First Quarter 2013 U.S. Legal and Regulatory Developments
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CanadaChristopher J. CummingsAndrew J. FoleyAdam M. GivertzEdwin S. MaynardStephen C. Centa
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CanadaChristopher J. CummingsAndrew J. FoleyAdam M. GivertzEdwin S. MaynardStephen C. Centa
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April 16, 2013
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The following is a summary of significant U.S. legal and
regulatory developments during the first quarter of 2013 of
interest to Canadian companies and their advisors.
1.
SEC Clarifies Position on Corporate Communications through Social
Media.
On April 2, 2013, the Securities and Exchange Commission (the
"SEC") issued a Report of Investigation (the "Report") in
connection with an SEC enforcement inquiry into potential
violations of Regulation Fair Disclosure ("Regulation FD") by
Netflix CEO Reed Hastings. Hastings posted on his personal
Facebook page a congratulations to the company's content licensing
team for exceeding one billion monthly viewing hours for the first
time ever. At the time of the post, Netflix had not filed a Form
8-K or issued a press release disclosing this information. In
the Report, the SEC Staff (the "Staff") noted that issuer
communications through social media channels require careful
Regulation FD analysis comparable to communications through more
traditional channels. In light of the direct and immediate
communication from issuers to investors that is now possible
through social media channels such as Facebook and Twitter, the
Staff indicated that it expects issuers to examine rigorously the
factors indicating whether a particular channel is a "recognized
channel of distribution" for communicating with their
investors. We note that Regulation FD does not apply to
Canadian issuers that are "foreign private issuers," and we have
been advised that dissemination of material information through
social media would not satisfy Canadian requirements regarding
selective disclosure.
For a more detailed summary of the
SEC's Report, see the Paul, Weiss memorandum at: /media/1572841/3-apr-13_sec.pdf
For the SEC's Report, see:
2.
NYSE and Nasdaq Adopt New Compensation Committee Rule
Amendments.
As required by the Dodd-Frank Wall Street Reform and Consumer
Protection Act of 2010 and related SEC rules, the NYSE and Nasdaq
have adopted new listing standards related to compensation
committee independence and responsibilities. Both sets of rules
were adopted substantially as proposed. Most notably, while
the NYSE did not add any mandatory independence conditions for
compensation committee members, but rather specified factors that
boards must consider in determining compensation committee
independence, Nasdaq's corresponding independence requirements do
impose a new mandatory standard. Foreign private issuers that
follow their home country practice will be exempt from both the
NYSE and Nasdaq compensation committee independence requirements
but, if applicable, will be required to disclose the reasons why
they do not meet the applicable exchange's independence
requirements. A Canadian issuer that files an annual report
on Form 40-F or 10-K with the SEC may include such disclosure in
its annual report or on its website. A Canadian issuer that
files an annual report on Form 20-F must include the disclosure in
its annual report. Companies have until the earlier of (i)
their first annual meeting after January 15, 2014 and (ii) October
31, 2014 to comply with the new compensation committee member
independence requirements of both exchanges.
For a more detailed summary of the NYSE's and Nasdaq's new
compensation committee rules see the Paul, Weiss memoranda at: /media/1430123/28-jan-13-nyse.pdf and /media/1430126/28-jan-13-nas.pdf
respectively.
For NYSE's new compensation committee
rules, see ;jsessionid=108F2B636ECC5053FBC4A93725506F1F?file_no=SR-NYSE-2012-49&seqnum=5
and for Nasdaq's new rules see:
3.
Nasdaq Proposes New Listing Standard on Internal Audit
Function.
The SEC has issued a notice of a proposed new listing standard
filed by Nasdaq that would require that all companies listed on
Nasdaq establish and maintain an internal audit function. The
role of the new internal audit function would be to provide
management and the audit committee with ongoing assessments of the
company's risk management processes and system of internal control.
The proposal allows for the outsourcing of the internal audit
function to any third-party service provider other than the
company's independent auditor. The audit committee would have sole
responsibility to oversee the internal audit function, which
responsibility could not be delegated to any other committee of the
board. The audit committee would be required to meet periodically
to review the performance of the function, and it would also be
required to discuss with the outside auditor the internal audit
function's responsibilities, budget and staffing. The New
York Stock Exchange's ("NYSE") Listed Company Manual already
includes a comparable listing standard. Under both the NYSE
and Nasdaq listing standards, foreign private issuers may follow
their home country practices regarding the internal audit function
in lieu of complying with the listing standard, though they must
disclose significant differences between their corporate governance
practices and those followed by U.S. companies in the same manner
as discussed above. Companies listed on Nasdaq on or before
June 30, 2013, including foreign private issuers who might choose
to comply, would be required to comply with the proposed listing
standard by no later than December 31, 2013.
For a more detailed summary of the Nasdaq proposed new listing
standard, see the Paul, Weiss memorandum at: /media/1548626/18mar13sec.pdf
For the SEC release on the Nasdaq
proposed new listing standard see:
4.
FTC Announces New Antitrust Thresholds.
On January 24, 2012, the Federal Trade Commission ("FTC")
announced revised thresholds for determining when companies must
notify federal antitrust authorities about a transaction under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR
Act"). The HSR Act ensures that the FTC receives notice of
significant transactions before they occur for purposes of
antitrust review under the Clayton Antitrust Act of 1916, as
amended (the "Clayton Act"). For 2013, the threshold for
reporting proposed mergers and acquisitions subject to enforcement
under Section 7A of the Clayton Act has increased from US$68.2
million to US$70.9 million.
For more information on the FTC's new thresholds, see:
5.
U.S. Supreme Court Clarifies Scope of Five-Year Statute of
Limitations in SEC Enforcement Proceedings.
In Gabelli v. Securities and Exchange
Commission, the United States Supreme Court clarified that the
five-year statute of limitations applicable to SEC enforcement
actions that seek financial penalties begins to "accrue" when the
alleged violation occurs, not when the SEC discovers the
violation. The Supreme Court observed that the most natural
and historically accepted reading of the term "accrued" is based on
when the violation occurred, not when it is discovered and that
government enforcement efforts ought to have a "fixed date" when
exposure must end. Gabelli provides a significant
safeguard against the possibility of open-ended SEC enforcement
actions seeking a civil fine, penalty or forfeiture more than five
years after the relevant conduct occurred. However,
Gabelli does not directly govern claims for disgorgement
or injunctions and leaves unsettled whether proceedings seeking
equitable relief will be subject to the five-year limitations
period. Gabelli also does not apply to securities
actions brought by private plaintiffs.
For a more detailed summary of
Gabelli, see the Paul, Weiss memorandum at: /media/1521307/28feb13_gabelli.pdf
6.
Board Enjoined from Impeding Consent Solicitation Until It Approves
Insurgent Slate for Purposes of Credit Agreement.
In Kallick v. SandRidge Energy, Inc., the
Delaware Court of Chancery enjoined the incumbent board of
SandRidge Energy (which faced a consent solicitation initiated by a
large stockholder seeking to de-stagger and replace the board)
from, among other things, soliciting against or otherwise impeding
the consent solicitation until the board approved the rival
slate. The incumbent board resisted the consent solicitation,
claiming that the rival slate was less qualified than the
incumbents to run the company and warning stockholders that,
because the slate had not been approved by the incumbent board, the
election of the rival slate would constitute a change-of-control
for purposes of SandRidge's credit agreements and would trigger the
lenders' right to put $4.3 billion worth of notes back to the
company (the "Proxy Put"). However, the court determined that
because the incumbent board could not identify a specific and
substantial risk to the corporation or its creditors posed by the
rival slate, the board was required by its duty of loyalty to
approve the proposed slate (and thereby avoid the Proxy Put), even
if it believed itself to be better qualified and to have better
plans for the corporation. The Kallick decision,
along with the Court of Chancery's earlier decision in San
Antonio Fire & Police Pension Fund v. Amylin
Pharmaceuticals, confirm that corporations, as a matter of
process, should carefully consider and review whether proxy put and
other similar change-of-control provisions in credit agreements and
indentures are truly in the best interests of the stockholders.
For a more detailed summary of Kallick v. SandRidge
Energy, Inc., see the Paul, Weiss memorandum at: /media/1541583/11mar13del.pdf
7.
Paul, Weiss Attorneys Argue Historic Same-Sex Marriage Case Before
the United States Supreme Court.
On March 26 and 27, 2013, the United States Supreme Court heard
oral arguments in Perry v. Brown, challenging the
constitutionality of a 2008 California ballot proposition
("Proposition 8") which amended the California Constitution to
provide that "only marriage between a man and a woman is valid or
recognized in California" and in U.S. v. Windsor,
challenging the definition of marriage in the federal Defense of
Marriage Act ("DOMA") as "a legal union between one man and one
woman as husband and wife." In the Second and Ninth Circuit
Courts of Appeals respectively, both Proposition 8 and DOMA were
found unconstitutional under the Equal Protection Clauses of the
Fifth and Fourteenth Amendments to the United States
Constitution. The cases were subsequently appealed to the
Supreme Court. Paul, Weiss partner Roberta Kaplan argued the
DOMA case on behalf of Edith Windsor who, on account of the
definition of marriage in DOMA, was obligated to pay substantial
estate taxes following the death of her spouse, Thea Speyer, solely
because Ms. Speyer was a woman and not a man. Ms. Windsor
married Ms. Speyer in Toronto at a time when same-sex couples could
not be wed in New York. The Supreme Court is expected to
issue its decision in both Perry v. Brown and
U.S. v. Windsor in the coming months.
Continuing in the firm's fine tradition of pathbreaking pro bono
work, Paul, Weiss is very proud to represent Ms. Windsor in
this matter of historic social and legal importance.
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This memorandum is not intended to provide legal advice, and no
legal or business decision should be based on its content.
Questions concerning issues addressed in this memorandum should be
directed to:
Brad Goldberg contributed to this client
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