I n an effort to enhance the transparency of the The new disclosure - PDF document

G Corporate Finance Alert December 9, 2003 SEC Adopts New Disclosure Requirements Regarding Nominating Committees and Communications Between Shareholders and Boards of Directors By Peter H. Ehrenberg, Esq. and Mathew B. Hoffman, Esq. I n an effort to enhance the transparency of the The new disclosure requirements also expand operations of boards of directors of public current proxy statement disclosures to include the companies, the SEC has adopted new disclosure following information regarding an issuer’s director requirements regarding the operation of board nomination process: nominating committees and the means by which · shareholders may communicate with directors. A statement as to whether or not the nominating committee of the issuer has a These disclosure requirements become effective charter. If the nominating committee has a January 1, 2004. Issuers must comply with these charter, disclosure as to whether or not a disclosure requirements in proxy or information current copy of the charter is available on the statements relating to the election of directors that issuer’s website and, if available, the issuer’s are first sent to shareholders on or after January 1, website address. If the nominating 2004, and, with respect to certain related committee has a charter but a current copy is disclosures, in Forms 10-K and 10-Q for the first not available on the issuer’s website, the reporting period ending after January 1, 2004. charter must be included as an appendix to the issuer’s proxy statement at least once Nominating Committee Disclosures every three years. If a current copy of the The SEC’s proxy rules have, for years, required charter is not available on the issuer’s website issuers to disclose whether they have standing and is not included as an appendix to the nominating committees. The new disclosure rules issuer’s proxy statement, the issuer must require issuers that do not have a standing disclose the prior fiscal year in which the nominating committee to include in their proxy charter was attached as an appendix. · statements a statement setting forth an explanation If the issuer’s securities are listed on a as to why their boards believe it is appropriate not national securities exchange or on an to have a nominating committee and to identify automated inter-dealer quotation system each director who participates in the consideration (such as NASDAQ) that has independence of director nominees. requirements for nominating committee members, disclosure as to whether members This document is published by Lowenstein Sandler PC to keep clients and friends informed about current issues. It is intended to provide general information only. L Roseland, New Jersey Telephone 973.597.2500 65 Livingston Avenue www.lowenstein.com 07068-1791 Fax 973.597.2400

G · of the nominating committee are With regard to nominees approved by the independent, as defined in the listing nominating committee for inclusion on the standards applicable to the issuer. · issuer’s proxy card (other than nominees who If the issuer’s securities are not so listed, are executive officers of the issuer or disclosure as to whether the members of the incumbent directors), a statement as to which nominating committee are independent, one or more of the following categories of based on a definition of independence of a persons or entities recommended that national securities exchange or national nominee: shareholder, non-management securities association, and disclosure of the director, chief executive officer, other definition of independence used by the issuer. executive officer, third-party search firm, or · other specified source. A statement as to whether or not the · nominating committee has a policy with If the issuer pays a fee to any third party to regard to the consideration of any director identify or evaluate potential director candidates recommended by shareholders. If nominees, disclosure of the role performed by the nominating committee has such a policy, any such third party. · the proxy statement disclosure must include a Disclosure of (i) director recommendations description of the material elements of such made by a shareholder or group of policy and a description of the procedures to shareholders that, individually or in the be followed by shareholders in submitting aggregate, beneficially own, as of the date of such recommendations. If the nominating such recommendation and for the preceding committee does not have such a policy, an twelve month period, greater than 5% of the explanation as to why the issuer does not have issuer’s voting common stock; (ii) the identity such a policy. · of the shareholder or shareholder group that A description of any specific, minimum made such a recommendation; and (iii) qualifications that the nominating committee whether or not the nominating committee believes must be met by a nominating chose to nominate the director candidate. committee-recommended nominee, and a description of any specific qualities or skills Any material changes to an issuer’s previously that the nominating committee believes are disclosed procedures for shareholders to necessary for the issuer’s directors to possess. · recommend director nominees to the board are A description of the nominating committee’s required to be disclosed in an issuer’s Form 10-Q or, process for identifying and evaluating if any material change is implemented during the nominees for director, and the differences, if last quarter of an issuer’s fiscal year, in an issuer’s any, in the manner in which the nominating Form 10-K. The initial adoption by an issuer of committee evaluates nominees based on such procedures will constitute a material change whether the nominees are recommended by and require disclosure in an issuer’s Form 10-Q or shareholders of the issuer. Form 10-K, as applicable.

G Disclosure Regarding The SEC specifically acknowledged that the Shareholder Communications current disclosure requirements with regard to The SEC has decided to require issuers to shareholder proposals submitted pursuant to Rule 14a-8 of the Exchange Act are adequate. include in their proxy statements a statement as to Accordingly, shareholder proposals submitted whether or not their boards have a process for shareholders to follow in sending communications pursuant to Rule 14a-8 of the Exchange Act are expressly excluded from the new disclosure to the board. If the issuer has such a process, the requirements adopted by the SEC. proxy statement must disclose the manner in which shareholders can send communications to the board and, if applicable, to specified directors For more information about the new SEC disclosure and, if all shareholder communications are not rules regarding nominating committees and shareholder forwarded to the board, a description of the issuer’s communications or other recent securities law changes process for determining which communications or corporate governance reform measures, please will be forwarded to the board. If the issuer does contact Peter H. Ehrenberg, Member of the Firm and not have such a process, the proxy statement must Chairman of Lowenstein Sandler’s Corporate include an explanation as to why the board Department and M&A and Corporate Finance believes it is appropriate not to have such a Practice Group, or Mathew B. Hoffman, associate and process. a member of the M&A and Corporate Finance Practice Group, at 973.597.2500. The issuer is also required to disclose in its proxy statement the issuer’s policy, if any, with regard to board members’ attendance at annual meetings and the number of board members who attended the prior year’s annual meeting. In lieu of describing in the proxy statement the means by which shareholders may communicate with the board, the manner in which the issuer determines those communications that will be forwarded to the board, the issuer’s policy regarding attendance at annual meetings and the number of directors who attended the prior year’s annual meeting, the issuer may disclose such items on its website, provided that the issuer discloses in its proxy statement the website address where such information may be found.