Investor Relations Agreement - PowerPoint

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					  Regulation FD in Light of New
Disclosure Control and Procedure
              Rules


          September_2004
            The Legal Framework in General

    Regulation FD proscribes selective disclosure by issuers
    of publicly traded securities of material, non-public
    information to securities analysts, institutional
    investors, stockholders and others before such
    information is made generally available to the public.
    Rule 13a-15 requires a company to have adequate
    disclosure controls and procedures in place which
    ensure that information that should be included in any
    required SEC report is processed correctly and on a
    timely basis.




1
    Recent SEC Proceedings/Litigation for FD
    Violations:
      • SEC v. Siebel Systems, Inc. (2004): SEC alleges that chief
        financial officer and investor relations director made statements
        at an investor relations conference that gave a more positive
        view of the company’s prospects than previously disclosed to the
        public, and failed to publicly disclose the statements promptly
        after they were made. Two executives and the general counsel
        knew of the statements, and of the resulting increased trading
        volume and price of Siebel stock. The senior Siebel executive in
        charge of Regulation FD compliance had not received any formal
        training on Regulation FD. The SEC has filed suit, and the case is
        ongoing.
         • Includes allegation of Rule 13a-15 violation: failure to maintain
           adequate disclosure controls and procedures.




2
    Recent SEC Proceedings/Litigation for FD
    Violations (cont’d):
      • SEC v. Shering Plough Corp. (2002): SEC finds that Chairman and
        CEO and Senior Vice-President of investor relations violated
        Regulation FD when they met privately with analysts and
        portfolio managers and told them in a downbeat manner that the
        analysts’ estimates for the ongoing quarter were too high and
        that earnings would decline the following year. Analysts
        downgraded Shering and sold. The price of Shering’s stock
        decreased by 17% and trading volume increased. This proceeding
        demonstrates that nonverbal communications, such as downbeat
        demeanor and negative tone, may violate Regulation FD.




3
    Recent SEC Proceedings/Litigation for FD
    Violations: (cont’d)
    • Secure Computing (2002): Secure Computing Corporation entered
      into an OEM agreement with a large customer, but the large
      customer would not consent to a press release on the agreement
      until the Secure product being integrated into the large
      customer’s product sold with positive customer feedback. Both
      Secure and the large customer put information regarding the
      product on their websites, but the identity of the large customer
      was not disclosed. Secure’s CEO disclosed the large customer’s
      name during a conference call with a portfolio manager at an
      investment advisory firm, and again the next day to four
      institutional investors. Secure did not get a confidentiality
      agreement from all the parties who were told the name of the
      large customer, or issue a press release on the OEM agreement
      until close of market on the day following the initial disclosure.
      The SEC found both disclosures violated Regulation FD.




4
    Recent SEC Proceedings/Litigation for FD
    Violations: (cont’d)
    • Motorola Inc. (2001): In a press release, Motorola announced that
      it thought its sales and earnings guidance were high because of
      “significant” weakness in orders, which caused analysts to reduce
      their estimates. Motorola thought analyst estimates should be
      even lower, and the Motorola IR director, after consulting with
      counsel, made calls to more than 10 analysts stating that
      “significant” means “25% or more.” The SEC did not bring an
      enforcement action, in part because Motorola relied upon the
      advice of counsel. This action demonstrates that quantitative
      information to clarify a qualitative term may be considered
      material, non-public information.
       • Mosaic Theory: disclosure of non-material information to an analyst is
         permissible, even if the information, together with other information, is
         material. Care must be taken to not use code words to disclose
         material, non-public information.




5
    Recent SEC Proceedings/Litigation for FD
    Violations: (cont’d)
    • Siebel Systems (2001): SEC finds that remarks in the fourth
      quarter of 2001, at an invitation-only investor conference with
      brokers and institutional investors present, regarding
      improvement in the software market violate Regulation FD.
      During his last public speech before the conference, CEO had said
      the market was “exceptionally soft” and things would remain
      “quite tough.” The CEO’s remarks deviated from the script
      prepared by the company’s IR person. This action demonstrates
      that macroeconomic information about a company’s market may
      be considered material, non-public information.
    • Raytheon Co. (2001): SEC finds that CFO intentionally disclosed
      material, non-public information regarding quarterly and semi-
      annual company earnings in one-on-one conferences with eleven
      analysts, who lowered earnings expectations consensus for the
      company by approximately 13% following the calls. Company
      public conference call included guidance on annual per share
      earnings only.


6
             Regulation FD – Selective Disclosure
    The Regulatory Framework – Effective October 23, 2000
      • General Rule: Whenever
        • A company or person acting on behalf of a company
           – Includes senior management, investor relations professionals and others who
             regularly interact with securities market professionals or company security holders
        • Discloses material, non-public information
           – Substantial likelihood that a reasonable person would consider the information
             important in making an investment decision
           – Information significantly alters the “total mix” of information made available
        • To certain persons outside the company
           – Persons reasonably expected to trade company securities
           – Examples: broker-dealers, investment advisors, hedge funds, company stockholders
        • The company must make public disclosure of the same information (posting
          on website is not sufficient – consider Form 8-K or press release)
           – Simultaneously for intentional disclosures (disclosure made to person outside the
             Company with intent or in a manner where it is reckless to not know that the
             information being disclosed is both material and non-public)
           – Promptly for non-intentional disclosures (promptly means within the later of 24 hours
             or upon commencement of the next day’s trading)




7
                Disclosure Controls and Procedures
                    The Regulatory Framework

    • Companies must maintain disclosure controls and procedures
       • Maintain adequate controls and other procedures designed to ensure that
         information required to be disclosed by the company in reports and filings is
         recorded, processed, summarized and reported within the time periods
         required under the SEC rules
       • Include controls and procedures designed to ensure that information required
         to be disclosed is accumulated and communicated to the company’s
         management (includes principal executive and financial officers) in a manner
         that allows timely decisions on required disclosure

    • Management must evaluate the effectiveness of the disclosure controls
      and procedures as of the end of each fiscal quarter
    • Under the recent Siebel action, disclosure controls and procedures may
      include procedures for complying with Regulation FD




8
               Best Practices – A Review
    Earnings Conference Calls/Webcasts with Analysts

     • Before the Call/Webcast
       • Issue earnings press release including any information the company plans
         to discuss on the call/webcast either directly or in response to expected
         analyst questions
       • Notice of call/webcast should be a reasonable time period before the
         call/webcast – consider circumstances
       • If company wants to provide supplemental information to analysts it should
         be filed on Form 8-K

     • Call/Webcast
       • Include forward-looking statement safe-harbor
       • The call/webcast, if adequate notice was given and if the call is properly
         conducted, is an adequate means of publicity for items not mentioned in
         the pre-call/webcast press release – however, the company should also
         post transcript of call/webcast on its website, and if significant material,
         non-public information is discussed, consider filing transcript by Form 8-K




9
                 Best Practices – A Review
                          (cont’d)
      Earnings Conference Calls/Webcasts with Analysts


       • Company may, in the alternative, not respond to questions involving material,
         non-public information.
       • Do not discuss plans for securities offerings on earnings calls - Gun Jumping

     • Post-Call/Webcast
       • Consider need to file a Form 8-K, as discussed above
       • No individual telephone calls or follow-up requests from analysts where
         material, non-public information is shared




10
                     Best Practices – A Review
                               (cont’d)
              Potential Selective Disclosure Situations

     • Examples of practices precluded by Regulation FD unless (1) they will not
       involve disclosure of material, non-public information or (2) disclosure of
       the material information will be made to the public at least
       simultaneously or (3) the person receiving the information enters into a
       confidentiality agreement with the company:
          • Conference calls with selected groups of analysts or investors
          • Comments on the expected results of the quarter in progress or just ended
          • Giving comfort to analysts on projections
          • Conference calls that do not allow listeners to hear ongoing question and
            answer sessions
          • Industry conferences where projections or other non-public,
            material information are discussed
          • Private meetings, lunches or dinners with analysts




11
                    Best Practices – A Review
                              (cont’d)
             Potential Selective Disclosure Situations

     • Registered Offerings
       • Regulation FD does not apply to disclosure made in connection with
         a registered offering except certain registered shelf offerings
       • Underwritten Offering: Reg. FD does not apply from time the Issuer
         and underwriter agree to conduct the offering until the end of the
         delivery of the prospectus period
       • Business Combination: Reg. FD does not apply from the time the
         transaction is first publicly announced until completion of the vote or
         expiration of the tender offer. EXCEPTION DOES NOT APPLY TO CASH
         TRANSACTIONS.
       • The disclosure must involve the offering or combination, and not, for
         example, be part of the quarterly earnings call.




12
                 Best Practices – A Review
                           (cont’d)
          Potential Selective Disclosure Situations


     • Unregistered Offerings/PIPEs Transactions; Rule 144A Offerings
        • Not exempt from Regulation FD
        • Accidental release of non-public, material information may result in a general
          solicitation
        • Solution: obtain confidentiality agreements from recipients of non-public,
          material information

     • Cash Business Combinations – Not exempt from Regulation FD
     • Disclosure of Discussions of Potential Business Combinations
           – Disclosure required where other party owns securities of the Issuer and does not have a
             confidentiality agreement with the Issuer
     • Disclosure of Voting Agreement or Lock-up Agreement with a Company
       stockholder
           – Disclosure required where other party owns securities of the Issuer and does not have a
             confidentiality agreement with the Issuer



13
                  Best Practices – A Review
                            (cont’d)
           Potential Selective Disclosure Situations

     • Expand corporate disclosure in periodic reports to include information
       that may be discussed in private conversations with analysts and
       investors
     • Adopt a written policy regarding corporate communication with
       analysts, institutional investors and stockholders
     • Limit the people within the company who may speak to analysts and
       investors – senior management members who are aware of what has
       and has not been publicly stated - train these people on Regulation FD
     • Closely monitor/limit one-on-one conferences with analysts and
       industry conferences
        • Create agenda or script to avoid disclosure of non-public, material information
        • Follow the agenda or script

     • Company counsel should review scripts for quarterly conference calls,
       investor conferences and day-to-day investor communications


14
                   Best Practices – A Review
                             (cont’d)
            Potential Selective Disclosure Situations

     • Monitor for Unintentional Disclosures and Be Prepared to
       Respond: Keep tabs on the flow of company information to the
       marketplace so a corrective release may be issued for
       unintentional disclosures – look for sudden, unexplainable
       movements in stock price or increases in trading volume




15
          Thank you.


  Regulation FD in light of New
Disclosure Control and Procedure
              Rules

         September_2004

				
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