(c) allows persons to submit petitions to the CFTC on or before September 20, 2010 to remain subject to section 2(h) of the Commodity Exchange Act (CEA) (as in effect prior to Dodd-Frank) for a period of up to one year. Such relief would presumably extend from July 15, 2011, the date when Dodd-Frank’s swap trading provisions generally become effective. Dodd-Frank provided no details regarding how such grandfather petitions should be prepared or evaluated. Now, ten days before the petitions are due, the CFTC has made its first public announcements regarding how it will treat certain types of petitions.

Trading Bilateral “Exempt Commodity” Swaps—No Grandfather Relief
The Commission announced that it will not issue grandfather relief that would allow “eligible contract participants” (certain sophisticated counterparties as defined by section 1a of the CEA) to continue trading bilateral swaps in exempt commodities (i.e., energy and metals commodities) for an additional year under sections 2(h)(1)-(2) of the pre-Dodd-Frank CEA. Sections 2(h)(1)-(2) exempt such trading activity from regulation under the CEA except with respect to the CEA’s anti-fraud and anti-manipulation provisions. The Dodd-Frank Act removes this exemption effective July 15, 2011. Rather than issuing blanket grandfather relief, the CFTC determined that it is more appropriate to accommodate transitioning issues for bilateral swaps activity in the rulemakings required to implement Dodd-Frank.

Exempt Commercial Markets—Grandfather Relief Available for the Markets (But What About the Traders?)
The Commission announced that it will make grandfather relief available that will allow ECMs (electronic trading facilities on which “eligible commercial entities” can trade exempt commodities on a principal to principal basis) to continue operating as ECMs under sections 2(h)(3)-(7) of the pre-Dodd Frank CEA, on condition that they submit a timely grandfather petition and apply to become either a swap execution facility (SEF, a new category of trading facility created by Dodd-Frank) or designated contract market (DCM). The Commission will extend the same grandfather treatment to exempt boards of trade (EBOTs) under the CEA. The exemptions will extend for as long as an ECM or EBOT has a legitimate SEF or DCM application pending before the CFTC.

While this may be welcome news to the several active ECMs in operation, such as the IntercontinentalExchange (ICE) and Natural Gas Exchange (NGX), it does not clarify whether and how traders on such markets might receive temporary grandfather relief from Dodd-Frank requirements that might apply to them (e.g., registration as a major swap participant or swap dealer and capital, margin, and business conduct requirements). With only ten days remaining before petitions are due and no guidance offered as of yet to the many entities that trade swaps on ECMs, the CFTC can likely expect a flood of non-uniform petitions from traders as the September 20 deadline draws near, adding to the already-huge administrative burden the agency faces to implement Dodd-Frank.

The SEC has announced that on September 17, 2010 it will hold an open meeting to consider whether to propose rules that would require a public company to provide certain disclosures about its short-term borrowings in its filings with the Commission. The Commission will also consider whether to publish an interpretive release to provide guidance regarding the Commission’s current disclosure requirements in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” relating to liquidity and capital resources.

Looks like a response to the Lehman situation to me.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act.

The proxy process represents the principal means by which shareholders become informed of and participate in the business to be undertaken at a public company’s annual meeting.  Traditionally, so-called activist shareholders have been prevented from including their own nominations for open director seats in the annual proxy materials mailed to shareholders. As we have previously explained, the Dodd-Frank Act has changed the balance of power between shareholders and company management by providing a process in which shareholders can require the inclusion of their nominations to the board of directors in proxy statements in the form of new Rule 14a-11 pursuant to the Securities Exchange Act of 1934.

By means of a letter to the board of directors and an amended Schedule 13D filing on September 8, 2010, Discovery Equity Partners, LP, a shareholder in Tier Technologies, Inc., announced its plans to take advantage of the new 14a-11 proxy access rules and submit its nominations for up to two directors to the shareholders in the proxy statement for the company’s 2011 annual meeting.  Discovery Equity Partners, LP and its sole general partner, Discovery Group (together, “Discovery”) own a combined 13.5% of the company’s outstanding common stock.

As described by RiskMetrics Group, Discovery has a history of board activism at Tier Technologies, and was involved in a proxy war in 2009.  Most recently, in January 2010 Discovery notified Tier Technologies that it intended to nominate three candidates for director.  Discovery subsequently reached an agreement with the company that resulted in the reduction of the company’s board to seven directors, separated the roles of chairman and CEO, and reimbursed Discovery for costs incurred in the 2009 proxy war.  For its part, Discovery agreed to support management and refrain from nominating director candidates at the 2010 meeting.

Pursuant to the new Rule 14a-11, the formal shareholder proxy access process will begin with the filing by Discovery of a Schedule 14N with the SEC.  The 14N can only be filed within a uniform 30-day window beginning 150 calendar days prior to the date the company mailed its proxy materials for the previous year’s annual meeting and ending 120 calendar days prior to the mailing date of the prior year’s proxy materials.  Note that although a Schedule 14N notice of intent to require the inclusion of shareholder nominees in company proxy materials is subject to the 30 day window, Schedule 14N may be filed at any time for other purposes, such as to engage in communications with other shareholders for the purpose of forming a nominating group under new Rule 14a-2(b)(7).

Tier Technologies held its 2010 annual meeting on April 8, and mailed proxy materials on March 18, meaning that Discovery would not be eligible to file a Schedule 14N until October 18, 2010, and the 30 day window would expire on November 17, 2010. However, Rule 14a-11 only becomes effective 60 days after publication in the federal register.  Although publication in the Federal Register is expected very soon, Rule 14a-11 will be unavailable to Discovery for the 2011 annual meeting if the new rule is not published by September 19.

The filing of the letter with an amended 13D brings several questions to the forefront.  One of the admitted purposes of adopting the uniform 30-day window for Schedule 14N filings, as disclosed at pages 177-178 of the SEC’s adopting release was to “reduce disruptions that might occur when a company receives shareholder nominations for director.”  Is Discovery making an end-run around that restricted filing window by disclosing its intention to use Rule 14a-11 now?  Probably not.  If the new rules were effective at this time, Discovery could file a Schedule 14N announcing its intent to form a nominating group at any time under Rule 14a-2(b)(7).

Discovery is limiting its legal options by use of this tactic.  By announcing an intent to use Rule 14a-11, it can no longer hold its securities with the purpose, or with the effect, of changing control of the registrant or to gain more board seats than are available under Rule 14a-11.  So the days of its proxy wars with Tier are over.  Tier may have a formidable challenge on its hands, as Discovery is a sophisticated investor and will likely campaign for its nominees effectively and to the maximum extent allowed by law.

Discovery’s tactic is not without legal risk.  By drawing attention to itself in this manner, other shareholders may contact Discovery and engage in various communications.  If not carefully circumscribed, those communications could be unlawful solicitations in violation of the proxy rules.

Nonetheless, we expect other activist investors will copy Discovery’s tactic.   Note that any person can file a Schedule 13D even if they do not own five percent of the outstanding stock, so such filings could proliferate.

We also expect other boilerplate surrounding Rule 14a-11 to appear frequently in Schedule 13D’s.  For instance, almost anyone filing a Schedule 13D reserves the right to engage in a broad range of transactions.  That reservation of rights will probably grow to include the right to make nominations under Rule 14a-11 and join Rule 14a-11 groups.

Check dodd-frank.com frequently for updates on the Dodd-Frank Act.

References to Rule 14a-11 are beginning to show up in public filings.  Set forth below are some examples.  The examples show the multitude of ways in which Rule 14a-11 will impact corporate legal practice.

 Disclosures in Proxy Statements

 Dynegy includes the following 14a-11 disclosure in its preliminary proxy statement:

 “Under Rule 14a-8 promulgated under the Exchange Act, eligible stockholders may present proper proposals for inclusion in the Company’s proxy statement and proxy, and for consideration at the next annual meeting of its stockholders, by submitting their proposals to the Company in a timely manner. To be so included for the next annual meeting, stockholder proposals must be received by the Company no later than December 6, 2010, and must otherwise comply with the requirements of Rule 14a-8. Under Rule 14a-11 promulgated under the Exchange Act, eligible stockholders and eligible groups of stockholders may be permitted to properly nominate a limited number of directors for inclusion in the Company’s proxy statement and proxy, and for consideration at the next annual meeting of its stockholders, by submitting their nominations to the SEC and to the Company in a timely manner. To be so included for the next annual meeting, a notice filing on Schedule 14N must be made with the SEC and notice must be given to the Company not later than December 6, 2010 nor earlier than November 6, 2010. In addition, our bylaws establish an advance notice procedure with regard to certain matters, including stockholder proposals not included in the Company’s proxy statement, to be brought before an annual meeting of stockholders. To be timely, a stockholder’s notice must be submitted in writing to the secretary of the Company not later than the close of business on February 20, 2011 nor earlier than the close of business on January 21, 2011, regardless of the public announcement of the adjournment of that meeting to a later date; provided, however, that if the date of the annual meeting is more than 30 days before or more than 60 days after such anniversary date, notice by the stockholder, to be timely, must be submitted not earlier than the close of business on the 120th day before such annual meeting and not later than the close of business on the later of (i) the 90th day before such annual meeting or (ii) the 10th day following the day on which public announcement of the date of such meeting is first made.”

 Universal Power included the following disclosure in its definitive proxy:

 “On August 25, 2010, the SEC adopted new Exchange Act Rule 14a-11, which will permit shareholders or groups holding 3% of the voting power of U.S. public companies who have held their shares for at least three years to include director nominees in company proxy materials. In addition, the SEC also amended Rule 14a-8 to provide that companies may not exclude from their proxy materials shareholder proposals that seek to establish less restrictive proxy access procedures, and adopted a number of related rule amendments intended to facilitate proxy access. The new rules will be effective 60 days after their publication in the Federal Register, and Rule 14a-11 will apply for a company’s 2011 annual meeting if the first anniversary of the mailing of the 2010 proxy materials occurs within 120 days of effectiveness. However, the compliance date of Rule 14a-11 for smaller reporting companies has been delayed for a period of three years from the effective date.”

 Definition of Election Contest

 In change of control provisions in employment agreements and stock plans, issuers are using Rule 14a-11 to define what a threatened election contest is.  Footnote 63 of the Rule 14a-11 adopting release states “”election contest” and “contested election” refer to any election of directors in which another party commences a solicitation in opposition subject to Exchange Act Rule 14a-12(c).”  Cedar Shopping Centers’ S-3 discloses that it has a stock purchase agreement where the stock purchaser agrees not to become a participant in an “election contest” as defined in Rule 14a-11.   As an additional example, Oracle’s new long-term incentive plan defines a change of control to include:

 “[I]ndividuals who constitute the Board of Directors of the Company on the effective date of the Plan (the “Incumbent Board”) cease for any reason to constitute at least a majority thereof, provided that any Approved Director, as hereinafter defined, shall be, for purposes of this subsection (ii), considered as though such person were a member of the Incumbent Board. An “Approved Director”, for purposes of this subsection (ii), shall mean any person becoming a director subsequent to the effective date of the Plan whose election, or nomination for election by the Company’s stockholders, was approved by a vote of at least three-quarters of the directors comprising the Incumbent Board (either by a specific vote or by approval of the proxy statement of the Company in which such person is named as a nominee of the Company for director), but shall not include any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 of Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of an individual, corporation, partnership, group, associate or other entity or “person” other than the Board”.”

 Articles and By-laws

 Global Options Group’s preliminary proxy statement contains a disclosure which states that, according to its by-laws, any stockholder nominee for director must be accompanied by the information required in Rule 14a-11.

 Sparton Corp. is proposing to amend its certificate of incorporation in certain respects.  The new advance notice provision explicitly states that it is not applicable to Rule 14a-11 nominations.

 Standstills

 A 13D filed with respect to United American Healthcare indicates the stockholder, in a standstill agreement, agreed not to “take any action pursuant to any “shareholder access” proposal that may be adopted by the SEC, whether in accordance with proposed Rule 14a-11 or otherwise.”

 Use of New Schedule 14A

 Some companies, such as Hemispherx, are using the new cover page to Schedule 14A which references Rule 14a-11 even though the new rules are not yet effective.

 Check dodd-frank.com frequently for updates on the Dodd-Frank Act.

In an effort to keep implementation of the Dodd-Frank Act transparent, the CFTC has begun publishing a list of all meetings with outside organizations regarding implementation of the Act. The list discloses the outside organizations and individuals and CFTC staff involved in the meeting, the rulemaking topic discussed, and the date on which the meeting took place. From the list it is evident that the CFTC has often been participating in three or more such meetings per day, often with multiple organizations in a meeting.

Yesterday, Chairman Gensler announced that:

“The CFTC is committed to promoting both market and agency transparency. As we implement the Dodd-Frank Act, we will make meetings that we have with outside organizations regarding the rule-writing process public. We also will continue publishing materials provided to the Commission by outside organizations. This commitment to open government will help promote the integrity of the rule-writing process.”

Staff from the Securities and Exchange Commission (SEC) and Commodity Futures Trading Commission (CFTC) will hold two joint public roundtables in September on issues relating to implementation of the Dodd-Frank Wall Street Reform and Consumer Protection Act.

 The first roundtable on September 14 will be on issues related to swap data repository (SDR) registration, functions and responsibilities, the mechanics of data reporting, models for real time public reporting and the effect of transparency on liquidity of block trades and large transaction sizes.

 The first roundtable will consist of the following panels:

  •  Panel One — SDR Registration, Functions, and Responsibilities
    • Duties of SDRs in addition to those required by the Dodd-Frank.
    • The most efficient and effective way for SDRs to execute their statutory duties.
    • How to implement the confirmation function under Dodd-Frank – to what extent and under what circumstances will SDRs be expected to do trade confirmations
  • Panel Two — Mechanics of Data Reporting
    • Type of data reported by SDRs, derivatives clearing organizations (DCOs), designated contract markets (DCMs), swap execution facilities (SEFs), swap dealers and major swap participants (MSPs).
    • Parties responsible for reporting of swap and security-based swap data.
    • Means by which mandatory reporting may be made.
    • Reporting of swap and security-based swap transactions executed or cleared on an electronic platform.
    • The time by which swap and security-based swap transactions must be reported.
    • Handling of data corrections.
    • Reporting of life cycle events.
    • Reporting of past transactions.
  • Panel Three — Models for Real-Time Transparency and Public Reporting
    • Benefits of real time reporting of swaps and security-based swaps transactions.
    • Entities responsible for reporting.
    • Data elements.
    • Ensuring anonymity of market participants.
    • The meaning of “real-time”.
    • Appropriate media for real-time reporting of swap and security-based swap transaction data.
    • Feasibility/desirability of a consolidated tape or ticker for swaps and security-based swaps.
  • Panel Four — Effect of Transparency on Liquidity: Block Trade Exception
    • Defining block trades and large transaction sizes for swaps and security based swaps.
    • Determining an appropriate delay for reporting block trades and large transactions.
    • Effects of transparency on post-trade liquidity.
    • Responsibility for determining minimum block sizes and large transaction sizes for reporting purposes.

 The second public roundtable on September 15 will be on issues related to swap execution facilities and security-based swap execution facilities.

 The second roundtable will consist of the following panels:

  •  Panel One — Swap Execution Facilities (“SEFs”) and Security-based Swap Execution Facilities (“SB SEFs”)
    • Definition and scope of SEFs/SB SEFs.
    • Scope of exception from mandatory trading requirement.
  • Panel Two — Compliance with Core Principles for SEFs and SB SEFs
    • Block trades
    • Surveillance, investigation, and enforcement of SEF/SB SEF rules.
    • Cross-market issues.
    • Obligation of SEFs /SB SEFs to provide impartial access

 Check dodd-frank.com frequently for updates on the Dodd-Frank Act.

Pursuant to Section 957 of the Dodd-Frank Act, the New York Stock Exchange submitted a proposal to amend NYSE Rule 452 and NYSE Listed Company Manual Section 402.08 to prohibit member organizations from voting uninstructed shares if the matter to be voted on relates to executive compensation.  The NYSE is requesting that the SEC approve the proposal on an accelerated basis.  In addition, the proposal will clarify that the rule includes not only the giving of a proxy but also the authorization of such proxy.

Currently, brokers must deliver proxy materials to beneficial owners and request voting instructions.  If the beneficial owner does not provide voting instructions by the tenth day preceding the meeting date, Rule 452 provides that a broker may vote on certain matters if the broker has no knowledge of any contest as to the action to be taken at the meeting and provided such action is adequately disclosed to stockholders, and does not include authorization for a merger, consolidation or any matter which may affect substantially the rights or privileges of such stock.  Additionally, the rule currently specifies 20 matters with respect to which brokers may not vote without instructions from beneficial owners. 

Therefore, prior to the enactment of the Dodd-Frank Act, member organizations were permitted to cast votes on certain matters, including some executive compensation proposals, without specific instructions from beneficial owners of the stock.  However, Section 957 of the Dodd-Frank Act requires the elimination of broker discretionary voting with respect to (i) the election of a member of the board of directors of an issuer (subject to limited exceptions), (ii) executive compensation or (iii) any other significant matter, as determined by the SEC, by rule.  The NYSE already prohibits member organizations from voting uninstructed shares if the matter voted on is the election of directors and the SEC has not at this time identified other significant matters with respect to which the NYSE must prohibit member organizations from voting uninstructed shares.  Accordingly, the NYSE is proposing to add a new Item 21 and accompanying commentary to NYSE Rule 452.11 and NYSE Listed Company Manual Section 402.08(B) to provide that a member organization may not give or authorize a proxy to vote without instructions from the beneficial owner when the matter to be voted upon relates to executive compensation. 

The proposed commentary to Item 21 clarifies that a matter relating to executive compensation includes, among other things, the items referred to in Section 14A of the Securities Exchange Act of 1934, as amended, including (i) an advisory vote to approve the compensation of executives, (ii) a vote on whether to hold such an advisory vote every one, two or three years, and (iii) an advisory vote to approve any type of compensation (whether present, deferred, or contingent) that is based on or otherwise relates to an acquisition, merger, consolidation, sale or other disposition of all or substantially all of the assets of an issuer and the aggregate total of all such compensation that may (and the conditions upon which it may) be paid or become payable to or on behalf of an executive officer.  In addition, the proposed commentary to Item 21 states that a member organization may not give or authorize a proxy to vote without instructions on a matter relating to executive compensation, even if such matter would otherwise qualify for an exception from the requirements of Item 12, Item 13 or any other Item under NYSE Rule 452.11 and corresponding Listed Company Manual Section 402.08.  Any vote on such executive compensation-related matters would be subject to the proposed new requirements of NYSE Rule 452 and NYSE Listed Company Manual Section 402.08. 

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