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

Posted by Morse Barnes-Brown Pendleton in Public Companies.
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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.

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