As summarized in Stinson Leonard Street Partner and Society member Steve Quinlivan's blog, on Friday, the SEC approved on an accelerated basis Nasdaq's proposed golden leash disclosure rule as modified and superseded by this Amendment No. 2, which Nasdaq filed on June 30th. The SEC's Order and Nasdaq's July 1st letter to the SEC address the Society's supportive comment letter filed last week (first announced here).
Among the clarifications in Amendment No. 2 are these:
- Required disclosure is limited to the material terms of agreements or arrangements relating to compensation and payments in connection with a person’s board service or candidacy.
- Disclosure must be made no later than the date on which the relevant company files or furnishes a definitive proxy or information statement.
- Website disclosure through a hyperlink to another website is permitted, provided that the other website is continuously accessible.
- Initial disclosure of newly entered into agreements or arrangements is not separately required, provided that disclosure is made pursuant to the rule for the next shareholders’ meeting at which directors are elected.
- The disclosure requirement encompasses non-cash compensation and other forms of payment obligations (e.g., indemnification arrangements).
- Companies must make the required disclosure at least annually.
- Remedial disclosures (when a company newly discovers an agreement that should have been disclosed) don't satisfy the annual disclosure requirements.
- A company that provides disclosure in the current fiscal year per Item 5.02(d)(2) of Form 8-K isn't required to make separate disclosure under the rule, although disclosure under SEC rules doesn't satisfy the new Nasdaq rule's ongoing annual disclosure requirement.
- If a company provides disclosure in a definitive proxy or information statement (including to satisfy the SEC's proxy disclosure requirements) sufficient to comply with Nasdaq's rule, the company’s obligation to satisfy the rule is fulfilled regardless of the reason the disclosure was made.
As previously reported,
the proposal includes a "safe harbor" such that companies won't be
deemed deficient with the disclosure requirement if they have
undertaken reasonable efforts, e.g., via appropriate inquiry in the
D&O questionnaire, to identify all covered compensation agreements
and arrangements:
5250. Obligations for Companies Listed on The Nasdaq Stock Market
(b) Obligation to Make Public Disclosure
(3) Disclosure of Third Party Director and Nominee Compensation
(D) A Company shall not be considered deficient with respect to this
paragraph for purposes of Rule 5810 if the Company has undertaken
reasonable efforts to identify all such agreements or arrangements,
including asking each director or nominee in a manner designed to allow
timely disclosure, and makes the disclosure required by subparagraph (C)
promptly upon discovery of the agreement or arrangement. In all other
cases, the Company must submit a plan sufficient to satisfy Nasdaq staff
that the Company has adopted processes and procedures designed to
identify and disclose relevant agreements or arrangements.
Note that the amendment also revised the effective date of the rule to thirty days after SEC approval, which Nasdaq believed would provide most companies with a natural compliance transition period before their next proxy season. Nasdaq will notify listed companies of the effective date.