Corporate Securities Law Blog

As we noted in a previous post, on January 1, 2012, the California Transparency in Supply Chains Act of 2010 (the "Act") will become effective. This legislation will require every large retailer and manufacturer doing business in California to publicly disclose whether it has taken specified actions to eliminate slavery and human trafficking from its product supply chain. The Act does not require a company to make any effort to eliminate slavery or human trafficking, but only to disclose the extent, if any, to which it has taken the actions listed in the Act. The impact of the Act ultimately will depend on the extent to which consumers, investors and activists use the required disclosure to pressure companies to monitor and eliminate abuses in their supply chains. On August 1, 2011, federal legislation modeled on the Act was introduced.

On January 1, 2012, the California Transparency in Supply Chains Act of 2010 will become effective. This legislation will require every large retailer and manufacturer doing business in California to publicly disclose whether it has taken specified actions to eliminate slavery and human trafficking from its product supply chain. The Act does not require a company to make any effort to eliminate slavery or human trafficking, but only to disclose the extent, if any, to which it has taken the actions listed in the Act. The impact of the Act ultimately will depend on whether consumers, investors and activists use the required disclosure to pressure companies to monitor and eliminate abuses in their supply chains. California Civil Code Section 1714.43(a).
 

Public companies and companies registering to go public should be aware of fee rate adjustments made by the Securities and Exchange Commission that will be effective as of October 1, 2011. We originally reported on this increase on September 6, 2011. The following fee rates will be affected by the adjustment:

Social media, such as Facebook, Twitter and LinkedIn, have become a ubiquitous factor in corporate and economic life. In a pair of guest posts, Michelle Sherman of Sheppard Mullin's Social Media Law Update Blog provides useful guidance to companies on the importance of instituting and enforcing policies related to social media sites. In her first guest post below, Michelle discusses policies that set guidelines for employees' posts on social media sites:

Words matter. Words can come back and bite you. Think before you speak. These are all self-evident truths that no one is likely to dispute. Yet, we continue to see examples of people, who should know better, doing just the opposite. This is especially true in the context of electronic communications – first, in work emails, and now, on social media websites.

In her second guest post, Michelle Sherman of Sheppard Mullin's Social Media Law Update Blog provides useful guidance to companies on the importance of instituting and enforcing policies and strategies to maximize, leverage and protect companies' presence and reputation on social media sites:

Many businesses are still coasting along enjoying the marketing advantages of social media without making sure they have a good compliance program in place. For every company with a Facebook fan page or Twitter account roughly 65 percent would admit they do not have a social media policy. For companies with a social media policy, many of those policies have been lifted from online samples that may be over broad, and include provisions that have been challenged with some success in court.

In Junkin v. Golden West Foreclosure Service, Inc. (Jan. 5, 2010) 180 Cal.App.4th 1150, the First District Court of Appeal affirmed the trial court's finding that because the transaction involved was a joint venture, it was exempted from the usury laws.
 

1. Lower Thresholds For HSR Filings

On January 19, 2010, the Federal Trade Commission announced revised, lower thresholds for premerger filings under the Hart-Scott-Rodino Antitrust Improvements Act of 1976. The filing thresholds are revised annually, based on the change in gross national product. For the first time, the thresholds have been reduced. They will be effective thirty days after publication in the Federal Register. Publication is expected to occur this week. Thus the new thresholds will most likely become effective late February 2010. Acquisitions that have not closed by the effective date will be subject to the new thresholds. Filing persons must wait a designated period of time, usually 30 days, before completing their transactions. The HSR Act imposes premerger notification and waiting period obligations on transactions over a certain size, where the parties are over a certain size, before those transactions may be completed. Each "person" who is a party to an HSR-reportable deal must file an HSR notification with the Department of Justice Antitrust Division and the Federal Trade Commission.
 

On November 12, 2009, the SEC announced that it had settled charges against SafeNet, Inc. and some of its former officers, employees and accountants, in connection with earnings management and options backdating schemes. This case represents the SEC's first enforcement action brought under Regulation G, and it provides important reminders to issuers on financial reporting practices.

In 2007, the SEC adopted amendments to its proxy rules that would require reporting companies and other persons soliciting proxies to post their proxy materials on a publicly accessible Internet website and provide shareholders with a written notice of the Internet availability of the proxy materials, except in connection with a business combination.  Large accelerated filers (other than registered investment companies) were required to comply with the e-proxy rules starting January 1, 2008.  All other reporting companies (including registered investment companies) and other soliciting persons must comply starting January 1, 2009.

Although the advantages and disadvantages of arbitration will continue to be debated, the California Supreme Court has now provided parties with an option that makes arbitration more attractive.  Previously, one of the chief disadvantages of arbitration was that there was only restricted appellate review of any factual or legal error the arbitrator may have made.  However, on August 25, 2008, in Cable Connection, Inc., et al. v. DirecTV, Inc., the California Supreme Court held that parties to an arbitration agreement can agree to have an arbitrator's decision reviewed on the merits under California law if the parties provided for such review in advance in their agreement.

In Edwards v. Arthur Andersen LLP, the California Supreme Court reaffirmed California's strong public policy against covenants not to compete.  The primary issue in the case was whether the Ninth Circuit's "narrow restraint" exception was a proper interpretation of California law.  Under the narrow restraint exception, employers could enforce non-competition agreements that did not "entirely preclude" an employee from practicing his or her trade.  The Supreme Court summarily rejected this exception.  The lesson for employers is that unless a covenant not to compete falls squarely within one of the statutory exceptions, it is not likely to be upheld by a California court.

On May 6, 2008, the Securities and Exchange Commission (the “SEC” or “Commission”) proposed various amendments to, and provided new clarifying guidance regarding, the rules governing cross-border transactions.

Since December 1, 2005, issuers qualifying as well known seasoned issuers (WKSIs) have been able to file shelf registration statements with the SEC on Form S-3 or F-3 which become effective immediately upon filing. In addition, a primary offering by an issuer can now be made under such a shelf registration statement immediately following its effectiveness. This method of selling securities may well become the primary means by which large issuers raise both debt and equity capital.

The SEC has approved Nasdaq's application to register as a national securities exchange. The SEC expects this transition to occur in April.

The U.S. Supreme Court has ruled that arbitrators, not courts, decide the validity of contracts that include arbitration clauses ("Buckeye Check Cashing Inc. v. Cardegna"). The ruling is a victory for those financial services providers that include clauses regarding disputes to be heard before industry-oriented arbitration panels, and will make it harder for consumers to attack those clauses by claiming that the underlying contract is illegal.

Effective December 1, 2005, the SEC adopted new rules extensively revising disclosure and process under the Securities Act. Three new rules will also affect disclosures contained in periodic reports filed by many issuers under the Exchange Act.

The IRS released Notice 2005-94 suspending employer reporting and wage withholding requirements for deferred compensation under IRC Section 409A for calendar year 2005. The Notice does not affect FICA or other employer withholding and reporting obligations. Future IRS guidance may require employers to furnish corrected information returns and payee statements reporting any previously unreported amounts taxable under Section 409A. The IRS anticipates issuing guidance on the employer's reporting and withholding requirements in the first half of 2006.

In September 2005, the IRS issued proposed regulations under Section 409A of the Internal Revenue Code, which expand upon existing guidance and, in some ways, interpret Section 409A more favorably for taxpayers than previous guidance. Companies must comply in good faith with Section 409A during 2005 and 2006. Employers may rely on the proposed regulations to demonstrate good faith compliance for 2005 and 2006. The proposed regulations generally extend the deadline for amending arrangements to comply with Section 409A until December 31, 2006. Certain actions, however, must be completed before the end of 2005.

On September 16, FASB released a proposed Staff Position that would provide relief to companies on the application of "grant date" as defined in FAS 123(R). The grant date is the date as of which compensation cost for a stock option or other equity compensation is measured. The proposed FSP would reverse the FASB staff's view that the grant date does not occur until the material terms of an equity grant are actually communicated to the employee. As many are aware, that view was a dramatic departure from historical accounting practices and would mean an added administrative burden for most companies. Under the proposed FSP, however, companies can continue to treat the plan administrator's approval date as an award's grant date if both of the following conditions are met:

Less than six months remain until the December 31, 2005 deadline for amending deferred compensation arrangements to comply with Section 409A of the Internal Revenue Code. These complex new rules were enacted for nonqualified deferred compensation arrangements in late 2004 and are effective for 2005, although IRS guidance so far has been limited. While awaiting additional guidance, expected later this year, you need to act now to ensure compliance. These new rules, including severe tax penalties for noncompliance, were summarized in our November 2004 Employee Benefits Update.

On May 12, 2005, the SEC began releasing comment letters of the staff relating to filings reviewed by the Division of Corporation Finance and the Division of Investment Management, as well as the responses of the filers. The process commenced with filings made after August 1, 2004. Comment letters and responses will be released through the EDGAR system no earlier than 45 days after the review of the filing is complete. These documents are a valuable resource both for determining the comments likely to be raised in the staff's future reviews and for providing potential responses. A filer may request confidential treatment for portions of its written response. Confidentiality may also be maintained by submitting the confidential information in paper form as supplemental material and, thereafter, requesting the return of that material or by discussing the information verbally with the staff rather than submitting it in writing. The SEC will require all filers being reviewed to represent in writing that they will not use the SEC's comment process as a defense in any securities related litigation.