A number of matters should be considered while planning for 2008, both for the proxy season and otherwise:
- All issuers may elect to provide proxy materials using a “full set delivery option” or a “notice only option.” With minor modifications, the “full set delivery option” contemplates delivery of paper copies as issuers have done in the past. If a “notice only option” is used, the issuer must post its proxy materials to an Internet site and send a notice to shareholders to inform them of the electronic availability of the proxy materials at least 40 days before the shareholders meeting.
An issuer does not have to choose one option or the other as the exclusive means for providing proxy materials, and may use one method to provide materials to some shareholders and the other method for the balance of the shareholders. We urge issuers who intend to adopt the “notice only option” to give careful consideration to their time tables to make sure the rule can be complied with.
- Large accelerated filers are required to post their proxy statement and annual report to a publicly accessible Web site on or before the date that the proxy materials are sent to shareholders. This is the case even if the large accelerated filer elects the “full set delivery option.” The Web site may not be the SEC EDGAR system. The materials must be presented on the Web site in a format or formats convenient for both reading online and printing on paper. The proxy materials must remain on the Web site through the conclusion of the shareholders meeting.
- Issuers must pay careful attention to Web sites used in connection with the “notice only option” and by large accelerated filers. The Web site must be maintained in a manner that does not infringe on the anonymity of the person accessing the Web site. Under the rule, a company must refrain from installing cookies and other tracking features on the Web site on which the proxy materials are posted. This may require segregating those pages from the rest of the company’s regular Web site or creating a new Web site. However, the rule does not require the company to turn off the Web site connection log, which automatically tracks numerical IP addresses that connect to the Web site.
- The SEC’s securities offering reform rules became effective on December 1, 2005. Rule 415(a)(5) limited to three years the life of a Form S-3 registration by an issuer to sell securities on a delayed basis. Accordingly, all such registration statements that were effective before December 1, 2005, will generally expire on December 1, 2008. As such, issuers with “universal shelf” registration statements declared effective before December 1, 2005, should make plans to file a new shelf registration statement, if appropriate.
- Exchange listed issuers (including NASDAQ) with a public float of less than $75 million will be eligible to use Form S-3 for primary offerings so long as sales do not exceed one-third of public float during any 12 month calendar period. These issuers who are newly eligible to use Form S-3 for these offerings should consider filing a shelf registration statement to take advantage of these new rules.
- As most know, the SEC remains concerned about the quality of disclosures in the Compensation, Discussion and Analysis (CD&A) section. Fundamentally, the SEC believes the “analysis” is missing. Issuers are encouraged to take a fresh look at this section, together with the SEC’s observations on the issue, in the SEC publication titled “Staff Observations in the Review of Executive Compensation Disclosure.”
- Early consideration should be given to identification of disclosure considerations applicable to each issuer. In that regard, we note that a group of institutional investors has recently petitioned the SEC to provide required disclosures regarding climate change. Another hot topic is exposure to sub-prime loans.
- Other useful SEC publications to consult while planning for the upcoming year include the staff report on “Significant Issues Addressed in the Review of Periodic Reports of Fortune 500 Companies” and the November 2000 “Current Issues and Rule Making Projects Outline” as updated through 2001.
Smaller Reporting Company Regulatory Relief and Simplification
- In the past the SEC has provided smaller companies that qualify as “small business issuers” the option to use simplified disclosure requirements under Regulation S-B. The SEC recently adopted rules that will expand the number of companies that qualify for scaled disclosure requirements. These companies include those with less than $75 million in public equity float. Issuers who newly qualify for the scaled disclosure requirements should determine whether they intend to take advantage of this flexibility.