Disclosure Requirements
The California Act also requires a “publicly traded company”—one with securities traded on a national or foreign stock exchange or as to which two-way (bid and asked) prices are regularly published in the National Daily Quotation Service or similar service—to include in its annual information statement the following new information (Corp C §1502):
The identity of its independent auditors and a description of any non-audit services performed by the auditors within the previous 24 months;
The date of the most recent audit report by the corporation’s independent auditors, along with a copy of the audit report (but not the audited financial statements themselves):
The “annual compensation” paid to each director and the top five executive officers of the corporation, including the number of shares or options that “were not available to other employees”;
The amount and terms of any loans at a “preferential loan rate” made by the corporation to any director or executive officer during the previous 24 months; and
Whether, during the past 10 years, the corporation or any of its directors or executive officers:
Filed for bankruptcy;
Was convicted of fraud; or
Was found liable for more than $10,000 for violations of any federal security laws or any security or banking provision of California law.
The requirements of the California Act, which can be found in Corp C §§1502, 1502.5, and 2117, present a number of concerns for public companies incorporated or doing business in California, because the authors of the Act made no attempt to coordinate its requirements with current SEC reporting requirements. For example, the information statement under the California Act is to be filed each year during the month in which the public company was incorporated or first qualified to do business in California. Because this is unlikely to coincide with the due date of the company’s quarterly report on Form 10-Q or annual report on Form 10-K, the company may have to file with the SEC a current report on Form 8-K concurrently with the filing of the annual information statement setting forth any “material” information from the information statement.
Also, the specific information called for in the annual information statement does not necessarily correspond to similar information called for by SEC rules and regulations, so public companies will have to determine to what extent they must modify their SEC disclosures to make them suitable to include in their annual information statements. It has been suggested by some commentators that public companies may want to form California subsidiaries to conduct their business in California in order to avoid the requirements of the California Act.
The Sarbanes-Oxley Act of 2002 and its Aftermath*
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