Updates

The Securities and Exchange Commission’s (the Commission or SEC) Division of Corporation Finance provided answers to questions regarding the Commission’s rules adopted in response to the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring certain public companies to disclose on a new Form SD their use of conflict minerals originating in the Democratic Republic of the Congo (the DRC) or an adjoining country.

In its long-awaited decision in Amgen Inc. v. Connecticut Retirement Plans & Trust Funds, No. 11-1085 (U.S. Feb. 27, 2013), the U.S. Supreme Court held that plaintiffs in a securities-fraud class action do not need to establish the materiality of alleged misrepresentations in seeking class certification.

Public companies preparing for the upcoming 2013 proxy season will need to keep in mind a number of new developments related to executive compensation.

On November 14, 2012, the Department of Justice (DOJ) and the Securities and Exchange Commission (SEC) issued their long-anticipated Resource Guide regarding the agencies’ enforcement of the Foreign Corrupt Practices Act (FCPA).

Many businesses throughout the United States—and possibly worldwide—may experience the effects of the devastating hurricane that hit the Eastern United States on October 29 and 30, 2012.  Early estimation indicates that the storm caused upwards of $20 billion in property damage and another $10 billion to $30 billion in lost business. 

When a company with a controlling stockholder seeks to sell itself to a third party, the rights of the controlling stockholder and its obligations to minority stockholders are not always clear, tempting plaintiffs to test the boundaries of the controlling stockholder’s duties. 

The SEC recently issued long-awaited proposed rules to remove existing general solicitation and advertising prohibitions for private offerings and sales of securities under Rule 506 and Rule 144A under the Securities Act of 1933, as amended.  These proposed rules implement Section 201(a) of the Jumpstart Our Business Startups Act (JOBS Act) enacted earlier this year.  The SEC's proposed amendments leave intact the existing ability of a company to conduct a Rule 506 offering (under Rule 506(b)) without engaging in general solicitation or advertising.

The Securities and Exchange Commission recently adopted final disclosure and reporting rules as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act requiring certain public companies to disclose on a new Form SD their use of conflict minerals originating in the Democratic Republic of the Congo (the DRC) or an adjoining country.

On June 13, 2012, the Federal Trade Commission and the Department of Justice published their Hart-Scott-Rodino Annual Report Fiscal Year 2011 for the period from October 1, 2010 to September 30, 2011.  The Annual Report summarizes Federal Trade Commission and Department of Justice actions conducted under the Hart-Scott-Rodino Antitrust Improvements Act, or HSR Act, in fiscal year 2011.  The number of HSR filings in fiscal 2011 increased by 24% over the number of filings in 2010.  And the agencies continue to enforce the HSR Act's notification requirements with respect to acquisitions of company stock by corporate officers and directors, often in an inadvertent "failure to file" situation.

This Update provides key highlights of the Annual Report and offers practical advice.

As forecast, on March 27 the U.S. House passed the Senate's amended version of the Jumpstart Our Business Startups Act (the JOBS Act), clearing the way for President Obama to sign the bill into law, which he is expected to do in the coming days.

In a recent decision by the Delaware Court of Chancery, Auriga Capital Corp. v. Gatz Properties, LLC, C.A. 4390-CS (Del. Ch. Jan. 27, 2012), the court strongly reaffirmed that managers of a limited liability company owe traditional fiduciary duties to the limited liability company and its minority members unless such duties are explicitly reduced or eliminated by the terms of the limited liability company's operating agreement.

The Federal Trade Commission recently announced that the reporting thresholds under Section 7 of the Clayton Act, known as the Hart‑Scott-Rodino Antitrust Improvements Act of 1976, will be increased.

The Securities and Exchange Commission recently finalized its rules to conform the definition of “accredited investor” to the requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act.

Four bills designed to help entrepreneurs raise capital are pending before Congress.  Three of the bills were passed by the U.S. House of Representatives and sent to the Senate in early November with nearly unanimous bipartisan support.  The fourth bill, HR 2167 - Private Company Flexibility and Growth Act, remains before the House of Representatives.

The Securities and Exchange Commission (the "SEC") recently adopted Rule 13h-1 of the Securities Exchange Act of 1934 (the "Exchange Act") and related Form 13H, establishing new reporting and filing requirements for "large traders" of securities in U.S. markets.

The SEC recently announced that it will not seek a rehearing or Supreme Court review of the decision by the U.S. Court of Appeals for the D.C. Circuit vacating SEC Rule 14a-11 on proxy access, which would have required companies subject to the Exchange Act’s proxy rules to include in their proxy materials shareholder nominees for the board of directors in some circumstances.

On July 22, 2011, the U.S. Court of Appeals for the D.C. Circuit issued its highly anticipated opinion in the challenge to SEC Rule 14a-11 brought by the Business Roundtable and the U.S. Chamber of Commerce. Rule 14a-11 would have required companies subject to the Exchange Act’s proxy rules to include in their proxy materials shareholder nominees for director who met specified conditions. In the strongly worded opinion, written by Judge Ginsburg, the court vacated Rule 14a-11, characterizing the SEC proxy access rule as “arbitrary and capricious” and stating that the SEC had failed “adequately to assess the economic effects” of Rule 14a-11. The court did not address the constitutional challenges raised by the plaintiffs under the First Amendment.

The Department of Justice, Antitrust Division, recently updated its Policy Guide to Merger Remedies, the first update since 1994.

On May 25, 2011, in a 3-2 vote, the U.S. Securities and Exchange Commission (“SEC”) adopted its final rules (“Rules”), as required under Section 922 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (“Dodd-Frank Act” or the “Act”). The Rules implement the SEC’s hotly anticipated new whistleblower bounty program that rewards individuals who provide the SEC with information leading to successful enforcement actions that exceed $1 million in monetary sanctions. Eligible whistleblowers can earn a payout of 10% to 30% of any monetary sanctions collected because of the tipster's information.

On February 15, 2011, the Federal Trade Commission and the Department of Justice published their Hart‑Scott‑Rodino Annual Report for Fiscal Year 2010 for the period from October 1, 2009 to September 30, 2010.  The Annual Report summarizes Federal Trade Commission and Department of Justice actions conducted under the Hart-Scott-Rodino Antitrust Improvements Act, or HSR Act, in fiscal year 2010.  The number of filings in fiscal 2010 increased by 63% over the number of filings in 2009, after two consecutive years in which the number of filings reported to the agencies had declined.

The final rules require companies to include disclosure regarding certain golden parachute arrangements in proxy statements relating to proxy solicitations seeking shareholder approval of a merger or similar significant corporate transaction, as well as in other types of SEC filings.

This update summarizes the key aspects of the final rules on the say-on-pay and say-on-frequency votes and provides practical advice on steps companies can take in anticipation of the upcoming proxy season.

The Securities and Exchange Commission recently proposed a new rule to conform the definition of “accredited investor” to the requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act.  In addition, the SEC’s proposed rules also clarify the treatment of debt secured by the property in the calculation of net worth.

The Federal Trade Commission (FTC) recently announced that the reporting thresholds under Section 7 of the Clayton Act, known as the Hart‑Scott-Rodino Antitrust Improvements Act of 1976 (the Act), will be increased.  The Act requires all parties to certain transactions, including mergers and acquisitions that meet or exceed the Act's jurisdictional thresholds, to notify the FTC and the Antitrust Division of the Department of Justice of their intentions and to wait a designated period of time before consummating those transactions.

The SEC recently settled a Regulation FD action against Office Depot and several of its executives.  This Update summarizes the key issues addressed in this action and offers practical guidance.

The SEC recently issued proposed rules to implement the provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act that mandate shareholder advisory votes on executive compensation (the say-on-pay vote), on the frequency of the say-on-pay vote, and on golden parachute compensation arrangements, as well as related disclosure requirements.

Earlier this month, the Federal Trade Commission and the Department of Justice published their Hart‑Scott‑Rodino Annual Report for Fiscal Year 2009 for the period from October 1, 2008 to September 30, 2009. The Annual Report summarizes Federal Trade Commission and Department of Justice actions conducted under the Hart-Scott-Rodino Antitrust Improvements Act, or HSR Act, in fiscal 2009.

On October 12, 2010, the Securities and Exchange Commission proposed a new rule, based on requirements under the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Financial Reform Act, defining “family offices” that will be excluded from regulation under the Investment Advisers Act of 1940.

On September 27, 2010, President Obama signed into law the Creating Small Business Jobs Act of 2010 (the “Act”).  Among other provisions, the Act excludes from gross income for regular income and alternative minimum tax purposes 100% of the capital gains (subject to a per issuer limitation described below) of non-corporate taxpayers from investments in qualified small business stock made after September 27, 2010 and before January 1, 2011.  For investments in qualified small business stock made after December 31, 2010, only 50% of the capital gains generally will be excluded from gross income.

On July 28, 2010, the Securities and Exchange Commission adopted amendments to Part 2 of Form ADV, the form used by investment advisers to register with the SEC and state securities regulators.  These amendments are effective for filings made on or after October 12, 2010.  Also affecting advisers are changes made as a result of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, or the Financial Reform Act, which President Obama signed into law on July 21, 2010. Both the SEC's recent action and the Financial Reform Act make a variety of changes to the Investment Advisers Act of 1940.

At yesterday's open meeting of the Securities and Exchange Commission (SEC), a split Commission approved rule amendments to permit shareholders to nominate directors for corporate boards.

The Federal Trade Commission recently announced and asked for comments about proposed changes to the Hart-Scott-Rodino (HSR) premerger notification rules and report form.

Title VII of the Financial Reform Act, entitled "Wall Street Transparency and Accountability," substantially overhauls the regulation of the over-the-counter derivatives markets.  This Update provides highlights of the Financial Reform Act as it relates to derivatives.

On June 30, 2010, the House of Representatives approved the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Financial Reform Act, a comprehensive and expansive set of financial reforms widely thought to be the toughest changes to financial regulation in the United States since the Great Depression.

Perkins Coie is pleased to announce the publication of a new edition of the Executive Compensation Disclosure Handbook: A Practical Guide to the SEC's Executive Compensation Disclosure Rules, a publication written by Perkins Coie attorneys and published by RR Donnelley.

On June 30, 2010, the House of Representatives approved the Dodd-Frank Wall Street Reform and Consumer Protection Act, or the Financial Reform Act, a comprehensive and expansive set of financial reforms widely thought to be the toughest changes to financial regulation in the United States since the Great Depression.

Congress has approved the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, and President Obama has signed it into law.

Last year, Governor Christine Gregoire signed into law the Uniform Limited Partnership Act, or ULPA.  ULPA modified Washington's existing limited partnership statute, which was based on the Revised Uniform Limited Partnership Act, or RULPA.  ULPA became effective for new limited partnerships on January 1, 2010, but generally takes effect for existing limited partnerships, with certain significant exceptions, on July 1, 2010.

On June 10, 2010, amendments to Washington's Limited Liability Company Act, which address the dissolution of a Washington limited liability company, took effect.

On April 23, 2010, Governor Christine Gregoire signed into law Second Engrossed Substitute Senate Bill 6143, which extends Washington's business and occupation (B&O) tax to corporate directors beginning July 1, 2010. 

On April 20, 2010, the Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice jointly released their proposed revisions to the Horizontal Merger Guidelines for public comment.

On March 15, 2010, the Securities and Exchange Commission approved Nasdaq's proposed rule change to modify its requirements pertaining to public disclosures by listed companies.  In an effort to eliminate duplicate disclosures, the Nasdaq rule change will allow companies to make a public announcement by filing a Form 8-K, where required by SEC rules, or by issuing a press release.

Continuing its focus on Regulation FD, the SEC filed an action in early March against Presstek, Inc., a manufacturer and distributor of high-technology digital imaging equipment, and its former CEO, Edward J. Marino.  

The Securities and Exchange Commission recently adopted amendments to the e-proxy rules in an effort to increase shareholder participation in the voting process.  Data indicates that, since the adoption of the e-proxy model, participation by retail shareholders has been lower when those shareholders receive only the Notice of Internet Availability rather than a full set of proxy materials.

The Securities and Exchange Commission has proposed amendments to clarify and modernize Rule 10b-18 of the Securities Exchange Act of 1934 that governs public companies' repurchases of their common stock.  The SEC is accepting comments to these proposed amendments through March 1, 2010.  This Update summarizes the key issues in the proposed amendments and alerts you to the opportunity to make comments on the proposal.

On February 2, 2010, the Securities and Exchange Commission issued an interpretive release related to climate change disclosure for publicly traded companies.  The SEC approved the issuance of this guidance on January 27, 2010, as discussed in our February 1, 2010 Update.  The interpretive release is effective when published in the Federal Register.  This Update summarizes the key issues in the interpretive release and offers practical advice.

On January 27, 2010, the Securities and Exchange Commission announced the adoption of interpretive guidance related to climate change disclosure for publicly traded companies.  This Update answers questions based on the SEC's press release and related open meeting, and offers practical advice.  Upon publication of the SEC's interpretive release, which is expected to occur soon, we will issue an additional Update with further guidance.

The Internal Revenue Service recently issued new final regulations addressing the return and information statement requirements applicable to exercises of incentive stock options, or ISOs, and transfers of shares purchased under an employee stock purchase plan, or ESPP.  The IRS has waived the requirements under the new regulations for ISO exercises and transfers of ESPP shares that occur during 2009.

The Securities and Exchange Commission recently adopted final rules to require enhanced compensation and corporate governance disclosure for public company proxy statements and other SEC filings.  The final rules reflect changes that clarify, and in some instances broaden, the proposed rules issued on July 17, 2009.  The SEC designed these amendments to improve corporate disclosures and allow shareholders to make more informed voting and investment decisions.

On November 25, 2009, the Securities and Exchange Commission approved in their entirety the proposed amendments to the corporate governance requirements of the NYSE Listed Company Manual.  These amendments will become effective January 1, 2010.

The U.S. Treasury Department, chair of the Committee on Foreign Investment in the United States ("CFIUS"), recently published guidance on the types of transactions previously reviewed by CFIUS that have presented national security considerations ("Guidance").  The Guidance is intended to provide insight into how CFIUS identifies the national security effects of covered transactions and may assist parties considering whether to file a voluntary notice of a transaction with CFIUS [1]. This is an important determination because, although filing a CFIUS notice is voluntary, the parties may be forced to unwind a transaction where no filing was made if the President later determines it poses national security risks.

Public companies should take steps to determine whether any amendments may be required to new and outstanding compensatory arrangements in light of Section 162(m) of the Internal Revenue Code and certain transition relief under Revenue Ruling 2008-13.

On November 12, 2009, the SEC announced the settlement of its first Regulation G enforcement action.  Regulation G prohibits the presentation of non-GAAP financial measures in a misleading way and requires companies to present—alongside the non-GAAP financials—the most directly comparable GAAP measures and a clearly understandable reconciliation of the GAAP and non-GAAP measures.

As discussed in our July 20, 2009 Update, the Securities and Exchange Commission in June 2009 proposed amendments to the federal proxy rules to expand access to the board of directors nomination process for eligible shareholders. 

The Securities and Exchange Commission announced on October 2 a six-month extension of the date on which non-accelerated filers must begin to comply with the auditor attestation requirement under Section 404(b) of the Sarbanes-Oxley Act.  A non-accelerated filer must now provide an auditor attestation to the effectiveness of the filer's internal controls in its SEC annual report for the year ending on or after June 15, 2010. 

Last week's settlement of a Reg. FD action by the SEC against the CFO of American Commercial Lines (ACL) seems like a throwback to an interrupted line, to the enforcement actions from 2002 to 2005 that slowed to a crawl with the "Siebel II" action in late 2005. 

This month, Congress will begin to address the proposed Consumer Financial Protection Agency Act of 2009, known as the CFPAA, which is one piece of the dramatic financial regulatory reform that Barney Frank, Chairman of the House Financial Services Committee, introduced in July 2009. 

On July 31, 2009, the House of Representatives, with the support of the Obama Administration, passed H.R. 3269, the Corporate and Financial Institution Compensation Fairness Act of 2009, proposed legislation that would require all publicly traded companies to seek a nonbinding "say‑on-pay" vote of shareholders on executive compensation packages annually and in acquisition transactions. 

A recent decision by the Delaware Court of Chancery reinforces the responsibility of a board of directors to assertively defend the interests of the noncontrolling stockholders when negotiating with a controlling stockholder in order to satisfy the board's duty of loyalty.

A recent full court First Circuit decision held that the taxpayer's tax accrual workpapers are not protected under the work product privilege and must therefore be released to the Internal Revenue Service. 

The Securities and Exchange Commission (SEC) recently released new proposed rules concerning compensation and corporate governance disclosure for public company proxy statements and other SEC filings.

The Securities and Exchange Commission recently released new proposed rules concerning compensation and corporate governance disclosure for public company proxy statements and other SEC filings.  The SEC intends these proposed amendments to improve corporate disclosures and allow shareholders to make more informed voting and investment decisions.

On July 1, 2009, the Securities and Exchange Commission (SEC), in a 3-to-2 vote, approved a proposed amendment to New York Stock Exchange (NYSE) Rule 452 that will prohibit discretionary broker voting in director elections.

On June 10, 2009, the Securities and Exchange Commission proposed amendments to the federal proxy rules to expand access to the board of director nomination process for eligible shareholders.

The Obama Administration has proposed sweeping new regulations that would overhaul the U.S. financial regulatory system, including a proposal published June 17, 2009 that would require investment advisers of hedge funds and other private pools of capital whose assets under management exceed some unspecified, but modest, threshold to register with the Securities and Exchange Commission under the Investment Advisers Act of 1940. 

The Financial Accounting Standards Board recently issued Staff Position No. 141(R)-1, Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies, which provides new guidance that changes the accounting treatment of contingent assets and liabilities in mergers and acquisitions and other business combinations under FASB Statement No. 141 (revised 2007), Business Combinations.

In Lyondell Chemical Corp. v. Ryan, C.A. 3176 (Del. Mar. 25, 2009), the Delaware Supreme Court, acting en banc, reversed the decision of the Delaware Court of Chancery and granted summary judgment to Lyondell's board of directors, dismissing the claim that it failed to act in good faith in conducting the sale of its company through an accelerated negotiation process.  The Court reaffirmed important principles governing a board's Revlon duties in connection with the sale of a company and directors' good faith performance of those duties.

In a decision that affirms existing Delaware law, the Delaware Court of Chancery in In re Citigroup Inc. Shareholder Derivative Litigation, No. 3338-CC, 2009 WL 481906 (Del. Ch. Feb. 24, 2009), upheld the business judgment rule and its protection of directors' business decisions in the face of worldwide economic losses.  The court dismissed all but one facet of the case, which alleged Caremark violations against Citigroup directors due to Citigroup's losses in the subprime lending market. 

In Gantler v. Stephens, C.A No. 2392, 2009 WL188828 (Del. Jan. 27, 2009), the Delaware Supreme Court affirmed a principle of corporate law that had been implied in prior decisions:  officers of Delaware corporations owe the same fiduciary duties of care and loyalty to the corporation and its shareholders as directors owe.  The Court also resolved contradictory prior opinions on the common law doctrine of shareholder ratification by limiting the doctrine to approval of board action that is not otherwise required to be approved by shareholders in order to be effective. 

Unless the SEC grants another extension, a non-accelerated filer must provide its first auditor attestation report under Section 404(b) of the Sarbanes-Oxley Act in its SEC annual report for the fiscal year ending on or after December 15, 2009.  A "non-accelerated filer" is a company that did not have a public float of $75 million or more on the last business day of its most recently completed second fiscal quarter.

In February 2009, at the annual SEC Speaks conference in Washington, D.C., senior staff of the U.S. Securities and Exchange Commission reviewed significant actions of the previous year and identified top priorities for the year to come.  This update lists our top takeaways from the conference that may have an impact on your business. 

The American Recovery and Reinvestment Act of 2009, commonly referred to as the Stimulus Bill, was signed into law on February 17, 2009 and contains an expanded tax credit for first-time homebuyers who make qualifying purchases prior to December 1, 2009.

The American Recovery and Reinvestment Act of 2009, commonly referred to as the Stimulus Bill, signed into law on February 17, 2009, contains renewable energy tax incentives, defers realization of certain cancellation of debt income, suspends certain restrictions on the deductibility of original issue discount, and limits S corporation built-in gain recognition.

Proxy statement preparation and planning for annual meetings of stockholders are in full swing.  Along with proxy season comes the possibility that stockholders may submit proposals or nominations for consideration at the annual meeting. 

While the downturn in the economy has adversely affected the sellers of directors’ and officers’ liability insurance – much as it has companies in all sectors of the economy – investing in D&O insurance is still a wise course of action.  This Update offers nine suggestions for ensuring that a company’s directors and officers are adequately protected in this environment against potential liabilities that D&O insurance normally would pay.

In a closely watched case, the Second Circuit Court of Appeals has refused to cut back on traditional standards for corporate criminal liability.  The Association of Corporate Counsel, the U.S. Chamber of Commerce and other groups had asked the court to depart from a century of judicial precedent holding corporations broadly liable for criminal acts committed by employees.  The groups argued that such broad vicarious criminal liability was counterproductive and asked the court to bar corporate criminal liability unless prosecutors could show that the corporation lacked an effective compliance program.

The 2009 proxy season marks the first year in which all public companies must comply with the Securities and Exchange Commission's e-proxy rules.  These rules were effective for large accelerated filers, and on a voluntary basis for all other companies, as of January 1, 2008.  The experience of early adopters in 2008 provides valuable insight for companies implementing the e-proxy rules for the first time, as well as those companies that are looking for ways to improve their e-proxy experience over last year.  The lessons learned will help companies better anticipate challenges, establish informed expectations, and identify strategies for the upcoming proxy season.  This Update provides background information on e‑proxy rules and offers our "Top 8" lessons learned from the 2008 e-proxy season.

The Federal Trade Commission and the Department of Justice recently released their Hart-Scott-Rodino Annual Report for Fiscal Year 2007 for the period from October 1, 2006 to September 30, 2007.

On October 6th, the Securities Exchange Commission (SEC) released its Enforcement Division manual to the general public for the first time.

In a decision that amplifies how Delaware courts analyze material adverse effect clauses in merger agreements and examines what constitutes bad faith by a buyer, the Delaware Court of Chancery in Hexion Specialty Chemicals, Inc. v. Huntsman Corp., C.A. No. 3841-VCL, 2008 WL 4457544 (Del. Ch. Sept. 29, 2008), dealt the buyer, Hexion Specialty Chemicals, Inc., a stunning blow.

The SEC recently adopted amendments to rules and forms affecting foreign private issuers.

A greater emphasis on corporate record keeping under the Sarbanes-Oxley Act of 2002 and related regulations, shareholders’ heightened expectations of directors and the intense scrutiny of director conduct in litigation, including option backdating cases, are increasingly placing corporate minutes in the spotlight.

Protection of directors from the expense of litigation is a key issue for both companies and directors. Most corporate bylaws make indemnification of directors to the fullest extent allowed by law mandatory.

As the public becomes increasingly concerned about climate change and greenhouse gas regulation, publicly traded companies are considering the extent to which they need to disclose climate change risks in their annual securities filings with the Securities and Exchange Commission.

Earlier this year, the SEC amended its rules to revise the information required to be furnished on Form D and, after a transition period, to require the form to be filed electronically.

The SEC recently issued an interpretive release regarding the use of company websites to disclose information to investors. This new guidance focuses on four main topics:

The SEC recently approved a one-year extension of the date on which non-accelerated filers must begin to comply with the auditor attestation report on internal control over financial reporting required by Section 404(b) of the Sarbanes-Oxley Act of 2002.

Auditors today routinely request information about internal investigations.

The deadline is fast approaching for amending deferred compensation arrangements that are subject to Section 409A of the Internal Revenue Code.

In addition to running businesses and fulfilling their ordinary fiduciary duties, in recent years, officers and directors of financially troubled companies have had to worry about potential "deepening insolvency" claims.

The IRS recently issued Revenue Ruling 2008-13, which clarifies the IRS's new position with
respect to the applicability of the performance-based compensation exception for purposes of Section 162(m) of the Internal Revenue Code and grants transition relief to provide public companies an opportunity to review outstanding compensation plans, agreements and other arrangements in light of the IRS's new position.

At the annual SEC Speaks conference in Washington, D.C., last week, senior staff of the U.S. Securities and Exchange Commission reviewed significant SEC actions from the previous year and identified their top priorities for the year to come.

The SEC recently amended the eligibility requirements for companies to use Form S-3 registration statements to facilitate more efficient capital market access by smaller public companies.

The Securities and Exchange Commission recently finalized amendments to Rules 144 and 145 under the Securities Act of 1933, which will become effective on February 15, 2008. The amendments apply to securities acquired before or after February 15, 2008.

In 2007 the Securities and Exchange Commission adopted amendments to the proxy rules that will require companies to post their proxy materials on a publicly available Internet website. Proxy materials include proxy statements, proxy cards, information statements, annual reports to security holders, notices of shareholder meetings, additional soliciting materials, and any amendments to such materials. The e‑proxy rules do not apply to proxy materials relating to business combination transactions.

The Securities and Exchange Commission recently reviewed the executive compensation disclosure of 350 companies under its new rules adopted in 2006. Following this review, the SEC issued comment letters to the companies reviewed and then issued a report that follows the general themes that run throughout these comment letters.

Last week the IRS issued Notice 2007-86, which delays until January 1, 2009 the deferred compensation final regulations of Internal Revenue Code Section 409A and generally provides expanded relief and guidance.  The IRS also separately issued Notice 2007-89, which generally extends for the 2007 tax year prior IRS guidance to employers and other service providers regarding reporting and withholding obligations for annual deferrals of compensation and amounts includible in gross income due to Section 409A violations.  This update summarizes key aspects of both notices and provides practical guidance.

On September 10, 2007, the IRS issued Notice 2007-78 providing limited relief and guidance for the deferred compensation tax rules of Internal Revenue Code Section 409A, including a limited extension until December 31, 2008 of the deadline to adopt documents that comply with Section 409A. This update summarizes the key aspects of the notice and offers practical tips for employers and other service recipients.

Last week, a federal court released a public version of its 93-page opinion providing its reasons for denying the Federal Trade Commission's challenge to Whole Foods Markets' acquisition of organic grocer Wild Oats.

The Delaware Supreme Court recently issued a long-awaited decision on whether a cause of action asserting deepening insolvency exists under Delaware law.

The IRS recently issued Revenue Ruling 2007-49, which provides guidance on the tax consequences of certain transactions involving new vesting restrictions on fully vested stock. This update provides a brief background on Section 83 of the Internal Revenue Code, summarizes the key highlights from the revenue ruling and offers practical tips.

The SEC recently published an interpretive release providing guidance on compliance with Section 404 of the Sarbanes-Oxley Act of 2002. The SEC separately finalized rule amendments relating to internal control over financial reporting and defining the term “material weakness.” The guidance became effective on June 27, 2007, and the amendments to the rules will be effective August 27, 2007. The SEC also proposed a new definition for the term “significant deficiency.”

This Update summarizes key highlights of the SEC's interpretive guidance, the SEC's new and proposed rules and PCAOB Auditing Standard No. 5.

This week the IRS issued guidance on identifying "covered employees" for purposes of Section 162(m) of the Internal Revenue Code in response to the SEC's recent amendments to its executive compensation disclosure rules. This Update summarizes the key highlights from this IRS guidance.

Directors of public companies are being called on to supervise independent investigations with increasing frequency. The ongoing furor over stock option backdating is simply the most recent illustration of this trend. Countless boards are finding themselves in a position of conducting independent investigations in order to identify improprieties and respond to concerns from regulators, prosecutors, auditors, shareholders and others.

The U.S. Supreme Court recently agreed to determine whether a legal theory known as “scheme liability” can be used to sue for securities fraud entities that, until now, have largely been protected from liability.

Last week the IRS issued the long-awaited final regulations under Section 409A of the Internal Revenue Code, which generally provides that amounts deferred under a "nonqualified deferred compensation plan" are currently includible in taxable income if not subject to a substantial risk of forfeiture, unless the plan meets specified design and operational requirements. Failure to comply with the applicable requirements of Section 409A can result in significant income tax consequences, including a 20% additional tax imposed on the employee or independent contractor.

Last week the SEC Division of Corporation Finance released much-anticipated new Staff guidance on the rest of its new proxy disclosure requirements under amended Regulation S-K, completing its interpretations of the new rules and complementing its guidance on the new executive compensation disclosure requirements released in January 2007. This new SEC Staff guidance addresses a wide variety of topics covering a diverse set of specific circumstances and replaces or revises prior Staff interpretation of Items 201, 403, 404, and 407 of Regulation S-K as previously published in the SEC's Manual of Publicly Available Telephone Interpretations and its supplements.

Perkins Coie is pleased to announce a revised version of the Executive Compensation Disclosure Handbook: A Practical Guide to the SEC's New Rules, a publication written by Perkins Coie attorneys that provides a complete, plain English explanation of the SEC's executive compensation and related disclosure requirements.

The Securities and Exchange Commission amended its new executive officer and director compensation disclosure rules in December 2006 and released Staff guidance on these rules in 2007. The substantial changes to the rules will likely increase the attention and scrutiny the SEC, investors and the public apply to proxy statements and annual reports during ongoing proxy and annual reporting seasons. The revised edition of the Executive Compensation Disclosure Handbook: A Practical Guide to the SEC's New Rules provides an overview of the most significant changes and requirements through mid-February 2007 under the new rules and guidance and offers practical advice to help companies understand, and comply with, the new disclosure requirements.

In 2006 a record number of unhappy shareholders fought in Delaware courts to enforce their demands to inspect corporations' books and records. What caused this dramatic increase? Delaware courts frequently chastised shareholders for failing to use this powerful fact-gathering tool before bringing derivative suits. Many states, including Washington and Delaware, also recently expanded shareholders' statutory inspection rights.
In this Update we highlight two recent Delaware cases, Polygon and Shamrock, that identify important defenses available to corporations responding to inspection demands, and provide practical advice.

Recently introduced Washington House Bill 1111 and its Senate counterpart, Senate Bill 5294, would add Washington to the list of states with so-called "constituency statutes." If adopted, these bills will significantly change the standards of conduct that apply to directors of corporations organized in the State of Washington.

Perkins Coie is pleased to announce the Executive Compensation Disclosure Handbook: A Practical Guide to the SEC's New Rules. This handbook is the most practical, plain English guide available for public company management, directors and general counsel on the SEC's new requirements for public company disclosure and reporting of executive and director compensation and related issues.

In a decision with potentially far-reaching effects, the United States Court of Appeals for the Second Circuit recently toughened the standard for granting class certification under Rule 23 of the Federal Rules of Civil Procedure. In In re Initial Public Offering Securities Litigation, No. 05-3349-cv (Dec. 5, 2006), the court reversed an order granting class certification in six consolidated securities fraud actions brought by thousands of investors against major investment banks alleging that they had inflated market prices and received secret commissions when underwriting IPOs. This decision may affect all areas of law influenced by class actions, including employment, antitrust, consumer protection and product liability.

The Securities and Exchange Commission just announced that it has amended its new executive officer and director compensation disclosure rules, effective immediately. The FASB requires companies to recognize the costs of equity awards over the period in which an employee must provide service in exchange for the award under Statement of Financial Accounting Standards No. 123 (revised 2004) Share-Based Payment. The new SEC amendments will more closely align the reporting of equity awards in the Summary Compensation Table and the Director Compensation Table to the amounts that are disclosed in the financial statements under FAS 123R.

The Department of Justice recently announced that it will revise some controversial policies outlined in a document known as the Thompson Memorandum. The new policies will place procedural limits on attempts by the Department of Justice to require companies under investigation to waive the attorney-client privilege. The policies will also bar federal prosecutors from considering as a factor in charging decisions whether a company is advancing attorneys' fees to employees or other corporate agents. These widely anticipated changes respond to strong criticism of the Thompson Memorandum from many sources and are designed to preempt legislation introduced by Arlen Specter, the outgoing chair of the Senate Judiciary Committee.

On December 7, 2006, the U.S. Supreme Court granted certiorari in Leegin Creative Leather Products v. PSKS, Inc., a potential landmark case challenging the long-standing "Dr. Miles" doctrine condemning resale price maintenance and minimum vertical price fixing as per se violations of Section One of the Sherman Act.

Public companies, and other companies that need audited financial statements, must begin accounting for uncertain income tax positions under a new rule: Financial Accounting Standards Board Interpretation No. 48, which was released in July, and is effective for fiscal years beginning after December 15, 2006. Most reporting companies will implement the new rule for their first quarter 2007 financial statements.

The federal securities laws require clear, concise and understandable disclosure about the amount and type of all compensation paid to chief executive officers and other highly compensated executives of public companies. In recent years widespread and increasing interest in executive pay and the perceived inadequacy of current disclosure spawned frequent front-page headlines and heated rhetoric from members of Congress and shareholder advocates. The Securities and Exchange Commission recently adopted comprehensive amendments to its executive officer and director compensation disclosure rules. The new rules retain the combined tabular and narrative format, but attempt to elicit a clearer, more complete picture of all compensation paid to specified executive officers and to directors. The SEC also significantly revised disclosure rules for financial transactions and relationships between companies and executive officers, directors, significant shareholders, and their respective family members, as well as with respect to director independence and other corporate governance matters. Companies must make all disclosures under the new rules in plain English. These changes affect disclosures in proxy and information statements, annual and periodic reports, and registration statements, as well as Form 8-K reporting of compensation arrangements.

Public company executives and directors are in the crosshairs again, this time over stock option "backdating" and related issues. According to media reports, more than 80 companies have announced investigations into or deficiencies with their option granting practices, and at least 19 public company executives have been fired or have resigned as a result of option granting issues.

In a decision generally protective of directors and officers, a Seattle federal district court recently held that shareholders who seek to bring derivative claims under Washington law must meet requirements similar to those imposed under Delaware law. In re Cray, Inc., 431 F. Supp. 2d 1114 (W.D. Wash. 2006).

In recognition of the central role of the Internet in today's global economy, many companies rely on their corporate websites as basic information sources and marketing tools for business partners, customers and the general public. In light of increased attention to corporate governance matters and recent SEC and stock exchange corporate governance requirements, public companies typically create within their corporate websites a separate page devoted to investor relations, and many companies also create separate pages devoted exclusively to corporate governance matters, such as information about the board of directors and committees.

A carefully conceived and well-implemented document retention policy has long been an important component of an effective corporate compliance program. Recent events have made reviewing and updating corporate document retention policies a priority for most companies.

In the Delaware Supreme Court's recent opinion in the Disney case, Justice Jacobs provided better "best practices" advice for compensation committee decision making (and by analogy, board and other board committee decision making) than we may have seen in decades. The court also rejected the argument that making a decision in the absence of adequate information and deliberation amounts to bad faith.

Perkins Coie is pleased to announce the third edition of the most practical, plain English guide available for public company corporate governance in the post-Sarbanes-Oxley world: The Public Company Handbook: A Corporate Governance and Disclosure Guide for Directors and Executives.

For some time, the federal campaign finance law has restricted the ways that corporations can encourage or direct political action, by executives and lobbyists, intended to promote company legislative objectives or enhance its goodwill. Of particular concern to the Federal Election Commission has been what is known as "corporate facilitation."

In a significant decision favorable to defendants in securities fraud lawsuits, Merrill Lynch, Pierce, Fenner & Smith, Inc. v. Dabit, 126 S. Ct. 1503 (2006), the United States Supreme Court has unanimously decided to close a loophole that plaintiffs' lawyers have used to bring securities fraud lawsuits in state court. This loophole existed as a result of how some appellate courts had interpreted the language of the Securities Litigation Uniform Standards Act of 1998 (SLUSA).

In early 2006, the SEC's Advisory Committee on Smaller Public Companies issued an exposure draft of its "final report," which makes recommendations that would dramatically reduce the cost of Sarbanes-Oxley compliance for smaller issuers, including "scaling" SEC regulation for the smaller capitalization companies that represent over 80% of all public companies, but only 6% of total market capitalization, and a new private offering exemption. The Advisory Committee will send its report to SEC Chairman Cox on April 23, 2006.

The federal securities laws already require clear, concise and understandable disclosure about the amount and type of all compensation paid to chief executive officers and other highly compensated executives of public companies. In recent years widespread and increasing interest in executive pay and the perceived inadequacy of current disclosure spawned frequent front-page headlines and heated rhetoric from members of Congress and shareholder advocates.

The Federal Trade Commission recently announced that the reporting thresholds under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 will be increased, effective February 17, 2006. The Act requires all parties to mergers or acquisitions that meet or exceed the Act's jurisdictional thresholds to notify the FTC and the Antitrust Division of the Department of Justice and wait a designated period of time before consummating the merger or acquisition. The 2000 amendments to the Act require the FTC to revise the Act's jurisdictional and filing fee thresholds annually, based on the change in gross national product. Certain related thresholds and limitation values in the H-S-R rules will also be adjusted. The increased thresholds will apply to all transactions that close on or after February 17, 2006.

In recent years the SEC has dramatically increased the size of civil penalties it seeks from companies accused of violating the federal securities laws. Critics questioned the SEC's lack of standards for determining such penalties and argued that the SEC's approach simply heaped additional punishment on the very same shareholders who were victimized by the company's violations.

The SEC recently approved final rules that create a new category of large accelerated filers and maintain current periodic reporting deadlines for smaller public companies. This Update summarizes the key highlights from the final rules and offers practical guidance.

The Securities and Exchange Commission recently proposed amendments to its tender offer "best-price rule," which it adopted in 1986 to prevent discriminatory tender offers by requiring that the highest price paid to any security holder in a tender offer must be paid to all other tendering security holders. Several court decisions interpreting the SEC's best-price rule have created uncertainty about whether compensatory and other arrangements made with a target company's officers, employees, directors and shareholders in an acquisition structured as a tender offer will be deemed tender offer consideration that is subject to this rule.

Internal Revenue Code Section 409A, along with recent changes in financial accounting rules, has significantly increased the focus of private companies on accurately valuing their common stock for purposes of granting options and other equity incentive awards. Section 409A has upped the ante by imposing severe tax consequences on individuals for certain stock-based compensation that does not comply with the new deferred compensation tax rules, including stock options granted with an exercise price that is less than the fair market value of the company's common stock on the grant date.

The deadline is rapidly approaching for amending nonqualified deferred compensation plans subject to Internal Revenue Code Section 409A to reflect certain transition relief provisions provided by IRS Notice 2005 1. If your plan has taken advantage of any of the following forms of transition relief, it must be amended by December 31, 2005.

The new compliance and disclosure requirements for internal control over financial reporting enacted by the SEC under Section 404 of the Sarbanes-Oxley Act of 2002 disproportionately burden smaller public companies because of the relatively fixed cost of designing effective controls and demonstrating they are in place. Recognizing this disparity, the SEC has sought guidance on how smaller companies can effectively implement and test their internal controls and on whether and how Section 404 requirements and deadlines should be revised for smaller companies.

In the first case to directly address the question, a federal district court has held that private parties have no right to enforce Section 304 of the Sarbanes-Oxley Act of 2002. Neer v. Pelino, No. 04-CV-04791-SD (E.D. Pa. Sept. 27, 2005). Instead, the court held that only the SEC can enforce Section 304.

The IRS has issued proposed regulations that expand the guidance available for complying with the deferred compensation tax rules of Section 409A of the Internal Revenue Code. Section 409A generally provides that amounts deferred under a nonqualified deferred compensation plan are currently includible in income if not subject to a substantial risk of forfeiture, unless the plan meets specified design and operational requirements. Failure to comply can result in significant federal income tax consequences, including a 20% additional tax.

A judge in the U.S. District Court for the Southern District of New York recently dismissed the SEC's first Regulation FD enforcement action to be tested in federal courts. In dismissing the action against Siebel Systems and two of its officers, the Court took the SEC to task for its overly aggressive enforcement of Regulation FD.

The SEC recently approved final rules that significantly modify the registration, communications and offering processes under the Securities Act of 1933, as amended. The new rules will be effective December 1, 2005. The most significant changes include:

In early August 2005, the Delaware Court of Chancery issued its opinion after a widely publicized three-month trial in In re The Walt Disney Company Derivative Litigation, absolving Disney's directors of liability in connection with the 1995-1996 hiring and firing of former Disney president Michael Ovitz. Ovitz received a severance package of approximately $140 million after his unsuccessful 14-month tenure at Disney.

The Securities and Exchange Commission recently amended Rules 16b-3 and 16b-7 under the Securities Exchange Act of 1934, to clarify that Rule 16b-3 may be relied on to exempt officer and director securities transactions from Section 16(b) short-swing profit recovery, even if the transactions are not compensatory in nature, and Rule 16b-7 may be relied on to exempt stock reclassifications, even if they involve securities with different risk characteristics or change the percentage ownership of the holders.

In a decision that broadens the right to a jury trial for parties in California, the California Supreme Court recently held that California courts cannot enforce predispute waivers of the right to a jury trial . The case, Grafton Partners L.P. v. Superior Court, No. S123344 (Cal. Aug. 4, 2005), applies retrospectively to all existing contracts governed by California law and will significantly affect dispute resolution efforts by parties to such contracts.

In a unanimous decision, the U.S. Supreme Court recently reversed Arthur Andersen's criminal conviction for violating a federal witness tampering statute by encouraging its employees to shred Enron documents pursuant to a document retention policy. Arthur Andersen LLP v. United States, 125 S. Ct. 2129, 2005 WL 1262915 (U.S. May 31, 2005). In doing so, the Supreme Court avoided direct evaluation of the conduct that led to the accounting firm's conviction.

The Delaware Court of Chancery recently rejected as inadequate a proposed settlement in a derivative action brought against directors and officers of the Fairchild Corporation. This Update highlights the key issues in the Court's rejection and offers practical guidance.

The SEC recently approved new rules adopted by the New York Stock Exchange and National Association of Securities Dealers to limit conflicts of interest between the selling and research arms of investment banks. Under these rules, research analysts at investment banks may not participate in road show meetings relating to an investment banking services transaction or communicate with current or prospective customers while investment banking personnel or company management is present.

The Staff of the Securities and Exchange Commission, the SEC itself and the Public Company Accounting Oversight Board (PCAOB) each issued separate statements last week with guidance for companies implementing Section 404 of the Sarbanes-Oxley Act of 2002. This Update highlights some of the key concepts emphasized by the SEC and the PCAOB in last week's guidance and provides practical advice.

Attorneys in the Perkins Coie Corporate Finance Group recently authored an article titled "Advising the Board of Directors in Acquiring a Business" that was published in Insights: the Corporate & Securities Law Advisor. Authorizing significant acquisitions can create legal risks for directors, and directors who authorize acquisitions that prove unsuccessful can be subject to litigation.

The pattern is familiar. A public company makes some positive announcements about a product. After some time passes, the company announces bad news about the product, leading to a decline in the stock price.

The SEC has adopted a new rule that delays required stock option and other share plan expensing under the Financial Accounting Standards Board's Statement of Financial Accounting Standards No. 123 (revised 2004), Share-Based Payment (FAS 123R), for most public companies until their first fiscal year beginning after June 15, 2005; the compliance date for small business issuers is their first fiscal year beginning after December 15, 2005.

In March 2005 the SEC announced its settlement of a Regulation FD enforcement action against Flowserve Corporation, the company's CEO and its director of investor relations (IR). In the Flowserve Regulation FD enforcement action, the SEC has, for the first time: Asserted that a company violated Regulation FD by affirming, as opposed to announcing changes to, previous earnings guidance; and Included enforcement against an IR professional.

The SEC is forming an Advisory Committee on Smaller Public Companies. The Committee will assess the effect of the Sarbanes-Oxley Act and other securities regulations on smaller public companies and will recommend appropriate changes to the SEC, based on the following objectives: protecting investors; examining whether the current regulations impose costs on smaller companies proportionate to their benefits; identifying methods to minimize costs and maximize benefits; and facilitating capital formation by smaller companies.

The SEC's Division of Corporation Finance has released a Staff Alert for companies completing their upcoming annual reports on Form 10-K that highlights existing requirements and reiterates previously articulated positions. Although the Staff Alert is not a rule, regulation or an official statement of the SEC, and was not approved by the Commission, it provides valuable insight into the staff's views on the annual reporting requirements and signals where the staff may focus attention.

The SEC has again extended the compliance dates for its "internal control" regulations implementing Section 404 of the Sarbanes-Oxley Act as they apply to non-accelerated filers (public equity float of less than $75 million) and foreign private issuers. Companies in these groups will now be required to comply with these requirements for the first time for fiscal years ending on or after July 15, 2006.

New York Stock Exchange listing standards require boards of listed companies to conduct self‑evaluations at least annually to determine whether the board and its committees are functioning effectively. Although Nasdaq Marketplace Rules are silent on board self‑evaluations, a growing number of companies are considering such evaluations as a matter of best practices.

What is a director's duty for corporate legal compliance? Recent amendments to the United States Organizational Sentencing Guidelines can help directors and their advisors answer that important question.

The Sarbanes-Oxley Act and recent changes in Securities and Exchange Commission and stock exchange requirements have imposed ever greater responsibilities on corporate directors. As these additional responsibilities expose directors to increasing risks, companies have struggled to attract and retain qualified candidates to serve as independent directors.

On December 20, 2004, the Treasury Department and the Internal Revenue Service issued Notice 2005-1 providing the first installment of guidance for the deferred compensation provisions of the American Jobs Creation Act of 2004, which are contained in new Section 409A of the Internal Revenue Code.

In late November 2004, Alan Beller attracted a packed audience of attentive securities lawyers, in-house company counsel and accountants attending the Federal Regulation of Securities Subcommittee meeting at the American Bar Association's Business Section Fall Meeting in Washington, D.C. The topic? The latest on current and emerging securities law developments.

The FASB has published FASB Statement No. 123 (revised 2004), Share-Based Payment, which requires that the compensation cost relating to stock options, stock appreciation rights, restricted stock or units, employee stock purchase plans and other share-based payment transactions, measured based on the fair value, be recognized in financial statements. FAS 123(R) replaces FAS 123, Accounting for Stock-Based Compensation, and supersedes APB 25, Accounting for Stock Issued to Employees.

The SEC has issued an exemptive order granting smaller accelerated filers up to an additional 45 days to include in their annual reports the management's report on internal control over financial reporting and the related auditor's report on management's assessment of internal control over financial reporting, both of which are required under SEC rules implementing Section 404 of the Sarbanes-Oxley Act of 2002. Although this postponement does not, for example, apply to Fortune 100 companies, like General Electric or Procter & Gamble, its practical effect will be to provide some additional time for many small- and mid-cap companies, including Nasdaq-listed technology and biotech companies, to complete management's assessment of internal control over financial reporting and for their auditors to complete their reports on management's assessment.

The Securities and Exchange Commission recently approved and made effective amendments to the New York Stock Exchange corporate governance standards, Section 303A of the NYSE Listed Company Manual, primarily to clarify standards that were adopted last year. This Update summarizes the amendments and offers practical guidance.

The SEC has postponed for one year the final phase-in period for acceleration of the due dates of quarterly and annual reports required to be filed under the Securities Exchange Act of 1934 by "accelerated filers." The SEC has also conformed requirements concerning financial statements contained in registration statements and proxy statements to apply the postponed phase-in period.

At an open meeting on October 26, 2004, the SEC announced proposals that would result in significant changes to the registered offering process under the Securities Act of 1933, as amended. The SEC proposed changes in three areas: communications related to registered securities offerings, liability timing issues and improved shelf registration processes. The SEC has not yet released the text of the proposed rules, which release will trigger commencement of the 75-day comment period.

The SEC release adopting the new Form 8-K rules (see our August 23, 2004 Update) also included revisions to Form 10-Q. Calendar-year companies preparing their first quarterly reports on Form 10-Q since the effectiveness of these new rules should be aware that the revisions have consequences relating to the voluntary reporting of information not otherwise required to be reported on Form 10-Q.

On October 22, 2004, President Bush signed into law the American Jobs Creation Act of 2004 (the "Act"). The Act partially restores the federal income tax deduction for state and local sales and use taxes that was eliminated by Congress in 1986.

California has enacted AB 1000, effective September 27, 2004, which amends California's Corporate Disclosure Act to clarify the requirements of the original Act and conforms many of its provisions to SEC reporting requirements for public companies. California adopted the original Act in the aftermath of Sarbanes-Oxley to require public companies doing business in California to file certain corporate data with the California Secretary of State's office.

Today, President Bush signed the American Jobs Creation Act of 2004 (H.R. 4520) into law. The $145 billion corporate tax package contains a range of international tax reforms, corporate tax breaks and tax incentives that are intended to make United States manufacturing, service and high-technology businesses and workers more competitive and productive both in the United States and abroad.

Congress recently approved the American Jobs Creation Act of 2004 (H.R. 4520), which includes provisions that impose significant new restrictions on deferred compensation. If these restrictions are not satisfied, deferred compensation amounts are taxable when vested and subject to tax penalties. President Bush is expected to sign the Act, but as of October 19th has not done so. This Update highlights the Act's key changes to deferred compensation requirements and offers practical guidance.

Businesses often turn to the United States Sentencing Guidelines for guidance in designing effective corporate compliance and ethics programs. The relevant parts of the guidelines, known as the Organizational Sentencing Guidelines, include detailed criteria for effective corporate compliance and ethics programs.

An SEC enforcement action against General Electric and an ongoing SEC investigation of Tyson Foods reflect increased SEC scrutiny of disclosure relating to executive compensation. This Update summarizes the enforcement action and the pending investigation and offers practical guidance.

In August 2004, the Internal Revenue Service issued final regulations relating to incentive stock options (ISOs). Although the final regulations are similar to the proposed ISO regulations published last year, the final regulations contain important guidance and changes relating to a number of issues affecting ISOs.

The Sarbanes-Oxley Act of 2002 ("Sarbanes-Oxley") is an assortment of reforms designed to protect investors by imposing financial reporting, disclosure and corporate governance requirements on public companies. Sarbanes-Oxley was enacted with Enron and WorldCom – two large public companies – in mind.

The Private Securities Litigation Reform Act of 1995 established a safe harbor for forward-looking statements. A company cannot be liable for making a forward-looking statement if, among other factors, the statement "is accompanied by meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the forward-looking statement."

Enron, WorldCom, and similar corporate failings were economic disasters. To the general public, and to Congress, they evidenced ethical lapses or failures of board oversight.

The SEC's recent amendments to Form 8-K, which are effective for reportable events that occur on or after August 23, 2004, expand the number of reportable events and accelerate the filing deadline for most items to four business days. For events that occur prior to August 23, 2004, companies should analyze their reporting obligations using prior Form 8-K and report information as required under that version of the form (although Form 8-Ks filed on or after August 23 must use the new item numbers, even if the information reported corresponds to the requirements of the prior Form 8-K).

In recent years there has been an upsurge in the number of stockholder derivative lawsuits. This type of lawsuit differs fundamentally from a securities class action.

The recent United States v. Manulife Financial Corporation case is an important reminder of the traps for the unwary under the "investment only" exemption under the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act). The case, which was recently settled by Manulife, shows how narrowly the antitrust enforcement agencies (the Federal Trade Commission and the U.S. Department of Justice) construe this exemption. Understanding the scope of the exemption is important as M&A activity continues to increase.

While the Securities and Exchange Commission and self-regulatory organizations like the stock exchanges and Nasdaq have been preoccupied over the past two years with disclosure and governance reforms mandated by the Sarbanes-Oxley Act of 2002, a recently adopted National Association of Securities Dealers rule, Rule 2790, is designed to help reform the initial public offering market, which is showing increasing signs of life. The new NASD rule generally prohibits NASD members from selling equity securities from IPOs to any account in which NASD members, broker-dealers or other "restricted persons" have a beneficial interest. Compliance with the rule became mandatory on March 23, 2004.

In the SEC's recent focus on the quality of management's discussion and analysis, or MD&A, disclosure, it has re-emphasized the need to identify and analyze material trends, demands, commitments, events and uncertainties that could impact a company's liquidity, financial condition or operating results. This disclosure, the SEC believes, is critical to understanding a company's reported financial information and the extent to which reported information is indicative of future results or financial condition.

The SEC has adopted amendments to Form 8-K in response to the "real time issuer disclosure" mandate in Section 409 of the Sarbanes-Oxley Act of 2002. Amended Form 8-K is intended to provide investors with more and faster disclosure of important corporate events.

On January 23, 2004, Chancellor Chandler of the Delaware Court of Chancery held that eBay directors may be liable for usurping a corporate opportunity. In this derivative action, eBay shareholders allege that certain of eBay's directors improperly received allocations of shares in hot IPOs being underwritten by Goldman Sachs in order to induce such eBay directors to steer business to Goldman Sachs.

The SEC is extending the compliance dates for its regulations relating to "internal control" rules implementing Section 404 of the Sarbanes-Oxley Act as they apply to selected groups of companies. As announced on February 24, 2004: Accelerated filers with fiscal years ending between June 14, 2004 and November 14, 2004 do not need to comply with these requirements for the current fiscal year, as they were previously required to do.

In response to an American Bar Association request for guidance, the SEC recently issued interpretive guidance and clarifications addressing equity compensation plan disclosure issues under Regulation S-K, Items 201(d) and 601(b). The SEC's interpretive guidance and clarifications included: Guidance on aggregation of narrative description and filing of non-shareholder-approved individual equity compensation arrangements; Treatment of a non-shareholder-approved amendment to add more securities to a shareholder-approved plan; Disclosure required for assumed equity compensation plans; and Proper location for the equity compensation plan information disclosure required by Item 201(d).

The stock market bubble and crash from 1998 to 2001 and the ongoing stream of corporate scandals like Enron, WorldCom and Tyco have put corporate governance under the microscope. The actions of business leaders are now at the lowest levels of trust and highest levels of scrutiny in recent memory.

Effective December 29, 2003, the Securities and Exchange Commission issued detailed interpretive guidance regarding disclosure in Management's Discussion and Analysis (MD&A), developed from the SEC's recent experiences, including enforcement actions and its 2002 review of the annual reports and MD&A disclosure of the Fortune 500 companies. We previously provided a checklist based on the SEC's preliminary review of those filings.

The SEC recently amended the stock repurchase safe harbor rule under Rule 10b-18 of the Securities Exchange Act of 1934, which provides an issuer with a safe harbor from liability for repurchases of its common stock if the issuer complies with the rule’s manner, timing, price and volume conditions. The amendments to Rule 10b-18 simplify and update the safe harbor provisions to reflect market changes that have developed since Rule 10b-18’s adoption in 1982, and require more rapid and regular disclosure of issuer repurchases.

Judges use the Federal Sentencing Guidelines to determine sentences for individuals and corporations convicted of federal crimes. Corporate managers and their advisors can use the Sentencing Guidelines to identify areas of risk, focus compliance programs and underscore to employees the consequences of improper behavior.

The Securities and Exchange Commission has proposed a highly controversial set of rules granting shareholders greater ability to nominate directors through a company's proxy process by requiring a company to include in its proxy materials information on director candidates nominated by eligible shareholders. Many commentators immediately criticized the proposed rules, citing the potential to turn annual meetings into contested elections, divert management's attention and corporate resources from the company's business, and allow special interest groups to elect directors who may not represent the best interests of all the company's shareholders.

Last week the SEC released final rules – effective January 1, 2004 – that require public companies to disclose nominating committee procedures and procedures for shareholder communications with directors. These new rules harmonize with the recently finalized NYSE and Nasdaq nominating committee requirements and represent the SEC's latest step in its ongoing effort to make board operations more transparent to shareholders.

The Securities and Exchange Commission recently approved the Nasdaq Stock Market's corporate governance rules, which finalize Nasdaq corporate governance proposals made over the last 18 months. The most significant changes from Nasdaq's most recent corporate governance rule proposals include: Amending the "bright line" tests for director independence, including: A narrower definition of "family member," and Expanded application of the relationships that preclude a finding of independence to apply not only to directors, but also to family members.

The Securities and Exchange Commission recently approved the New York Stock Exchange's corporate governance listing standards, which finalize NYSE corporate governance proposals made over the last 18 months. The most significant changes from NYSE's most recent proposal (in April 2003) include: Accelerating of the effectiveness dates relating to board and committee independence requirements.

Perkins Coie is pleased to announce the publication of the post-Sarbanes-Oxley second edition of The Public Company Handbook: A Corporate Governance and Disclosure Guide for Directors and Executives. Increasing Importance of Director Continuing Education We have designed this practical and easy-to-digest guide for directors and executives of public companies. This book has a particular relevance at a time when both the NYSE and Nasdaq, as part of their corporate governance initiatives, strongly encourage – some say mandate – continued director education.

Earlier this month, Allan Beller of the Securities and Exchange Commission and Mark Corallo of the Department of Justice announced that neither current reports on Forms 6-K and 8-K nor employee benefit plan reports on Form 11-K are required to include the certifications mandated by Section 906 of the Sarbanes-Oxley Act of 2002. This announcement was made via telephone interviews and teleconference, and we do not know whether or when this conclusion will be announced in writing.

On September 29, 2003, following a 16-month study, the SEC staff released a report containing recommendations for changing the regulatory framework of the largely unregulated hedge fund industry. The staff's recommendations are not likely to result in rulemaking that would materially affect a hedge fund's trading strategies, and the SEC has not yet established a time line for the rule proposal that will inevitably result.

In publishing responses to a series of frequently asked questions (FAQ), the SEC's Office of the Chief Accountant has provided guidance about pre-approval policies and other matters relating to the SEC's auditor independence rules adopted in January 2003. Those rules became effective in May 2003 and, among other things, require a company's audit committee to pre-approve all audit and non-audit services provided by the company's auditors.

The SEC has followed through on its promise to continue to focus enforcement efforts on Regulation FD and selective disclosure with its September 9, 2003 charges against Schering-Plough Corporation and its former CEO, Richard J. Kogan. In the most subtle of its FD enforcement actions, the SEC brought charges arising from both verbal and nonverbal selective disclosure of material, nonpublic information about Schering's earnings.

On August 8, 2003, the Securities and Exchange Commission (SEC) proposed changes to the proxy rules that would expand disclosure regarding (a) the nominating committee and the process of nominating directors and (b) the process by which shareholders are able to communicate with a company's board of directors. The proposals do not require substantive changes by a company with respect to its nomination or shareholder communication processes; rather the proposals require disclosure of the details of the processes.

On July 15, 2003, the Securities and Exchange Commission (SEC) released a report prepared by its Division of Corporation Finance recommending major changes to SEC proxy rules relating to the nomination and election of directors. For the first time, Corporation Finance is recommending that shareholders be provided access to company proxy materials to nominate directors.

The Securities and Exchange Commission (SEC) recently responded to a variety of Frequently Asked Questions (FAQ) regarding Regulation G and related rules (in effect since March 28, 2003).

On May 28, 2003, the Delaware Court of Chancery issued a ruling that could expose directors of The Walt Disney Company (Disney) to personal liability for asserted breaches of their fiduciary duties in the hiring and subsequent termination of Michael Ovitz as Disney president—decisions that resulted in an alleged $140 million payout for a year's work.

On June 5, 2003 the SEC released its final rules amending the certification requirements under Sections 302 and 906 of the Sarbanes-Oxley Act. These final rules require companies to include the Section 302 and Section 906 certifications as exhibits.

On June 5, 2003, the Securities and Exchange Commission (SEC) posted its final rules for management's report on "internal control over financial reporting" and the related "attestation" by the issuer's outside auditors. Of the many detailed features of Sarbanes-Oxley and its implementing rules, few strike non-accountants as more technical and obscure than those relating to "internal controls."

The Securities and Exchange Commission (SEC) voted at its open meeting on Tuesday to adopt final "internal control" rules implementing Section 404 of the Sarbanes-Oxley Act. The SEC also voted to adopt final rules regarding Section 302 and 906 certification of disclosures in periodic reports.

In early May, the Securities and Exchange Commission adopted final rules that require, no later than June 30, 2003:

The Sarbanes-Oxley Act of 2002 contains two very different provisions addressing corporate "whistleblowers." This Update describes both:

On April 4, 2003, the New York Stock Exchange (NYSE) amended and replaced its August 16, 2002 and March 12, 2003 proposed corporate governance listing standards. The SEC is currently soliciting comments on the proposed rules, which may become effective as early as mid-May 2003. Material changes include:

The SEC has adopted a final rule to implement the audit committee requirements of Section 301 of the Sarbanes-Oxley Act of 2002 (Sarbanes). The new Securities Exchange Act rule, Rule 10A-3, directs NYSE, Nasdaq and other national securities exchanges or associations (Exchanges) to require listed issuers to comply with audit committee requirements relating to:

The Nasdaq Stock Market recently issued several revised rule proposals regarding director independence, audit committee composition and function, and related corporate governance issues. This Update summarizes these proposals, which include only a few changes from the original rule proposals discussed in our October 18, 2002 Update.

The SEC's 2002 "Fortune 500" review of annual reports, coupled with our and our clients' recent 10-K filing season, indicates that the SEC will continue to focus on the following critical disclosure areas in the coming year's periodic reports:

On October 16, 2002, the former Big Five accounting firm, Arthur Andersen, LLP, received the maximum criminal penalties - a $500,000 fine and five years' probation - for destruction of documents relating to its client, Enron. Why should this concern you? All companies must and do destroy documents.

In January 2002, Nasdaq adopted a "pilot program" offering relief for noncompliance with minimum bid price requirements for continued listing on the Nasdaq SmallCap Market. The pilot program lengthens the compliance or "grace" periods for Nasdaq-listed issuers whose shares trade below $1 per share and face the possibility of delisting.

The New York Stock Exchange (NYSE) submitted amended and restated listing standards proposals relating to director independence to the Securities and Exchange Commission (SEC) on March 12, 2003. The amended and restated proposals:

The SEC recently proposed amendments that would require companies to provide the officer certifications under Sections 302 and 906 of the Sarbanes-Oxley Act of 2002 as exhibits to periodic reports. Importantly, the SEC also indicated that Section 906 certifications should be provided as exhibits to periodic reports pending the adoption of final rules.

The IRS has issued proposed regulations under Sections 721 and 704(b) of the Internal Revenue Code regarding the federal income tax treatment of noncompensatory options or warrants issued by a partnership. The proposed regulations generally provide that no gain or loss will be recognized by either the issuing partnership or the option holder on issuance or exercise of the option. This treatment is also applicable to convertible debt and convertible preferred equity of a partnership. The proposed regulations do not address the treatment of compensatory options issued by a partnership.

The Securities and Exchange Commission (SEC) has adopted final rules requiring public companies to include in Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A):

On January 7, 2003, President Bush, as part of his overall economic stimulus package, announced a proposal that would, among other things, exclude dividends from taxable income, (the "Proposal"). Following this announcement, on January 14, the Treasury Department published a summary fact sheet explaining the Proposal and highlighting how it would stimulate economic growth.

The SEC has adopted a final rule implementing Section 307 of the Sarbanes-Oxley Act of 2002. Section 307 directs the SEC to issue a rule addressing minimum ethical standards for attorneys who appear and practice before the SEC representing issuers.

In a substantial departure from its proposed "financial expert" definition, the SEC has adopted a more realistic final definition of "audit committee financial expert." The SEC final rules adopted pursuant to Sections 406 and 407 of the Sarbanes-Oxley Act of 2002 will require a public company to disclose, for fiscal years ending on or after July 15, 2003:

The Securities and Exchange Commission (SEC) has issued final rules for public companies' disclosure of non-GAAP financial measures. The new rules, which implement Sections 401(b) and 409 of the Sarbanes-Oxley Act, adopt new "Regulation G," and amendments to Regulation S-K and Form 8-K. Under these new rules a company must:

On January 28, 2003, the SEC published final rules implementing Section 306(a) of the Sarbanes-Oxley Act of 2002, which generally prohibits insider trading during pension plan blackout periods. These rules became effective on January 26, 2003; however, the requirement to file notices of blackout periods with the SEC on Form 8-K is not effective until 60 days after publication of the rules in the Federal Register. For blackout periods occurring between January 26, 2003 and February 25, 2003, reporting companies should furnish blackout notices to directors and executive officers as soon as reasonably practicable. Blackout notices are not required for currently effective blackout periods that started before January 26, 2003.

The IRS has issued temporary regulations that treat the merger of a target corporation into a wholly owned limited liability company (an "LLC") of an acquiring corporation as a tax-free reorganization described under Internal Revenue Code Section 368(a)(1)(A) (a "direct merger"), provided the shareholders of the target corporation receive stock in the acquiring corporation sufficient to satisfy the judicially created "continuity of interest" requirement. The new rules treat the transaction as if the target corporation merged directly into the acquiring corporation. In the past, there was considerable uncertainty as to whether this transaction would qualify as a tax-free reorganization, except in narrow circumstances.

Last week, the SEC released proposed rules to implement the audit committee independence and whistleblower provisions of Section 301 of the Sarbanes-Oxley Act of 2002. Sarbanes-Oxley (Sec. 301) requires the SEC to adopt final rules by April 26, 2003, directing all national securities exchanges and national securities associations ("SROs"), including NYSE and Nasdaq, to prohibit the listing of any security of an issuer that is not in compliance with the audit committee requirements set out in Section 301. The proposed rules cover:

The Securities and Exchange Commission has proposed rules that will require public companies' officers, directors and principal shareholders who are subject to Section 16(a) of the Securities Exchange Act of 1934 to electronically file their Forms 3, 4 and 5 beneficial ownership reports. The rules will also require public companies to post these reports on their Web sites.

The SEC recently proposed Rule 3a-8 under the Investment Company Act of 1940 (1940 Act), which would exempt certain bona fide research and development companies from investment company status under the 1940 Act. Proposed Rule 3a-8:

The Securities and Exchange Commission has proposed amendments to the timing, price and volume conditions of Rule 10b-18, the Exchange Act rule that governs public companies' repurchases of their common stock. The proposed changes provide companies with more flexibility in their stock buybacks, especially in times of extreme market disturbance.

The SEC has proposed a rule implementing Section 307 of the Sarbanes-Oxley Act of 2002. Section 307 directs the SEC to issue a rule addressing minimum ethical standards for attorneys who practice and appear before the SEC representing issuers.

The Securities and Exchange Commission announced on November 25, 2002, its first enforcement actions related to violations of Regulation FD. The SEC imposed cease-and-desist orders on Raytheon Company and its CFO, Siebel Systems, Inc., and Secure Computing Corporation and its CEO.

On November 4, 2002, the Securities and Exchange Commission proposed an amendment to Item 303 of Regulation S-K that would require a registrant to include in Management's Discussion and Analysis of Financial Condition and Results of Operations:

On November 5, 2002, the Securities and Exchange Commission (SEC) proposed new "Regulation G," as well as amendments to certain existing rules, that would require public companies to provide specific disclosure when releasing proforma or non-GAAP financial information, including reconciling that information to GAAP.

Section 306(a) of the Sarbanes-Oxley Act of 2002 prohibits insider trading during pension fund blackout periods. During an open meeting on October 30, 2002, the SEC discussed proposed rules clarifying the scope and operation of the statutory trading restrictions. The SEC then posted the proposed rules on its Web site on November 7, 2002, and will accept comments for 30 days following publication of the proposed rules in the Federal Register.

On September 28, 2002, Governor Gray Davis signed the California Corporate Disclosure Act (the "Disclosure Act"). The Disclosure Act becomes effective on January 1, 2003, and will require more frequent and, for public corporations, additional disclosure by California corporations and foreign corporations qualified to transact business in California.

NYSE and Nasdaq recently filed with the SEC final proposed rules (which the SEC has published for a brief comment period) that will require shareholder approval of most equity compensation plans and eliminate discretionary broker voting of proxies on these plans. The rules will be effective immediately upon SEC approval, which is expected as soon as mid to late November 2002.

On October 22, the SEC posted proposed rules to implement Sections 404, 406 and 407 of the Sarbanes-Oxley Act of 2002. The proposed rules cover:

What is the status of the SEC's June 17, 2002 8-K proposals? Have they been withdrawn? Overturned by the Sarbanes-Oxley Act of 2002? This Update answers those questions and summarizes Perkins Coie's comment letter to the Securities and Exchange Commission (SEC).

Last week the Nasdaq Stock Market delivered to the SEC several new and revised Nasdaq rule proposals, for publication in the Federal Register for public comment. These proposals reflect Nasdaq's continued response to the SEC's request made in February 2002 for corporate governance reform of Nasdaq listed companies.

Last week the SEC adopted final rules under Sections 302 and 403 of the Sarbanes-Oxley Act of 2002:

The Board of the New York Stock Exchange (NYSE) submitted its proposed final listing and corporate governance rules to the Securities and Exchange Commission (SEC) on August 16, 2002, following a two-month comment period in which NYSE received more than 300 comment letters. NYSE's Board largely adopted the final recommendations of its Corporate Accountability & Listing Standards Committee, with some refinements to reflect the Sarbanes-Oxley Act and comment letters received during the comment process.

This Perkins Coie LLP Update summarizes the impact of the Sarbanes-Oxley Act of 2002 on public company executive compensation and makes practical suggestions for complying with the Act. The following provisions of the Act affect executive compensation arrangements and benefits:

This Perkins Coie Update summarizes the requirements of Section 906 certification and provides practical recommendations regarding the manner of filing and form of the certification and the Section 906 certification process.

President Bush signed the Sarbanes-Oxley Act of 2002 into law on July 30, 2002, creating the most radical redesign of federal securities laws since the 1930s. Some provisions are effective immediately, while others will be effective as soon as the SEC adopts the relevant rules, which it must do within mandated time periods ranging from 30 days to one year. One of the two CEO/CFO certification requirements appears to be effective immediately, while the second CEO/CFO certification requirement will be effective no later than August 29, 2002.

The NASD, acting through its subsidiary, The Nasdaq Stock Market, Inc. ("Nasdaq"), recently filed a proposal with the Securities and Exchange Commission to transform the OTC Bulletin Board Service ("OTCBB") from a dealer-driven quotation service into a marketplace of listed stocks called the Bulletin Board Exchange ("BBX").

For the first time in 25 years, the Securities and Exchange Commission plans to significantly restructure Form 8-K. Under the SEC's June 17, 2002 proposal, a reporting company would be required to disclose many events on Form 8-K that currently are not required to be disclosed or are included only in annual or quarterly reports. If adopted, the new rules would require Form 8-K disclosure of the following events:

On May 10, 2002, the Securities and Exchange Commission (SEC) proposed an amendment to Regulation S-K that would require companies to add a new section, "Application of Critical Accounting Policies," to Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) included in annual reports, registration statements, and proxy and information statements. This new section would contain disclosure about:

This update is designed to help the owners of a "closely held" business facilitate its sale and increase the price they receive from its sale. By a "closely held" business, we mean a business owned by a relatively small number of people – often members of an extended family.

On March 19, 2002, a California Court of Appeal issued an opinion that could dramatically change pre-closing negotiations under California law. In Copeland v. Baskin Robbins U.S.A., the court ruled that "a contract to negotiate an agreement is distinguishable from a so-called 'agreement to agree' and can be formed and breached just like any other contract." The court also stated that the measure of damages in such cases is "not damages for the party's lost expectations under the prospective contract but damages caused by the injured party's reliance on the agreement to negotiate...[which] encompasses the plaintiff's out-of-pocket costs in conducting the negotiations. . . [and] may or may not include lost opportunity costs."

The Securities and Exchange Commission has adopted final rules requiring increased disclosure of a company's equity compensation plans, with a focus on heightened disclosure of nonshareholder-approved plans. Below is a summary of the new disclosure and filing requirements. The published release regarding the new rules can be found at the SEC Web site (http://www.sec.gov/rules/final/33-8048.htm).

On August 10, 2000, the Securities and Exchange Commission (SEC) adopted Regulation FD (Fair Disclosure) in order to promote the full and fair disclosure of information by issuers. Regulation FD, which will become effective on October 23, 2000, targets the perceived problem of "selective disclosure"--when a company makes material nonpublic information available to selected persons, such as securities analysts or institutional investors, who could be expected to trade on the basis of such information before the information is disclosed to the general public.