February 5, 2010Client Alert

Securities Report - February 2010

Legal Compliance

  • Disclosures Regarding Qualifications of Directors and Nominees: Under a newly published Compliance and Disclosure Interpretation (“CDI”), the SEC emphasized that the disclosure of each director or nominee’s experience, qualifications, attributes or skills must be provided on an individualized basis. The SEC addressed the question whether it would be sufficient to simply disclose, for example, that a person should serve as director because he or she is an audit committee financial expert. The SEC responded that this would be insufficient and that instead a company should describe the person’s particular and specific experience, qualifications, attributes or skills that lead the board to conclude that this particular person should serve as a director at the time that a filing containing the disclosure is made. This disclosure requirement also applies to directors who are not up for re-election at the upcoming shareholders’ meeting.

  • Non-GAAP Financial Measures: In January, the SEC promulgated detailed interpretations of the rules and regulations on the use of non-GAAP financial measures.

Proposed Rules and Regulations

  • Common Stock Repurchases: In January, the SEC announced proposed revisions to clarify and modernize the safe harbor provision of Rule 10b-18 in light of market developments since the Rule’s adoption in 1982. Rule 10b-18 provides issuers with a “safe harbor” from liability for manipulation when they repurchase their common stock in the market in accordance with the Rule’s manner, timing, price, and volume conditions. The comment period closes March 1st.

  • Large Issuers’ Access to Capital Markets Eased: The SEC recently proposed a rule that would bolster the ability of some large companies to communicate with larger groups of investors to gauge the level of interest in their securities offerings. The proposed amendments would allow companies that qualify as well-known seasoned investors (“WKSIs”) to authorize an underwriter or dealer to communicate with potential investors on their behalf about potential offerings before registration statements are filed for the offerings. Currently Rule 163 under the 1933 Securities Act allows only WKSIs – not their representatives – to communicate directly with potential investors before filing a registration statement.

Court Action

  • 2nd Circuit Clarifies When Securities Sold in Private Placement Count under Ten Percent Ownership Rule: In a case involving potential Section 16(b) liability, the 2nd Circuit ruled in favor of defendant Hearst Communications, Inc. that for purposes of calculating ten percent ownership, shares of common stock sold in a private placement that is subject to preconditions for the benefit of the purchasers will be deemed to be outstanding when the purchasers pay for the common stock, rather than at a later time when the preconditions are satisfied. The court said that the plaintiff had not identified any authority under state law persuading it that the preconditions had to be satisfied before the stock could be considered outstanding.

As a reminder, on January 27, 2010, the SEC voted to issue new interpretive guidance as to when business risks associated with climate change trigger mandatory disclosure requirements. We previously sent an update on these rules, which we would be happy to resend upon request.

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