Corporate Securities Law Blog

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.

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.