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Are You Sure You’re S-3 Eligible? A Reminder to Disclose the Board’s Decision Regarding Frequency of Say-on-Pay Vote on Form 8-K

Though most reporting companies conducted their first say-on-pay vote in 2011 and disclosed the shareholder voting results on Form 8-K, some companies overlooked the additional requirement to disclose the board of directors’ decision (in light of the shareholders’ advisory vote) regarding the frequency that the company will conduct say-on-pay votes. A company’s failure to file this Form 8-K regarding the board’s decision on the say-on-pay vote frequency could result in the company being an untimely filer and ineligible to use Form S-3. Fortunately, the SEC staff indicated in its 2012 “SEC Speaks” conference that it will likely grant waivers to companies if:

  1. they file an amended Form 8-K indicating the board’s decision on the say-on-pay vote frequency; and
  2. the board’s decision on say-on-pay vote frequency followed the shareholder’s recommendation.

However, anecdotal conversations with the SEC staff have indicated that:

  • waivers are not always granted;
  • the board’s decision on say-on-pay vote frequency must match the board’s recommendation in addition to matching the shareholder’s recommendation for a waiver to be granted; and
  • the SEC does not intend to grant waivers forever.

ISS Issues 2013 Draft Policies for Comment

Institutional Shareholder Services Inc. ("ISS") issued its 2013 Draft Policies for review and comment.  These draft policies are intended to update ISS’ benchmark proxy voting guidelines.  The draft policies that have been provided for comment include the following topics:

All comments to the 2013 Draft Policies should be sent to ISS no later than October 31, 2012.…

Federal Judge in Oregon Upholds Dismissal of “Say-on-Pay” Lawsuit Against Umpqua Board

In an Opinion and Order dated February 23, 2012, Judge Michael Mosman adopted the January 11, 2012 Findings and Recommendations of Magistrate Judge John Acosta to dismiss the derivative lawsuit against the Board of Directors of Umpqua Holdings Corporation ("Umpqua") for breach of fiduciary duty. Magistrate Judge Acosta recommendation to dismiss the say-on-pay" lawsuit was the first of its kind. Judge Mosman agreed that plaintiffs’ failure to make a presuit demand was not excused under the arguments they raised regarding the Board members’ exercise of the business judgment rule or their lack of independence or disinterest. Plaintiffs have until March 26, 2012 to amend their complaint.…

Federal Magistrate Judge in Oregon Recommends Dismissing “Say-on-Pay” Lawsuit Against Umpqua Board

On January 11, 2012, Magistrate Judge John Acosta recommended the dismissal of the derivative lawsuit against the Board of Directors of Umpqua Holdings Corporation ("Umpqua") for breach of fiduciary duty. The lawsuit was filed after the shareholders, in an advisory vote, rejected the Board-approved executive compensation program. The Magistrate Judge found that the plaintiffs failed to make a presuit demand as required for a derivative suit and were not excused from doing so under the arguments they raised regarding the Board members’ exercise of the business judgment rule or their lack of independence or disinterest. As Broc Romanek of theCorporateCounsel.Net Blog pointed out, "[t]his is the first federal court decision to dismiss such an action." Magistrate Judge Acosta has referred his Findings and Recommendations to District Judge Michael W. Mosman for review and final determination.…

Ohio Federal Judge Allows Say-on-Pay Lawsuit to Proceed

In a September 20, 2011 Opinion, Judge Timothy Black of the Southern District of Ohio ruled that a lawsuit brought against senior executives and directors of Cincinnati Bell, Inc. alleging a breach of fiduciary duty regarding compensation would be allowed to proceed. The lawsuit focuses on the "say-on-pay" provisions of the Dodd-Frank Act: specifically, attacking the Board’s decision to increase 2010 executive compensation in light of the nonbinding vote by 66% of the voting shareholders to reject that increase. Although the defendants argued that they are entitled to rely upon the business judgment rule in proceeding with the increase in compensation, the Court held that the issue of whether defendants properly exercised that judgment or, as plaintiff claimed, acted with deliberate intent to injure the company (or reckless disregard for the company) would be an issue based on the evidence (at trial or summary judgment) and not decided at the pleading stage.…

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