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Going Concern Evaluation – FASB Issues a Roadmap for Management 09/15/2014

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Corporate Attorney Daniele Ouellette Levy

By: Daniele Ouellette Levy

Under US GAAP (generally accepted accounting principles) a company’s continuation as a going concern is presumed when preparing the financial statements.  As part of their review of the financial statements, auditors are required to evaluate whether there is a substantial doubt about the company’s ability to continue as a going concern for a reasonable period of time (often 12 months) after the date of the financial statements.

Until recently GAAP did not provide guidance to management regarding management’s responsibility to evaluate whether there exists a substantial doubt about the company’s ability to continue as a going concern.  As a result, there have been significant inconsistencies between companies in their evaluation of this issue as well as the related disclosures.  Also, without the benefit of guidance, management was often left to rely on the assessment performed by the auditors.

Companies may face unintended negative implications on their business resulting from the auditor’s determination of “substantial doubt” and the inclusion of a going concern qualification in the audit letter. For example, inclusion of a going concern qualification may result in a significant reduction in a company’s D&B Supplier Evaluation Risk Rating (SER).  The SER, which predicts the likelihood that a business will seek legal relief from creditors or cease operations in the next 12 months, is relied on by many large retailers to evaluate their vendors.  A significant reduction in a company’s SER could result in that company being dropped from the approved vendor list and losing a significant customer.

In August, FASB issued guidance to management in making this evaluation.  Based on this guidance, management is required to evaluate on a quarterly basis whether there are conditions or events that raise substantial doubt about the company’s ability to continue as a going concern in the next 12 months.  In its guidance FASB defined substantial doubt as: “Substantial doubt about an entity’s ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued . . . .”

Careful review of the roadmap provided by FASB and analysis by management may help standardize the evaluation and disclosures provided by companies and avoid negative business implications associated with a going concern qualification.

For more information on this topic, please contact Daniele.

Anti-Retaliation Provision of Whistleblower Statute Does Not Apply Extraterritorially 09/12/2014

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Corporate Attorney Joseph MarrowBy: Joe Marrow

On August 14, 2014, the Second Circuit Court of Appeals held that the anti-retaliation provision of the Dodd-Frank whistleblower statute does not apply extraterritorially.  In its decision, Liu v. Siemens A.G., No. 13-4385-cv (2d Cir. Aug. 14, 2014), the Second Circuit upheld the Federal District Court’s holding that a foreign employee cannot successfully bring an action under the anti-retaliation provision of the Dodd-Frank whistleblower statute alleging improper conduct for events taking place outside the United States.

In Liu v. Siemens, Liu, a former employee of Siemens, alleged that Siemens fired him in response to his report of improper conduct against Siemens and in so doing Siemens violated 15 U.S.C. Section 78u-6(h) of the Dodd-Frank Act which prohibits an employer from retaliating against an employee for making certain protected statements.  Most notably, Liu, who is not a U.S. citizen and was employed abroad by Siemens, alleged that all improper conduct occurred outside the United States.  The Second Circuit noted the presumption that legislation is intended to apply domestically absent clear congressional intent that the legislation was intended to apply extraterritorially.  The Court found no such congressional intent.  Absent any type of nexus between the improper conduct and the United States and the presumption against applying the statute outside the United States, the Court refused to apply the anti-retaliation provision against Siemens in this case.

The Second Circuit’s holding provides some assurance to foreign companies that if the conduct alleged to violate the anti-retaliation provisions of the Dodd-Frank whistleblower statute takes place outside the United States, the foreign corporation should not face exposure under the statute.

For more information on this topic, please contact Joe Marrow

MBBP Client Hastings Equity Partners Completes Sale of Advanced Precision Products, Inc. 09/04/2014

Posted by Morse, Barnes-Brown Pendleton in Client News, Intellectual Property, Manufacturing, Retail & Service, MBBP news, Public Companies.
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Hastings Equity Partners, LLCMBBP client Hastings Equity Partners recently announced the sale of Advanced Precision Products, Inc. (APP) to Precision Engineered Products, LLC (PEP). Advanced Precision Products is a leading manufacturer of highly engineered components and products for oil & gas, medical, aerospace, automotive, military and commercial OEMs.  Morse, Barnes-Brown & Pendleton serves as counsel to Hastings Equity Partners, and advised it in connection with the structuring, negotiation and documentation of this transaction. Shannon Zollo was the lead corporate attorney on MBBP’s team, which also included attorneys Mark Tarallo and Jonathan Calla.

Hastings Equity Partners is a Waltham, MA-based, private investment firm that acquires and grows small to mid-sized enterprises.

Please visit Hastings Equity Partners for more information.

Consultant or Executive Officer? SEC Brings an Action to Clarify 07/30/2014

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By: Mark Tarallo

On July 16, 2014, the United States Securities and Exchange Commission (“SEC”) brought an action against Natural Blue Resources, Inc. (“Natural Blue”), James E. Cohen (“Cohen”) and Joseph A. Corazzi (“Corazzi”)(Natural Blue, Cohen and Corazzi are referred to collectively as the “Respondents”).  The SEC is seeking a cease-and-desist order against the Respondents, alleging among other items that Cohen and Corazzi acted as the de facto executive management of Natural Blue, while failing to make any of the disclosures required of executive officers of a public company.

Natural Blue was a privately-held corporation based in Nevada that went public in August, 2009 via a reverse merger with Datameg Corporation.  In November 2009, Natural Blue entered into a consulting agreement with JEC Corp. (“JEC”) a corporation owned by Cohen’s family.  Cohen was the President of JEC, and  Corazzi was employed by JEC.  Cohen and Corazzi each had extensive disciplinary histories that would have prevented them from serving as an executive officer of Natural Blue.

From the time that Natural Blue went public in 2009 through the end of 2011, Cohen and Corazzi exercised a significant degree of control over Natural Blue through JEC.  They recommended virtually all of the directors that served on the board of Natural Blue, and almost all of the key executive positions were filled by individuals with whom they had significant preexisting business or social relationships.  Despite the fact that Natural Blue had a named CEO, Cohen and Corazzi controlled all of the key functions of Natural Blue, such as the accounting department (the CFO was an associate of Cohen’s with whom Cohen shared outside office space).  Cohen and Corazzi dealt directly with third parties and purported to enter into agreements on behalf of Natural Blue.  Despite the fact that the actions of Cohen and Corazzi did not actually generate any revenue for Natural Blue or its shareholders, they were paid significant amounts of cash and Natural Blue stock (which was sold at a profit) for their efforts.

The SEC’s action alleges among other things that the Respondents engaged in fraud by failing to accurately report the roles played by Cohen and Corazzi, and that those failures caused harm to investors.  Given the disciplinary histories of Cohen and Corazzi, it is clear why they went to the lengths that they did to hide their actual roles.  The SEC filing can be found here.

For more information on this topic, please feel free to contact Mark Tarallo.

 

SEC Chair Speaks on Corporate Governance 07/10/2014

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By: Mark Tarallo

On June 23, 2014, SEC Chair Mary Jo White spoke to the Twentieth Annual Stanford Directors’ College held at the Stanford University Rock Center for Corporate Governance.  Chair White’s remarks focused on the SEC’s view of the role of the board of directors in a corporation.

Chair White characterized her remarks as covering three topics-one attitudinal, one advisory, and one descriptive.  The “attitudinal” topic was the view that the SEC takes regarding directors as the most important “gatekeepers” of a corporation.  She noted that “it is essential for directors to establish expectations for senior management and the company as a whole, and exercise appropriate oversight to ensure that those expectations are met.  It is up to directors, along with senior management under the purview of the board, to set the all-important “tone at the top” for the entire company.”  From an advisory perspective, Chair White spoke to the obligation of the board to engage in self-reporting when they learn of any wrongdoing and working cooperatively with regulators.  She referred to prior decisions and press releases to show how self-reporting and cooperation is viewed favorably by the SEC, and called on directors to “[m]ake it clear from the outset that the board’s expectation is that any internal investigation will search for misconduct wherever and however high up it occurred; that the company will act promptly and report real-time to the Enforcement staff on any misconduct uncovered; and that the company will hold its responsible employees to account.”  Last, Chair White described the workings of the SEC’s Whistleblower program and why it is necessary for the board to take any tips or accusations seriously.  It is clear from her remarks that the SEC plans to hold boards accountable for compliance failures, and while her remarks were targeted at public reporting companies, they are instructive for private companies as well, and directors of private companies should take note of the increasing obligations to ensure compliance.

A full copy of the text of Chair White’s comments can be found here.

Please feel free to contact Mark with any questions on this topic.

Insider Trading Allegations Continue to Dog Phil Mickelson 07/08/2014

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Corporate Attorney Joseph MarrowBy: Joseph Marrow

As Phil Mickelson prepares to play in the upcoming British Open, he faces additional insider trading allegations (there were previous reports that Mickelson profited from trades involving Clorox, but that investigation allegedly ended without any action). Most recently, federal authorities subpoenaed Dean Foods (Land O Lakes, Garelick Farms and TruMoo brands), a publicly-traded company, about trading activity that closely preceded the announcement of a subsidiary spinoff. Prior to the spinoff, Mickelson and William Walters, a sports gambler and friend of the golfer, placed trades in the shares of Dean Foods. Allegedly, Walters made $15 million in profit and Mickelson made $1 million in profit from the trades. According to reports, the investigation has focused on whether someone inside Dean Foods tipped Walters with material non-public information regarding the proposed spinoff and whether Walters then informed Mickelson.

Insider trading refers to the practice of profiting from the buying and selling of stock in publicly-traded companies through the use of non-public information. In addition, an individual can trip up the insider trading rules by being the “tippee” (recipient) of inside information from a “tipper” (person with access to the inside information). This is the situation purportedly facing Mickelson. Proving insider trading can be very challenging for prosecutors. There has been a noticeable increase in the investigation and prosecution of insider trading cases. Targeting a high profile person like Mickelson may bring more attention to insider trading claims and may serve as a deterrent to individuals considering trading on material non-public information.

For more information on this topic, please feel free to contact Joe.

MBBP Clients make BBJ’s Fastest-Growing Public Companies List 07/01/2014

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BBJ Fastest-Growing Public CompaniesLast month, the Boston Business Journal (BBJ) published its print edition containing a list of the Top 50 Fastest-Growing Public Companies in Massachusetts. Five MBBP clients were selected and ranked on this list according to each company’s two-year revenue growth as of their most recent fiscal year:

Congratulations to all of our clients!

The full list of the Fastest-Growing Public Companies in Massachusetts is available to subscribers via the Boston Business Journal’s digital edition here.

SEC Commissioner Offers Guidance on Cybersecurity Issues 06/30/2014

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By: Mark Tarallo

On June 10, 2014, Commissioner Luis A. Aguilar of the United States Securities and Exchange Commission spoke at the New York Stock Exchange as part of the “Cyber Risks and the Boardroom” Conference.  As Commissioner Aguilar noted, “[c]ybersecurity has become an important topic in both the private and public sectors, and for good reason. … Indeed, according to one survey, U.S. companies experienced a 42% increase between 2011 and 2012 in the number of successful cyber-attacks they experienced per week.”  Commissioner Aguilar indicated that not only are attacks becoming more frequent, they are becoming more expensive, citing one survey that showed that the average annualized cost of cyber-crime to a sample of U.S. companies was $11.6 million per year, representing a 78% increase since 2009.   Commissioner Aguilar concluded his remarks by stating quite clearly that boards of directors bear an increasingly heavy burden when dealing with cybersecurity, as “board oversight of cyber-risk management is critical to ensuring that companies are taking adequate steps to prevent, and prepare for, the harms that can result from such attacks.”  Commissioner Aguilar laid out several steps for proactive boards to engage in, including working with management to ensure that corporate policies match up with NIST Cybersecurity Framework guidelines, creating an enterprise risk committee on the board to make sure that members are adequately educated, and preparing in advance for the “inevitable” cyber attack.  Given the SEC’s recent enhanced focus on cybersecurity issues, Commissioner Aguilar’s remarks send a clear message to directors to embrace the responsibility of addressing cyber risk and adequately preparing for attacks.

The complete transcript of Commissioner Aguilar’s remarks can be found here.

Still a Smaller Reporting Company? 06/25/2014

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Corporate Attorney Daniele Ouellette LevyBy: Daniele Ouellette Levy

Did you know that once a year smaller reporting companies (“SRCs”) are required to determine whether they continue to qualify as an SRC?  For most companies the determination date is June 30 – the last business day of the company’s second fiscal quarter.  To continue to qualify as an SRC, a company’s public float on the determination date must be less than $75M. Public float is calculated by multiplying the number of shares of common stock held by non-affiliates by the closing price (or average bid and ask price) on the determination date.

What changes if a company loses SRC status?  If a company’s public float exceeds $75M as of the determination date it no longer qualifies as an SRC and must transition to the disclosure requirements applicable to larger companies.  Some of the most significant changes include:

Timing?  To assist with the transition in status, the SEC allows companies until the first quarter of the next fiscal year to begin to comply with the heighted disclosure requirements.

May a non-SRC qualify as an SRC?  It is also possible for a non-SRC to transition to SRC status.  This determination is also made as of the last business day of the second fiscal quarter.  For a non-SRC to qualify as an SRC its public float must be less than $50M (or if the company has no public float, must have annual revenue in the last completed fiscal year of less than $40M).  A new SRC may start taking advantage of the scaled disclosure requirements immediately.

For more information on this topic or assistance in determining whether your company qualifies as an SRC please contact Daniele Levy.

Chair Mary Jo White Discusses SEC, FAF and FASB Shared Interests at Trustees Dinner 06/23/2014

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By: Mark Tarallo

On May 20, 2014 U.S. Securities and Exchange Commission Chair Mary Jo White spoke at the Financial Accounting Foundation Trustees Dinner.  Given the audience, it is not surprising that her remarks focused on accounting issues at the SEC.  In her remarks, Chair White mentioned that the SEC is still considering the addition of International Financial Reporting Standards (“IFRS”) for domestic registrants. Although no timetable was given for when the issue would be addressed, White noted that the interests of U.S. investors would be front and center during the IFRS consideration process.  In addition, Chair White commented on the continuing efforts of the Disclosure Effectiveness Project, noting that she has directed the staff to undertake a comprehensive review of disclosure requirements under Regulation S-K and make specific recommendations for updating the requirements pursuant to a JOBS Act-mandated report on Regulation S-K that provides the staff’s recommendations for a review of corporate disclosure requirements.  She also noted that the Financial Reporting and Audit Task Force, formed in July, 2013, will continue its increased enforcement efforts and will work to look ahead to identify additional areas where financial reporting fraud may be likely to occur, while focusing on internal controls related to the areas that have already been identified as being susceptible to financial reporting fraud.

The complete transcript of Chair White’s remarks is available here.

 

SEC Continues to Adapt to Use of Social Media – Companies not Responsible for Re-Tweets 05/13/2014

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Corporate Attorney Daniele Ouellette LevyBy: Daniele Ouellette Levy

As we have discussed in prior posts, the U.S. Securities and Exchange Commission (SEC) has been considering how the use of the social media by public companies fits within the existing regulatory framework.  The SEC recently issued additional guidance regarding the use of social media by public companies.  In its guidance, appearing as C&DIs 110.02 and 232.16, the SEC clarified that when third parties re-tweet or otherwise re-transmit a social media post originated by a public company, the company is not responsible for ensuring that the re-transmission complies with securities laws.  Under the SEC’s guidance, a re-tweet or re-transmission is not attributed to the company provided that:

  • the company has no involvement with the third party’s re-transmission of the post;
  • the third party is not acting on behalf of the company; and
  • the third party is not a participant in an offering of company securities.

We believe this new guidance provides another step toward permitting public companies to use social media to communicate with stockholders and the investment community.  This trend toward social media as a preferred platform for communicating with stockholders and potential investors underlines the need for public companies to adopt a comprehensive social media policy.

For more information on this topic please contact Daniele Levy.

U.S. Court of Appeals Narrows Application of Conflict Minerals Rules 05/01/2014

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By: Mark Tarallo

On April 14, 2014, the U.S. Court of Appeals for the D.C. Circuit struck down a portion of the “conflict minerals” rules promulgated by the Securities and Exchange Commission pursuant to the Dodd-Frank Act.  In National Association of Manufacturers v. Securities and Exchange Commission, the court concluded that the provision of the conflict minerals rules that required an issuer to state on its website that its products may incorporate conflict minerals was unconstitutional on free speech grounds.  In a 2-1 decision, the court struck this requirement, while leaving the other conflict minerals reporting obligations in place.

In an effort to combat the ongoing abuses and exploitation in the Democratic Republic of Congo and other African countries, Congress incorporated into the Dodd-Frank Act a provision that the SEC issue regulations requiring certain reporting companies to investigate and disclose the source of any “conflict minerals” such as gold, tantalum and tungsten used in their products.  The goal of the rule is to identify those publicly-traded companies that use conflict minerals in their products and to pressure those companies to find legal sources for those materials.  The final rule promulgated by the SEC required an issuer to undertake a three step process:  i) determine if conflict minerals are used in the issuer’s products, and if so,  ii) undertake a “reasonable country of origin” inquiry to determine the source of those conflict minerals, and if the issuer determines that the conflict minerals may have originated in certain countries,  iii) “exercise due diligence on the source and chain of custody of its conflict minerals.”

Once an issuer determines (or has reason to believe) that the conflict minerals used in its products originated in covered countries, the issuer has an obligation to file a Conflict Minerals Report on Form SD, including a required third-party audit.  In addition, in certain circumstances, issuers were required to post a notice on their website that their products “have not been found to be DRC conflict-free.”  The recent ruling struck down just this last requirement, while leaving much of the remaining framework (including the obligations to investigate sources and file a Form SD) in place.  Issuers should continue to prepare to File Form SD, as it is difficult to predict that any further action will take place prior to the upcoming May 31 deadline.

The SEC has indicated that it is reviewing the ruling.

For more information on this topic, please feel free to contact Mark Tarallo.

Reminder: Deadline for Nasdaq Certification Approaching 04/10/2014

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Corporate Attorney Daniele Ouellette LevyBy: Daniele Ouellette Levy

As described in prior posts, Nasdaq recently amended its listing rules regarding the independence of compensation committee members.  A description of the changes may be found here and here.

The deadline for complying with Nasdaq’s revised listing requirements is the earlier of (i) a company’s first annual meeting after January 15, 2014, or (ii) October 31, 2014.  Listed companies are required to certify to Nasdaq, within 30 days after the applicable deadline, that they have complied with the new listing rules. The certification must be filed through Nasdaq’s listing center and may be found here.

For more information on the new Nasdaq listing requirements affecting compensation committees please contact Daniele Ouellette Levy.

Action Item for Smaller Reporting Companies – Update Your D&O Questionnaire 03/13/2014

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Corporate Attorney Daniele Ouellette LevyBy: Daniele Ouellette Levy

It is proxy season for public companies with December 31 fiscal year ends. While the proxy disclosure requirements did not significantly change in 2013, there are important updates companies should make to their D&O questionnaires.

Smaller Reporting Companies (“SRCs”) should consider making the following updates:

  1. Compensation Consultants Conflicts of Interest: All reporting companies are now required to disclose in their proxy statement conflicts of interest of any compensation consultants engaged during the year to provide advice on the amount or form of executive and director compensation. SRCs should revise their D&O questionnaires to include questions regarding personal or business relationships between directors or executive officers and compensation consultants engaged by the company.
  2. Compensation Committee Independence: As described in previous posts, Nasdaq recently adopted changes to its listing standards which require compensation committee members to meet heightened independence standards. While many of these changes do not apply to SRCs, SRCs should consider updating D&O questionnaires to include questions regarding compensation committee independence in order anticipate required changes in the composition of the compensation committee in the event the company no longer qualifies as an SRC.
  3. Bad Actors: SRCs should consider including questions in their D&O questionnaires which would help the company determine whether any directors or executive officers would be considered “bad actors” under the newly adopted Rule 506(d) under Reg. D. The bad actor disqualification in Rule 506(d) would make the Rule 506 exemption under Reg. D unavailable for any private securities offering in which certain bad actors are involved.

For more information or assistance revising your D&O questionnaire please contact Daniele Levy.

Boston Business Journal Revisits Local Biotech IPO’s: “Where are They Now? 03/12/2014

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On March 7, the Boston Business Journal (BBJ) published an article titled “A year of biotech IPOs: Where is their stock price now?” which highlights fourteen local biotech companies that went public last year, ranking them by their stock increase seen since the close of their first day on the market until the March 6 close. A year ago this month, Enanta Pharmaceuticals and Tetraphase Pharmaceuticals, both of Watertown, MA, became the first two Massachusetts biotech firms to go public in what turned out to be the busiest biotech IPO boom in more than a decade.

To see the full list visit the BBJ.

Supreme Court Expands Pool of Claimants in Whistleblower Case 03/07/2014

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Corporate Attorney Joseph MarrowBy: Joseph Marrow

On March 4, 2014, the United States Supreme Court issued its decision in a much anticipated whistleblower retaliation case. In its decision, Lawson v. FMR, LLC, No. 12-3, the Supreme Court expanded the coverage of an anti-retaliation claim under Sarbanes-Oxley Act of 2002 (SOX) to an employee of a privately-held contractor (the contractor provided investment management services to Fidelity mutual funds). Pursuant to the Dodd-Frank Act, the Securities and Exchange Commission established an award program for whistleblowers creating a new private right of action for employees in the financial services sector who suffer retaliation for disclosing information about fraudulent or unlawful conduct related to the offering or provision of a consumer financial product or service. The First Circuit had ruled that the anti-retaliation provision only applies to employees of public companies. In a 6 to 3 vote, the Supreme Court reversed the decision of the First Circuit in favor of expanding the coverage of the whistleblower statute to cover employees of a public company’s private contractors and subcontractors.

In Lawson v. FMR, the Supreme Court interpreted a provision of SOX, namely 18 U.S.C. Section 1514A protecting whistleblowers, which provides in part: “No [public] company …, or any officer, employee, contractor, subcontractor, or agent of such company, may discharge, demote, suspend, threaten, harass, or in any other manner discriminate against an employee in the terms and conditions of employment because of [whistleblowing or other protected activity].” The Supreme Court was faced with the question whether the protected class was simply limited to employees of the public company itself or would include “employees of privately held contractors and subcontractors – for example, investment advisers, law firms, accounting enterprises – who perform work for the public company?” Noting that SOX was enacted following the Enron scandal and in part in response to that scandal, the Supreme Court interpreted the statute as a response to a “concern about contractor conduct of the kind that contributed to Enron’s collapse.” As such, the Supreme Court held that a broader interpretation of the statute (to capture contractors that perform work for public companies) was warranted.

The implications of the Supreme Court’s decision are far reaching. The Supreme Court’s holding significantly expands the pool of potential whistleblower claimants. It remains to be seen whether the parade of horribles predicted by the dissent – resulting in a multitude of spurious claims – will come to fruition.

For more information on this topic please contact Joe Marrow.

SEC Releases Study of Public Company Disclosure Requirements 02/07/2014

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Corporate Attorney Daniele Ouellette LevyBy: Daniele Ouellette Levy

The JOBS Act, which became law in April 2012, requires the SEC to conduct a review of the disclosure requirements in Reg. S-K in order to identify how the rules could be updated to modernize and simplify the registration process for emerging growth companies and reduce related costs. Reg. S-K is the primary regulation under the federal securities laws detailing the disclosure requirements applicable to public companies.

At the end of December 2013, the SEC released the results of its review of Reg. S-K.  In the study the SEC noted it had not conducted a comprehensive review of Reg. S-K since 1996 and stated that a reevaluation of the disclosure requirements was warranted due to significant changes in the manner many public companies operate their businesses and world events which have altered the regulatory framework for public companies. In such reevaluation the SEC would aim to ensure existing and potential investors, as well as the marketplace as a whole, receive meaningful information upon which to base investment decisions. In addition, the SEC stated that its regulatory framework must ensure that the disclosure requirements focus on information which is material and are flexible enough to adapt to dynamic circumstances.

This study is a starting point. In its conclusion, the SEC proposes undertaking a comprehensive plan to systematically review the disclosure requirements in all of the SEC’s rules and forms concerning the presentation and delivery of information to investors and the marketplace, not just Reg. S-K. We expect more to come on this issue.

For more information on public company disclosure requirements please contact Daniele Ouellette Levy.

Are Higher Insurance Coverage Costs the Result of an Increase in M&A Litigation? 01/24/2014

Posted by Morse, Barnes-Brown Pendleton in M&A, Public Companies.
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Corporate Attorney Joseph MarrowBy: Joseph Marrow

The proliferation of mergers and acquisition litigation activity has led to changes in the directors and officers insurance coverage marketplace. The Wall Street Journal recently reported that in the first three quarters of 2013, 98% of acquisitions valued at $500 million or more have resulted in lawsuits (in 2007, 53% of similar transactions resulted in litigation). The increased litigation activity has caused the insurance industry to take notice and respond. To learn what this means and how companies protect themselves, please read the full post here.

For questions on changes on insurance coverage, please contact Joe Marrow.

Transitioning to the 2013 COSO Framework 01/23/2014

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Corporate Attorney Hillary PetersonBy: Hillary Peterson

In May 2013, the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) published an update to it’s Internal Controls – Integrated Framework, originally published in 1992. The 1992 framework has been adopted by the majority of publicly-traded companies in the United States as a way to design, implement and assess the effectiveness of the internal controls of the company. The 2013 framework has been updated in a number of ways to address the evolving issues facing companies today.

In a recent meeting of the Securities and Exchange Commission (“SEC”) Regulations Committee, the SEC staff indicated that it expects U.S. publicly-traded companies to review their internal controls and to update and revise those controls in order to comply with the newly updated COSO framework. While the new framework is not due to supersede the 1992 framework until December 15, 2014, the 2013 framework was issued in May 2013 in order to allow companies time to review and update their internal controls in advance of that date. The SEC staff has stated that, especially after the December 15, 2014 transition date, companies that continue to rely on the 1992 framework will likely receive questions from the staff about whether or not their internal controls meet the SEC standard.

For more information on the COSO Framwork, please feel free to contact Hillary Peterson.

Nasdaq Revises Compensation Committee Requirements – Again 01/22/2014

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Corporate Attorney Daniele Ouellette LevyBy: Daniele Ouellette Levy

Nasdaq recently amended its listing rules regarding the independence of compensation committee members. The latest amendment comes on the heels of an amendment approved by Nasdaq in early 2013 which imposed new independence requirements on members of compensation committees. Under the rules approved in early 2013, any director who accepts compensation from the company, other than for service as a member of the Board or a committee of the Board, will not meet the independence requirements for membership on the compensation committee and would be in eligible to serve on such committee. In November 2013, Nasdaq eliminated this bright line test and instead provided that the Board must consider compensation as a factor in determining whether a Board member is independent and eligible to serve on the compensation committee.

The deadline for compliance with the revised listing requirements is the earlier of (i) a company’s first annual meeting after January 15, 2014, or (ii) October 31, 2014. Listed companies will be required to certify to Nasdaq, within 30 days after the applicable deadline, that they have complied with the new listing rules. The compensation committee certification must be filed through Nasdaq’s listing center and may be found here.

For more information on the new Nasdaq listing requirements regarding compensation committees please contact Daniele Ouellette Levy.

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