United States: Nasdaq Requires Disclosure Of Third-Party Payments To Directors

Issuers listed on Nasdaq on or after August 1, 2016 must publicly disclose the material terms of all agreements and arrangements involving third-party compensation or other payments received by any director or director nominee in connection with his or her service as a director or director candidacy, respectively (commonly referred to as "golden leash" arrangements). This disclosure is required by new Nasdaq Listing Rule 5250(b)(3), which can be found 1

Disclosure of golden leash arrangements must be made either on or through an issuer's website or in the issuer's definitive proxy or information statement for a shareholders' meeting where directors are elected (or in its Form 10-K or Form 20-F, if the issuer does not file proxy or information statements). An issuer's initial golden leash arrangement disclosure must be made by the filing date of the definitive proxy or information statement for the issuer's next shareholders' meeting where directors are elected (or by the filing date of the issuer's next Form 10-K or Form 20-F, if it does not file proxy or information statements). Once disclosed, information regarding a golden leash arrangement must continue to be disclosed annually until the earlier of (1) the resignation of the director party to such arrangement or (2) one year following the termination of the arrangement.

The NYSE has yet to propose a similar disclosure requirement. As a result, disclosure of third-party director compensation arrangements will differ based on which exchange an issuer is listed, unless NYSE-listed issuers decide to voluntarily make disclosures similar to those required by the new Nasdaq rule.

Despite acknowledging concerns raised by some opponents of the rule that existing SEC rules may, in some circumstances, apply to third-party director payments,2 Nasdaq believes that the nature, scope and timing of the SEC's disclosure requirements may not always mirror the new Nasdaq disclosure requirements. The SEC also acknowledged the potential overlap, but still approved the rule.

Nasdaq-listed issuers should familiarize themselves with, and prepare for, the new disclosure requirements. Due to the potential overlap with existing SEC disclosure rules, Nasdaq-listed issuers may not face significant additional disclosures, depending on the facts and circumstances surrounding their director's and nominee's third-party compensation arrangements and agreements. Moreover, as an issuer's existing D&O questionnaire (and advance notice bylaw, if an issuer has adopted such a bylaw) likely captures much of the required information, issuers may not have to undertake significant efforts to collect the required information.

The remainder of this client alert summarizes the new Nasdaq disclosure rule and offers practical considerations for Nasdaq-listed issuers to consider in light of the new rule.

"Golden Leash" Disclosure Rule

All Nasdaq-listed issuers are subject to the rule, except foreign private issuers under certain circumstances. Unlike other Nasdaq rules that exempt certain issuers, such as controlled companies and partnerships (for example, MLPs), the new rule applies to all Nasdaq-listed issuers. However, a foreign private issuer may follow home country practice instead of the rule's requirements by utilizing the process described in Nasdaq Listing Rule 5615(a)(3).

"Compensation" and "other payments" are to be broadly construed. The terms are not limited to only cash payments, but also apply to arrangements that provide for non-cash compensation and other payment obligations, such as health insurance premiums or indemnification.

Certain arrangements are exempt from disclosure. An issuer is not required to disclose arrangements:

  • relating only to the reimbursement of expenses incurred in running for director, whether or not the reimbursement arrangement has been publicly disclosed;
  • existing before the nominee's candidacy (including as an employee of the third party) where the nominee's relationship with the third party has been publicly disclosed in an annual report or proxy or information statement (for example, in a director's or nominee's biography), provided that a material increase in the amount of a director's or a nominee's remuneration must be disclosed if it specifically relates to his or her candidacy for, or service as, director; or
  • disclosed in the current fiscal year under Item 5(b) of Schedule 14A or Item 5.02(d)(2) of Form 8-K (although the issuer must make annual disclosure of such arrangements under the rule in future years).

Issuers with proxy access bylaws should note that because the rule does not exempt disclosures made on Schedule 14N, any golden leash disclosure included in a Schedule 14N filed by a nominating shareholder must also be disclosed by the issuer in accordance with the rule.

Real-time disclosure of new arrangements not required. Issuers do not need to disclose new arrangements as they are entered into, provided that such information is included in the issuer's next annual disclosure made pursuant to the rule.

Website disclosure must be continuously accessible. An issuer electing to make the disclosure available on its website or through it by hyperlinking to another website must ensure that the disclosure is continuously accessible. An issuer must promptly restore an inaccessible website or inoperable hyperlink containing the disclosure or make other disclosure in accordance with the rule.

Safe harbor for failure to disclose arrangements. An issuer that fails to provide timely disclosure of a golden leash arrangement will not be considered deficient in its disclosure requirements, if:

  • it has undertaken reasonable efforts to identify all arrangements required to be disclosed under the rule, including by asking each director or nominee in a manner designed to allow timely disclosure (for example, D&O questionnaires); and
  • upon discovery of the failure to disclose such arrangement, it promptly makes the required disclosure in a Form 8-K or 6-K, where required by SEC rules, or in a press release.

Remedial disclosure in a Form 8-K, Form 6-K or press release, regardless of its timing, does not satisfy the rule's ongoing annual disclosure requirements.

An issuer that is deficient in its disclosure requirements must submit to Nasdaq, within 45 days, a plan to regain compliance that satisfies the Nasdaq staff that the issuer has adopted processes and procedures to identify and disclose the required arrangements in the future. Failure to submit such a plan or to assure the Nasdaq staff of future compliance will result in a delisting determination, which determination may be appealed.

Practical Considerations

In response to the new rule, Nasdaq-listed issuers should consider the following:

Review D&O questionnaires. Issuers should review their D&O questionnaires and update them as necessary to ensure that all of the information required by the rule is captured and that the issuer can rely on the rule's safe harbor, in the event of an inadvertent failure to disclose a required arrangement.

Consider where to disclose. As a portion of the disclosure required by the rule is already required by SEC disclosure requirements, it may be easier for an issuer to satisfy the rule by supplementing existing disclosure in its proxy or information statement (or Form 10-K, if the issuer does not file proxy or information statements), rather than providing the required disclosure on or through its website.

Footnotes

1 In addition to adopting this rule, Nasdaq has indicated that it is surveying interested parties about whether to propose additional requirements surrounding directors and director nominees that receive third-party payments, including whether such directors and director nominees should be prohibited from being considered independent under Nasdaq rules or prohibited from serving on the board altogether. Nasdaq has not made any decision about whether to propose such additional requirements, but if it does, any proposal would be part of a separate rule filing.

2 For example, Items 401(a) and 402(k) of Regulation S-K, Item 5.02(d) of Form 8-K and Item 5(b) of Schedule 14A.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
 
In association with
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement

Mondaq.com (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of www.mondaq.com

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about Mondaq.com’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.

Disclaimer

Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.

Registration

Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to unsubscribe@mondaq.com with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.

Cookies

A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.

Links

This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.

Mail-A-Friend

If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.

Security

This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to webmaster@mondaq.com.

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to EditorialAdvisor@mondaq.com.

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at enquiries@mondaq.com.

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at problems@mondaq.com and we will use commercially reasonable efforts to determine and correct the problem promptly.