Helping Clients Access the Capital Markets and Stay Apprised of Regulatory Developments

Exchanges Extend Clawback Policy Deadline to December 1

Last week, each of the major stock exchanges filed proposed changes to their listing rules governing the adoption of “clawback” policies that will require listed companies to recover erroneously awarded compensation paid to executive officers in the event of a financial statement restatement. The SEC approved these rule changes (including those of the NYSE, Nasdaq and NYSE American) on an accelerated basis on Friday, June 9, 2023. The effect of these changes is to make the effective date of the rules October 2, 2023, giving listed companies until 60 days later, or December 1, 2023, to adopt compliant policies.

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M&A Broker Exemption Update‎

We are updating our March 6, 2023 QuickStudy that discussed the new statutory exemption ‎under section 15(b)(13) of the Securities Exchange Act of 1934 from broker registration that ‎allows unregistered M&A advisers to provide M&A advice and services in certain smaller ‎transactions. As anticipated in our QuickStudy, on March 29, the SEC announced that it ‎revoked the 2014 no-action letter that allowed similar activities by unregistered M&A advisers ‎without the limitations under the statutory exemption.‎

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SEC Adopts Revised Stock Buyback Disclosure Requirements

On May 3, 2023, the SEC adopted‎ final rules relating to corporate stock buybacks. The new rules have some significant differences from ‎those the SEC proposed in December 2021. While the new rules do require significantly greater ‎detail about daily stock repurchases in Inline XBRL format, they will only require filing of that ‎information quarterly, in a new exhibit to the company’s Form 10-K and Form 10-Q filings.‎

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Updating Clawback Policies

The public comment period for the new NYSE and Nasdaq listing standards requiring public ‎companies to have expanded clawback policies ended on April 3, 2023. The new standards will ‎require listed companies to have clawback policies that provide for the recovery of excess ‎incentive-based compensation of current and former executive officers upon the restatement of ‎the company’s financial statements for any reason (currently recovery of compensation is only ‎required from the CEO and CFO when there is company misconduct). ‎

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Further Update on Validating Defective Corporate Actions

Following our February 24 post, we learned that representatives of accounting firms sought advice from the SEC on whether they can rely solely on Section 205 Orders to confirm valid issuance of outstanding shares as to which there is uncertainty. We understand that they were informed by the SEC Chief Accountant that a Section 205 Order would not be sufficient and that they should request an opinion of counsel as to the shares being valid as of the time of their issuance.

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Update on Validating Defective Corporate Action

On February 14, we reported that a number of Delaware corporations, mostly those resulting from deSPAC transactions, have petitioned the Court of Chancery to validate their increases in authorized shares and other corporate actions due to their failure to seek, and in many cases to obtain, the class vote that the Court of Chancery held in Garfield v. Boxed, Inc.[1] was required by DGCL section 242(b)(2).

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Defective Corporate Action by Delaware Corporations ‎ with Multiple Classes of Common Stock

A number of Delaware corporations with two or more classes of common stock, especially SPACs (special purpose acquisition companies) that have completed deSPAC transactions, are discovering that they may not have properly approved charter amendments that increased their authorized shares of common stock. In Garfield v. Boxed, Inc. (Del. Ch. Dec. 22, 2022), the Delaware Court of Chancery ruled that under section 242(b)(2) of the Delaware General Corporation Law (DGCL) a SPAC with Class A and Class B Common Stock needed to have a separate Class A vote on a charter amendment that increased its authorized shares of Class A Common Stock. A Class A stockholder raised the issue before the stockholder vote and in response the company added a separate Class A vote.  The court decided that the stockholder added a substantial benefit by raising the issue, so its attorney was entitled to a fee award.

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Electronic Form 144 Filings: Reminder of April 13th Deadline

As April 13th approaches, in-house counsel at public companies should prepare for the electronic Form 144 filing requirement beginning on that date.  Form 144 is the filing that officers and directors of public companies file under Rule 144 when they sell shares of their company’s stock (other than pursuant to a resale registration statement or for sales at or under 5,000 shares and $50,000 in value).

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